NAR Lawsuit – Background to Now
NAR’s role
The National Association of REALTORS® (NAR) is the largest trade association in the U.S. Membership is composed of residential and commercial brokers, salespeople, property managers, appraisers, counselors, and others engaged in the real estate industry. Members belong to one or more of approximately 1,200 local associations/boards and 54 state and territory associations of REALTORS®. NAR creates policy, rules, and procedures related to membership, multiple listing services, and professional standards.
According to www.nar.com, The National Association of REALTORS® is a leading force in organized real estate, dedicated to its members’ success. NAR offers you the chance to build your expertise and position yourself as an ethical professional your clients and community can rely on.
To the public, NAR’s goal is “Empowering REALTORS® to preserve, protect and advance the right to real property for all.”
The Consumer Federation of America has been working for many years to impose new standards on REALTORS®.
Fall out from Antitrust – Price Fixing Lawsuits
Beginning in 2019, numerous lawsuits were filed against NAR and major real estate brands accusing antitrust laws violations and price fixing.
Previous system: In the traditional cooperative compensation model, listing agents and buyer agents shared commissions, with sellers typically paying both agents’ fees. The MLS served as a tool for LA’s and BA’s to share listings and offers of compensation in one place. Access to the MLS is only available to REALTORS. Some MLS data is fed into various other sites like Zillow, Realtor.com, and Homes.com, as well as IDX feeds on agent websites..
How did the previous system practically work? When a LA who is a member of the MLS listed with a Seller, the LA would negotiate with a Seller a total fee to be charged to the Seller as a commission on that transaction. The LA would then itemize how much of that total was to be shared with a BA. That amount to be shared with a BA was then listed in the MLS as “a unilateral offer of compensation” to MLS BA’s. LA’s provided counsel and expertise to the Seller and BA’s brought counsel and expertise to the Buyer throughout the process. Both were compensated for their services under this method but the fee (once set) did not vary from BA to BA (e.g, it was unilateral). Technically, the offer of compensation could have been zero or nominal compensation but that would not create an incentive to bring a Buyer.
Additionally, to participate in the MLS, all agents were required to list every property in the MLS within so many hours of entering into a listing agreement. Essentially, this created a system where the entire market had to follow these MLS rules.
In Texas, many real estate firms would require a buyer and BA to enter into a Buyer Representation Agreement. The Texas Association of Realtors® form essentially committed the Buyer to pay a commission to the BA; however, the Agreement stated that the BA would attempt to get the commission paid by the Seller. And, since most LA’s were offering compensation to the BA through the MLS System, Buyers never paid for their BA.
Buyer Representation Agreements were not required, though, so many Buyers were oblivious to the payment structure as it was assumed that the Seller was just paying the commission. Technically, though, it has always been the LA who shared the commission with the BA.
In their attempt to break up the current system, The Consumer Federation of America (CFA) coined the terms, “coupled
” and “decoupled” commissions. They claimed claimed coupled commissions were essentially “price fixing” as agents and brokers were able to charge high, fixed rates with the buyer having no control over negotiating their own commission based on experience of the agent, services needed, etc. The theory was that Buyer’s and competitive forces could influence the commission structure which would then impact the overall cost of the home a buyer was purchasing.
According to the DOJ, “Preventing sellers and listing agents from setting buyer-broker commissions would promote greater price competition and innovation in the market for brokers’ services.”
“It is critically important that buyers negotiate buyer agent commissions before their agents search for properties.” Stephen Brobeck of the Consumer Federation of America
On October 2023, a jury decision in the Sitzer lawsuit found the industry guilty of price-fixing and awarded damages that could exceed $5 billion.
During that time, several large real estate firms pulled out of NAR (Redfin, Remax, Anywhere). There is some question about how well NAR actually represented REALTORS in their handling of the lawsuits as well as competition coming from entities such as Zillow. A new trade association, the American Real Estate Association formed and is advocating for a national MLS.
On February 15, 2024, the DOJ Intervened in a different lawsuit, Nosalek v. MLS PIN – calling the proposal neither fair, reasonable, or adequate. “It makes insignificant and largely cosmetic changes to the [MLS] Rule, while perpetuating the existing structure that drives supra-competitive commissions. There is no reason to believe that the settlement will reduce broker commissions for the class.”
An appeals court decision in April 2024 expanded the DOJ’s ability to investigate the National Association of Realtors®, potentially leading to further scrutiny of commission practices.
While NAR leaders and lawyers felt there was sufficient grounds for an appeal, following that path would have put members at substantial risk for additional lawsuits, costs, potential liability, and uncertainty. After weighing the options, NAR began working on a settlement.
NAR announced a Settlement Agreement on March 15, 2024, which the court granted preliminary approval in April. Most copycat suits have been paused while the settlement agreement is finalized. The court will hold a hearing regarding the final approval of the settlement this year (2024).
The NAR Settlement Agreement releases liability and ends the lawsuit – and copycat lawsuits with these types of claims – for NAR, 1 million plus members, state/local REALTOR® associations, brokerages with volume of $2billion or less, and REALTOR® association owned MLSs. The settlement is for $418 million over 4 years.
Settlement Terms:
No offers for compensation in the MLS or any MLS supported entity. (New)
Require disclosures to sellers and buyers that compensation is not set by law and is fully negotiable. (Partially New)
Disclose to the Seller the LA’s offer of compensation. (Not new)
Requires Buyer Representation Agreement before showing any property (New)
Must disclose the amount of compensation as objectively ascertainable and not be open ended. (Not new – but now clearer on WHO pays and HOW).
BA can NOT receive more than what Buyer and BA agree upon (New)
Essentially what this does is “decouple” commissions per CFA/DOJ’s proposal: The DOJ suggests “decoupling” commissions, where buyers would negotiate and pay their own agent’s fees directly, rather than relying on sellers to cover both agents’ commissions.
The DOJ believes this change would promote greater price competition and innovation in the market for brokers’ services, potentially leading to better deals and more creative services for buyers (e.g., greater variation of agent compensation depending on factors such as agent experience and time spent on the sale).
“It is critically important that buyers negotiate buyer agent commissions before their agents search for properties,” said CFA’s Brobeck. “Otherwise, buyer agents could steer buyers to properties with the highest dollar concessions and potential agent compensation,” he added.
REALTORS® are held to a higher standard of loyalty, care, and fiduciary (acting with the client’s interests above their own) and therefore deny that they were steering buyers to properties based on compensation.
NAR and REALTORS® are now “under the gun” to make changes that will satisfy both the DOJ and CFA in order to insure the acceptance of the Settlement which would limit damages to be paid under all of the cases. New Rules go into effect August 17, 2024.
Meanwhile, the CFA is issuing a lot of rulings and guidance on what is going to be acceptable which reflects the power they have over these cases.
DOJ and CFA statements:
The DOJ proposes that sellers could provide dollar concessions to be used for buyer agent commissions (and other buyer costs), rather than requiring buyers to pay additional cash out of pocket.
“CFA does not oppose monetary assistance from sellers to buyers, only broker manipulation of this assistance to ensure current levels of broker compensation that are strongly influenced by broker collusion,” said CFA’s Brobeck.
CFA criteria also addressed broker compensation when buyers are unrepresented customers. The criteria include a requirement that listing agents show properties to all prospective customers, including those without an agent. They also accept that agents can request a reasonable fee from these buyers to cover any additional administrative expenses and, if buyers balk at paying this fee, can request the fee be paid by their seller clients. They encourage fees, as well as commissions be expressed in dollars vs. a percentage of the sale price.
