Bringing Buyer Agents Back To The Table

A String Of Lawsuits And Settlements

In November 2020, the DOJ simultaneously filed a lawsuit and proposed a settlement against the NAR.   

The complaint detailed how NAR policies were followed by locally affiliated Realtor associations, how local Multiple Listing Services (MLS) were operated, and the policies and procedures by which local Realtors listed available homes for sale. 

It is important to clarify that the real estate agents included in the allegation were only those licensed real estate agents who are also members of the National Association of REALTORS, thus authorized to use the title, “Realtor.”

The DOJ alleged that the NAR policies for Realtors and their MLS operations established and enforced illegal restraints on the way Realtors compete. Mainly, the complaint details allegations that the NAR’s rules, policies, and practices were anti-competitive, preventing prospective homebuyers from learning how much their buyer agent could earn from the home purchase. The DOJ also said that commission-concealment rules permitted some buyer agents to imply their services could be free.

 Given that the MLS system could allow the buyer agent to filter MLS listings by the amount of buyer agent broker commission, the DOJ also worried that agents might only show or prioritize those listings where they might make more money. This would amount to the real estate agent version of steering—where consumers would only view homes where the agent makes more money. 

A DOJ review of policies that limited listing access to only agents who work with the local NAR-affiliated MLS was found and alleged to be in violation of the Sherman Antitrust Act. 

At the same time the suit was filed, the DOJ and the NAR appeared to settle the case with a proposed consent decree in which the NAR agreed to modify rules to correct the alleged conduct, specifically by removing the ability to filter available listings by compensation offered. However, the DOJ reserved the right to review and approve the updated NAR rules and required the NAR to institute new internal policies, including the hiring of an Antitrust Compliance Officer.

Subsequently, the DOJ went to court and withdrew this initial settlement in July 2021. Though the NAR challenged this action, and initially won in January 2023, the DOJ appealed the lower court’s decision and an appeals court ruled in favor of the DOJ in April 2024.

Meanwhile, a class-action lawsuit (Burnett v. National Association of Realtors) was filed in Missouri in 2019 against the NAR and several large real estate brokerages. That lawsuit focused on NAR compensation policies that essentially dictated that home sellers must pay the commissions for both their listing Realtor and the buyer’s Realtor. 

Plaintiffs alleged that this was, in a sense, conspiring to pay inflated commissions. However, the suit went beyond the DOJ’s allegations to also allege that the NAR rules require Realtors to list homes on the MLS to be able to sell a home, in violation of antitrust laws

More cases followed in South Carolina, Texas, Georgia, Florida, Illinois, Pennsylvania, California, and New York. These cases followed similar plaintiff arguments against anticompetitive practices with a few settlements having been reached, which included some changes to local industry practices after findings that agent practices of cooperative commission were, in fact, anti-competitive. In mid-April, a proposed settlement of $418 million in the NAR case was announced.

This proposed settlement for NAR and its Realtor members is what most industry watchers refer to as THE settlement, including numerous NAR member brokerages with transaction volume of $2 billion or less in 2022. Though denying any wrongdoing, the NAR agreed to pay $418 million over four years to settle the Burnett class-action. The proposed NAR Settlement received preliminary court approval on April 24, 2024, with the final approval hearing scheduled to take place on November 26, 2024. 

However, this case does not release all real estate agents or all real estate brokerage companies from legal liability, which may allow some cases to continue and others to be filed. Also, the DOJ wild card has yet to be played.

What Changes—And What Doesn’t

Though not all of the outstanding real estate agent commission and MLS-listing lawsuits have been finalized, some relevant changes are already being made by the NAR, member brokerages, and Realtors in order to comply with the Burnett settlement and DOJ findings.

First and foremost, cooperative commission or the sharing of the commission paid by the seller from the proceeds of the sales price is not banned. A common myth is that the NAR settlement means sellers will no longer pay for the buyer’s agents. 

In fact, this practice can continue if the seller agrees that their selling agent may consider compensation to a buyer’s agent. Notably, no offer to a buyer’s agent can be communicated anywhere within the home listing on the MLS. The NAR and Mortgage Bankers Association (MBA) websites both highlight the removal of cooperative compensation offers from the MLS listing as a major modification. The DOJ just affirmed this position, in late May stating that offers of agent compensation should not be made anywhere, but certainly not on the MLS.

Another change is that buyer agents will need to enter into an agreement with the potential homebuyer prior to showing them any homes. This agreement must clearly disclose the amount of compensation the buyer’s agent will receive or detail how the amount of compensation will be determined and paid. This will be new for buyers and buyer agents and your customers should not be caught ill-prepared.

Selling agents must also clearly disclose to sellers, and obtain their seller’s approval for, any payment or offer of payment that could be made to another agent, broker, or representative acting for a buyer. The settlement does not prevent a seller from agreeing to pay a sales concession to pay a buyer’s closing costs, though recent comments by the DOJ raise a question how those might be communicated and if the concession payment can include the cost of the buyer’s agent.

To comply with the proposed settlement, the NAR has instituted both system and policy changes for Realtors and local MLS members to comply with, adopting practices that align with the proposed settlement. To be seen is how agents, real estate companies, local NAR associations, and the MLS can implement and complete these changes by the NAR-imposed deadline of August 17, 2024.

Despite everything you read and hear, these settlements are not final, and more twists may come from the DOJ. The NAR proposed settlement does seek a compressed implementation timeline for updating decades-old policies and deeply ingrained industry practices. Those efforts will also likely provide some local fireworks when local MSA and Realtor associations update their systems, bylaws, and implement training for their local real estate agents.

What Mortgage Originators Need To Know

First, the final approval hearing for the NAR Settlement is not scheduled until November 26, 2024. This is a long period of time for the DOJ to file comments, monitor compliance, and request further modifications.

The hearing could be anti-climactic, when compared to the twists and turns in the journey to the proposed settlement in the first place. However, the DOJ is still reviewing industry practices and has recently commented that they neither support nor oppose the proposed NAR Settlement, and may provide comment on other lawsuits. Considering they already settled once and then appealed and introduced more allegations, there may be a wild card yet to play.

Second, your past customers will not be receiving a windfall to spend over the holidays or on a second home. Like the paltry payouts of many class-action lawsuits, consumers who sold a home during the covered period may be entitled to a payout that has been initially estimated at just $10-$20.

Also, be prepared to educate your buyers on the new reality of buyer agent compensation. Plan for the hard conversation to both inform and prepare your buyers on the cost of their real estate agent before looking for homes. These will not be the easiest of discussions and originators need to stay aware of the latest developments and prepare for how to best train customers from the beginning.

Lastly, there will be sellers who agreed to pay and sellers to outright refuse to pay buyer agents. In either case, counsel your buyers and help them prepare for all possible scenarios, negotiations, and account for contingencies where they may be responsible for paying their agent at closing. And, of course, as you watch the headlines for more twists, turns, and fireworks, beware the misinformation.