Let’s start at the tippy top of the issues coming at the National Association of Realtors which sets the standards for all real estate agents in one way or another, not just members of NAR.
The Department of Justice and NAR are fighting over are these two rules:
- The Participation Rule, which requires listing brokers to offer a blanket, unilateral offer of compensation to buyer brokers in order to submit a listing into a Realtor-affiliated multiple listing service.
- The Clear Cooperation Policy, which requires listing brokers to submit a listing to their Realtor-affiliated MLS within one business day of marketing a property to the public.
NAR and DOJ had agreed to a settlement back in November 2020 but the DOJ withdrew from that in July of 2021. It is unclear why they changed their mind but it is ominous that they want to continue to investigate NAR. These two rules are a target on NAR’s back.
The Stitzer/Burnett trial is a class-action antitrust lawsuit against the NAR and has begun as of 10/17/2023. The plaintiffs in the case allege that NAR’s Participation Rule, which requires listing brokers to offer compensation to buyer brokers, is anticompetitive and violates antitrust laws.
The Moehrl lawsuit is a class-action antitrust lawsuit against the National Association of REALTORS® (NAR). The plaintiffs in the case allege that NAR’s Buyer Broker Commission Rule, which requires listing brokers to offer compensation to buyer brokers, is anticompetitive and violates antitrust laws.
The Moehrl lawsuit is focused on the Buyer Broker Commission Rule, while the Sitzer/Burnett trial is focused on NAR’s Participation Rule. These are the two issues that the DOJ is investigating.
What are the possible outcomes?
What I find to be the biggest unknown is the public’s, therefore the jury’s, understanding of how real estate works. This is really the fault of our industry which I won’t get into here.
Ironically, the plaintiff’s lawyer talked about how agents charge essentially the same while ignoring that most lawyers take the same percentage on class action lawsuits.
What I feel is more on trial than our cooperation with other brokers is the fact that we charge a percentage. Reading the comments about this trial, it’s all about that it’s too much, not that it might be unfair. Will the jury separate those things?
Surprisingly, one of the plaintiffs is the daughter of a long-time Realtor. Her complaint is that she didn’t have as much equity as she wanted. She said she is also fighting for her Mom who “probably could have negotiated a different rate.” I’m assuming her Mom has passed since she spoke in the past tense. If not, I would like her Mom to speak up.
I’m not Nostradamas but I did stay at a Holiday Inn. Here is what I see at the moment:
Outcome 1
NAR wins and not much changes. NAR has already dropped mandatory buyer’s commissions. It was already only a penny but now they have made it $0. They will likely tweak a few other things.
Outcome 2
NAR loses and not much changes. There are some mandatory trainings, special announcements and new lines to our forms to make sure our clients understand how, why and who pays. It’s business as ususal.
Outcome 3
Agents, associations and MLS’s worry about future anti-trust issues and stop offering commissions to buyer agents. Buyer agents have to get their buyers to pay a fee and that is not normal or likely. Buyer broker ageements come into play more consistently.
Outcome 4
Keefe, Bruyette & Woods told investors that it is very likely that cooperative compensation will be banned in the near future. They put the odds at 50% for the Stitzer/Burnett trial and 75% for the Moehrl trail. “We believe disruption to the industry’s commission structure is all but guaranteed,” KBW analysts wrote.
Today it was announce that the Real Estate Board of New York has added a provision to prohibit listing brokers from paying buyer’s agents. Instead, sellers have to pay the buyer’s agents directly. NY is just a little different than the rest of the country, and the REBNY is not part of NAR so it doesn’t directly affect agents outside of that group. It does set a precedent.
This is the industry-changing outcome where commissions get divorced between agents. One framing of the issue is that when the listing agent pays a buyer’s agent, it’s a kickback. Lenders have already said that they aren’t going to save buyer’s agents by making commissions work in the process. Some have speculated that mortgage lenders might try to take on the role of a real estate agent.
If this is the path we go down, there are estimates of losing 70% of licensed agents as the real estate world will be turned upside down. Even the Wall Street Journal called NAR a “cartel.”
This outcome should scare Zillow and other portals. They are selling ads to primarily buyer’s agents. If those agents go away, many of those portals die I would think.
What should you do?
The only person not affected in any of this is the listing agent. People are not going to all of a sudden go to Zillow or FSBO.com. The majority of the public understands our value and the dangers of doing it on their own.
Listing agents exist in basically any place they sell real estate. Buyer’s agents do not. Become a better listing agent.
What if you like buyers? Your ability to show your value will be important. In most of these outcomes, you will need to start using a buyer broker agreement if you aren’t already. Buyer’s agents might become like travel agents. You only call them when you really are unsure about the process.
Much wil be illuminated when the ruling comes out in mid-November. And then we move forward.
We got into real estate because we are hopeful people. Keep the hope and be adaptable. There is no success without the ability to adapt.
Final thoughts
Barring a legal decision or rules change, we have a culture of listing and buying agents in the U.S. People still think you need 20% down and that hasn’t been a thing for decades. My Mom still doesn’t know how to send an email.
People don’t change quickly. When Zillow first landed, agents were scared everyone was going to go FSBO. It didn’t happen. Most people still find their agent through personal referral or sphere.
Real estate has been resistant to change for a very long time, for good or bad, but we need to be ready for anything. Don’t put your head in the sand. Stay up on the changes and adjust as necessary.
