NAR lawsuit update as of Nov 13, 2023
UPDATE ON NAR LAWSUIT
Well, it’s been almost two weeks since NAR (and others) lost that big lawsuit. I’ve taken in a bunch of podcasts from industry experts, read the NAR responses, read industry news sites/blogs and attended the an online town hall hosted by some legal experts on this topic. This is a very fluid situation but here are some of the updates I’ve heard: [Disclaimer: Of course I’m not an attorney and some of the below is my opinion or that of some podcaster I listened to and I haven’t verified any of the below.]
MORE SUITS
Immediately after the verdict came back, other lawsuits followed against other firms in the same Missouri court and then also in South Carolina. Expect more to follow as the plaintiff’s attorneys are smelling “blood in the water” and this will likely spread to other brokerages and other states. I’ve heard several comments that the brokerages that settled will be protected from future lawsuits, but I think that only protects them from future lawsuits in Missouri. And their settlement still needs to be approved, so even that is still up in the air.
DO WE NEED TO MAKE ANY CHANGES RIGHT NOW?
It doesn’t appear that we are required to make any changes as of this moment. If the DOJ steps in and files an injunction that has immediate effect nationwide, then we may be scrambling to adjust to whatever new requirements they dictate. But the odds are that even if they come down with an injunction, they will give us a “ramp up” period to change our forms, MLS rules/fields, etc. Otherwise, there will be too much disruption to the real estate transaction. CAR is reiterating it’s advice that we continue to advise our clients (sellers AND buyers) that commissions are negotiable and that we use buyer-rep forms with our buyers (more on this below). If you are wondering how a buyer can negotiate the buyer’s agent commission, that would be through a rebate back to the buyer.
DOES THIS HAVE ANYTHING TO DO WITH DUAL AGENCY?
None of the recent lawsuits (or the prior settlement with the DOJ that fell apart) have anything to do with dual agency specifically.
ARE SMALLER/INDEPENDENT BROKERAGES OR INDIVIDUAL AGENTS AT RISK?
So far they are going after the “big fish”--NAR and the largest brokerages. The brokerages in the current suit were some of the top 5 brokerages in the US. They have “deep pockets” which make it worth pursuing them. It takes a lot of time and resources to bring one of these cases. It’s easier to prove what the business practices were of the larger organizations when they have so many offices and agents following basically the same published rules. If they can prove a pattern with a sampling of clients, they can then apply that to a large class of thousands of clients. That’s where the big payday for the attorneys come in. It would be quite difficult to go after each small brokerage or individual agents as they would have to do a deep-dive into EACH brokerage's/agent’s business practices, dig up their past clients, depose them, etc. That’s why some of the experts don’t think that individual agents or the smaller or independent firms will get sued (this is NOT a guarantee, of course). By the time they work their way through NAR and the big brokerages in other states, the dollar amount of the fines will FAR exceed the assets of all these firms. There will likely need to be some national settlement that covers all parties before it gets down to suing individual agents or XYZ Brokerage who has a couple of agents who do a deal now and then.
HOW FAR BACK CAN THESE SUITS GO?
The most recent case was filed in federal court under federal anti-trust statutes, which have a four-year statute of limitations. So they can only look back at transactions four years from the day the suit is filed. If new suits are filed under some different statute, they may have a longer look-back period.
CHANGE IS IN THE AIR
Even if everything magically goes our way, and we win all the appeals and all the plaintiffs and their attorneys just give up and go home, we will likely see some big changes to our industry. We will still have listing agents and buyer’s agents. The vast majority of agents will still get paid on commission. Hopefully we will still have an MLS (once they figure out the CSO part). But the most likely change is in how buyer’s agents get paid. One of the biggest complaints the plaintiffs had was the mandatory offer of compensation in the MLS. They claimed that this was normally set by the listing agent without the fully-informed consent of the seller. One solution is to give the seller to option of whether to post an offer of compensation or not, or just offer $1 as compensation. [If you are scratching your head thinking, “Isn’t that how it already is?”, that’s because we already have this in California, but other states don’t. Read my California-specific comment below.] Then the buyer negotiates separately with their buyer’s agent for their commission. If the buyer doesn’t have the cash available to pay their buyer’s agent, they may ask the seller to pay it (after increasing the price of the home by that much) so they can finance it in their loan.
I THINK THIS WILL BE GOOD FOR THE INDUSTRY LONG-TERM
This means that buyer’s agents will need to start justifying their value to the buyer more than they currently do. Just like how a seller interviews potential listing agents who each give their listing presentation, then the seller negotiates the commission with the agent they like the best and sign a listing agreement. We will have the same process with buyers. Gone will be the days where the buyer just latches on to anyone with a license to write up their offer. Buyers were OK with this before because they didn’t SEE their dollars going to the buyer’s agent. This was the crux of the lawsuit and why we can’t say that the buyer’s agent works “for free” anymore. Once they see it in writing and/or are actually writing a CHECK out to the buyer’s agent, it will be a different story. For those of you who already have excellent professional skills and know your market so that you are an excellent resource and negotiator for your buyer clients, this will be a HUGE edge to you! [We all need to start working on our “Buyer Listing Presentation” to explain and justify our value to the buyer.] And when you are on the listing side, you will negotiate with the seller for what YOU will do, and it won’t feel like you are arguing for the buyer’s agent’s commission any longer or being judged on what the TOTAL commission is.
WILL LENDERS ALLOW BUYERS TO FINANCE THE BUYER’S AGENT COMMISSION?
This is one of the hurdles to overcome. The biggest issue will be the appraisal value. Can we really say with a straight face that the home is “worth” $X if the seller is paying the buyer’s agent commission but it’s “worth” $X minus the commission if the buyer is paying the buyer’s agent commission out of their own pocket? How will this impact the appraisal contingency of the contract? What if they send the appraiser out with the understanding that the buyer is paying the buyer’s agent’s commission out of their own pocket and they appraise the home at the agreed-upon purchase price of $X, but then the parties re-negotiate the deal to where they are bumping up the price to fit in the commission? Will the appraiser be asked to adjust the value UP in that case?
WHAT ABOUT VA/FHA BUYERS?
As it stands now, VA does NOT allow a buyer to pay any real estate agent commission fees and the total amount of credit cannot exceed 4%. FHA doesn’t have a prohibition directly against this practice, but they do cap the total amount of credits to the buyer at 6%. So that means these lenders will need to change their policies or the VA/FHA buyers will REALLY get penalized.
WILL NAR GO BANKRUPT AND/OR RAISE FEES TO AGENTS?
They say they have no plans for either of these. I think both of these are on the table. NAR did a very poor job preparing for this case and defending their position. It's apparent they didn't really have a plan in case they lost in court. The head of NAR just quit over some other sexual harassment issues and we have an interim CEO in place right now. NAR is going around right now to various MLS systems effectively saying, "Um, do you have any ideas?" Higher fees are VERY likely if NAR winds up paying some huge fines down the road. Bankruptcy would be possible if the fines exceed the value of NAR. The current judgement found each of the parties equally and severally liable. This means that each party is responsible for the FULL amount of the damages. It’s not split equally amongst them. (This is why they go after the “deep pockets.”) On top of that, some big brokerages have already agreed to officially distance themselves from NAR (meaning they will drop their membership) as part of their settlement agreement and others may follow suit. So we may see NAR membership numbers plummet. It’s basic math—expenses up and revenue down means they will need to cut other expenses (look for layoffs) and try to raise more revenue through either higher membership dues or a one-time assessment on all Realtors to deal with this massive event.
