NAR Litigation Full Length Summary
Last updated: 11/2/23
What happened?
For those of you who have not been following the lawsuit news, a ruling came down in Sitzer/Burnett v. NAR, et al. on October 31st, 2023, after merely two hours of jury deliberation. The jury determined that NAR, Keller Williams, and HomeServices of America were guilty of colluding over commissions and ordered the defendants to pay $1.78 billion in damages, which can potentially be tripled by the judge to just under $5.4 billion. The core of the lawsuit was over NAR’s rule that all listings on REALTOR® operated MLSs communicate an offer of compensation to the buyer’s agent. The class action argument against NAR was that the cooperative compensation rule created a conspiracy to keep commission rates higher than the market would otherwise have created. Essentially, the plaintiffs argued that NAR and the various MLSs worked together to ensure payment of Buyer Agents happened, thereby inflating the amount of total commissions paid by sellers. The trial was in the United States District Court for the Western District of Missouri and the outcome applies to all home sellers who listed homes on a number of MLSs present in the Missouri and Kansas region since 2015. At present the holding of this lawsuit is only applicable in the Western District of Missouri and does not create legal precedent in other regions, at most, other regions can simply see the ruling in Western Missouri as a persuasive argument. The various defendants have stated plans to appeal the ruling as well as the damages figure.
What are the next steps?
NAR and the other defendants must post an Appeal Bond to bring the lawsuit one layer higher, to the 8th Circuit Court of Appeals. If the Court takes up the case, the result could be reversed, modified, or affirmed. The result of the appeal at the 8th Circuit can then be appealed to the Supreme Court of the United States; a process which can take years. In the meantime, REALTOR®-owned MLSs should ensure that they are following the NAR guidance that $0 offers of compensation are compliant with the cooperative compensation rule. Firms, Brokers and Principal Brokers should continue to use written representation agreements with clients–whether buyer or seller–and be transparent with clients about how commissions and MLS marketplaces work. The concern of copycat lawsuits is real, and regions like California are already beginning to see similar class action lawsuits being initiated. While broker compensation issues within the past six years will remain a potential flashpoints for liability, following industry best-practices can insulate you or your organization from further exposure to lawsuits.
What does it mean for Oregon REALTORS®, local associations and MLSs?
Nothing in the October 31st ruling impacts membership in NAR, the Oregon Association of REALTORS® or your local REALTOR® association. What was being challenged in the lawsuit was the cooperative compensation rule. Experience has shown that REALTORS® participate in the MLS and offer compensation to buyer brokers even when not required to do so. Moreover, most MLSs in Oregon require REALTOR® membership to participate. Those REALTOR® membership rules were not challenged in this case and in previous cases where they were challenged, NAR prevailed. Finally, REALTOR® membership is about a lot more than the MLS. Being a member of a REALTOR® association means that you operate by a strict code of ethics, have access to tools like forms and the legal hotline, and that you are part of a community more than one million strong that funds advocacy for homeownership and private property rights and that protects our industry and clients in the halls of government, at the ballot box and in the courtroom. Without the REALTOR® associations your clients wouldn’t have the mortgage interest deduction, you would all be employees rather than independent contractors, and real estate would have been shut down during the COVID-19 pandemic. Real estate licensees are members of the REALTOR® association because it provides the tools and resources to make them and their clients successful.
What does it mean for your business?
The outcome of the lawsuit does not require any changes to your business beyond what are already considered industry best practices. However, if you have not been utilizing these practices, it is imperative that you do so.
At this point there is no injunction against the enforcement of NAR’s cooperative compensation rule and NAR made clear well before the case went to trial that “$0” was an acceptable offer of compensation. Even if NAR’s cooperative compensation rule were to be eliminated, it would not prevent listing brokers from offering cooperative compensation to buyers’ agents. NAR has never required any substantial amount to be offered as cooperative compensation. Cooperative compensation is offered because it is the best and most efficient way to bring buyers to the table and to ensure a comprehensive, transparent and equitable market of properties for sale.
There are business practices that Oregon REALTORS® has promoted for years that can help ensure that clients are aware of their options as consumers and that brokers are compensated for their services:
1. Use Buyer Representation Agreements: Use buyer representation agreements, which maximize transparency by putting all obligations, terms, and agreements of the Buyer and Agent in writing. The Agreement ensures clarity and understanding, as members are obligated to do under the NAR Code of Ethics. These agreements formalize the professional working relationship between an agent and client. They detail what services consumers are entitled to and what the buyer agent expects from their client in return. Both Oregon REALTORS® and Oregon Real Estate Forms (OREF) have buyer representation agreements. If your brokerage or local association needs training on how to use buyer broker agreements let us know! We are here for you and will provide whatever training you need.
2. Explain the process to your clients: It’s imperative for members to continue to express that commissions are negotiable and set between brokers and their clients; to explain how local MLS broker marketplaces promote equity, transparency and market-driven pricing for consumers; and to persistently communicate the incredible value agents who are REALTORS® provide.
3. Communicate your value as an agent. Use the tools available at competition.realtor and the list of resources on the Oregon REALTORS® website to describe the value you bring to the table as an agent. As a member of NAR and Oregon REALTORS®, you have unique access to certain products and trainings that are not available to a non-REALTOR®. Oregon REALTORS® Forms, Principal Broker Academy, Graduate REALTOR® Institute, Oregon REALTORS® Legal Hotline, the HOME Foundation, and specialized REALTOR® events and trainings. Everything that is a “member-benefit” is something that you can provide to your client. If you are not communicating these values, the client may not know how or why being a REALTOR® makes you valuable.