NAR Litigation

Summary

NAR, HomeServices of America (a Berkshire Hathaway Affiliate), and Keller Williams Realty, Inc. lost a federal class-action lawsuit in the western District of Missouri.  The lawsuit was brought by home sellers who claimed that NAR’s policy stating that REALTOR® owned MLSs must require seller’s agent to communicate a blanket unilateral offer of compensation to buyers’ brokers for properties listed in the MLS was a conspiracy to inflate commissions in violation of U.S. and Missouri Antitrust laws.

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A Message from the President

Resources

For litigation updates from NAR, more about how REALTORS® and local broker marketplaces benefit the consumer, how to communicate your value as a REALTOR®, and to learn more about Buyer/Broker Agreements, please review the following resources:

NEW RESOURCE! NAR’s Topline Key Messages

NEW RESOURCE! NAR’s Top FAQs

Litigation Updates & Competition and Opportunity in Real Estate

How Real Estate Compensation Works

How to Explain Real Estate Compensation to Clients (Video)

Real Estate Compensation Facts

The REALTOR® Difference: Helping you communicate your value as a REALTOR®

179 Ways Agents Who Are REALTORS® Are Worth Every Penny of Their Compensation

105 More Ways Agents Who Are REALTORS® Are Worth Every Penny of Their Compensation

Why Work with a REALTOR®

Protect Your Fee: The Ins & Outs of Buyer/Broker Agreements (Class)

(1 hour of CE at No Cost for Oregon REALTORS®)

Frequently Asked Questions

Our collection of FAQs will grow as we continue to ask questions submitted to us. Check back often for new questions and answers!

What Happened?Read More

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 precedence of law 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 for NAR?Read More

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.

Does the lawsuit affect Oregon?Read More

The lawsuit is at the district court level and therefore does not create binding legal precedent here in Oregon or anywhere beyond the Western District of Missouri.  Also, the lawsuit is an award for monetary damages but no injunction has been sought or issued—meaning that no changes in policy are required by NAR or the other corporate defendants.  Nevertheless, it is possible that copycat lawsuits could arise in other states.  Most importantly, there are a series of practices that MLSs, brokerages and brokers should be implementing to ensure transparency and understanding among buyers and sellers about real estate services and commissions, which can help prevent future claims similar to those in the Sitzer/Burnett lawsuit.

Does the ruling change anything for Oregon REALTORS®?Read More

No. The lawsuit really has nothing to do with membership in the local, state or national association of REALTORS®.  Oregon REALTORS® will continue to provide you with key risk management tools such as the legal hotline and forms, and will continue to be your advocate for homeownership, private property rights and your business success in the Oregon capitol.  We do not yet know if or how the monetary damage award will impact the REALTOR® associations.  NAR has stated its intention to appeal the ruling and it could be years before a final decision.  We will know more soon when the judge rules on the amount of bond that NAR will have to put up in order to file an appeal. 

Does the ruling change anything for local MLSs?Read More

Oregon REALTORS® is not affiliated with an MLS and can’t speak to local MLS policies or potential policy changes.  However, NAR made clear in advance of the trial that a compensation offer of $0 complies with the cooperative compensation rule and local REALTOR®-owned MLSs should ensure they are following this guidance.  The cooperative compensation rule exists because cooperating participants have the right to know what their compensation will be prior to commencing their efforts to sell.  That policy objective is and always has been met regardless of the amount of cooperative compensation offered.

What does it mean for your business?Read More

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.reatlor 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 REALTOR® 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.

Is this the end of buyer agency?Read More

Not by a long shot.  Fiduciary buyer agency is enshrined in Oregon statute.  Buyer agency exists because back in the 1970s and 1980s—not unlike today—there was a series of lawsuits challenging the practices of real estate brokerage.  At that time the challenge was not to cooperative compensation—in fact cooperative compensation was seen by consumer advocates as pro-consumer.  Rather the challenge was to the fact that, at the time, agents assisting buyers were “subagents” of the seller and did not have fiduciary duties to the buyer.  The argument—back then—was not only did buyer’s agents deserve to be paid but also that they should play a more central role in the transaction.  NAR and REALTOR® associations across the country worked to enshrine buyer agency into statute and the NAR code of ethics.

Does this mean that cooperative compensation is going away?Read More

No. The plaintiffs in the case have not sought an injunction requiring NAR to modify or eliminate the rule and NAR has said that they do not have plans to eliminate the rule. Moreover, NAR has been clear that an offer of $0 meets the rule and therefore there would be no difference if the rule did go away. Some MLSs, including the NW MLS in Washington, did away with the cooperative compensation rule years ago. Nevertheless, cooperative broker compensation is still being offered in these markets because it is a highly efficient and effective model to ensure that there is a centralized database of properties with maximum exposure to buyers and that buyers have fiduciary representation that is financed through the transaction.

I heard some companies settled before trial. What does this mean?Read More

Anywhere Real Estate and RE/MAX settled before trial. In addition to paying plaintiffs, Anywhere and RE/MAX agreed to some changes in policy that largely align with changes that NAR had already made over the past few years. Perhaps most notably the Anywhere and RE/MAX stated that they will not require their franchisees to join NAR. Despite misleading headlines, these brokerages are not “leaving NAR,” rather, they are making clear that it is up to each franchise brokerage as to whether or not they join NAR and there is no reason to believe that the franchise brokerages would choose not to join NAR.

What is a buyer representation agreement and how do I use one?Read More

A buyer representation agreement is like a listing agreement but between the buyer and the buyer’s agent. It lays out the duties owed by the agent to the buyer, the services that will be provided and the compensation that the buyer owes the agent. Most buyer representation agreements state that the client is responsible for the fee but that if cooperative compensation is offered through the MLS then the cooperative compensation will offset what the buyer owes the agent. Like any contract, the terms of a buyer representation agreement are negotiable. Both Oregon REALTORS® and OREF have a buyer representation agreement available in their respective form libraries.

Does this mean that my buyer has to pay a commission directly and, if so, can they finance it?Read More

This does not mean that your buyer will have to pay a commission directly. The cooperative compensation rule is still in place, the rule has never required any particular amount of compensation, and even in MLSs that do not have the rule, cooperative compensation is still the norm. That being said, it is imperative that you use a buyer representation agreement in which you and your buyer client agree on the scope of your services and the fee the client will pay you for those services. If cooperative compensation is not offered or is lower than the fee the buyer has agreed to pay you for your services, then the buyer can request in the sale agreement that seller pay all or a portion of the commission as a seller concession, subject to the limits on seller concessions that apply to the particular loan involved. Learn more about seller concession limits for Fannie Mae and Freddie Mac and other loan types.

Isn’t it unethical to negotiate commissions in the sale agreement?Read More

The sale agreement is between the buyer and seller and as a real estate agent you shouldn’t be using the sale agreement to negotiate your commission. That being said a buyer who otherwise owes you a commission via a buyer representation agreement has every right—and incentive—to ask for the seller to pay for all or a portion of that commission out of the proceeds of the sale. The buyer can ask for it to be paid like they do with any other closing cost using existing sale agreements and addenda. Oregon REALTORS® will also be updating its forms to make it easier for buyers to make this request in their offer.

What resources are available from Oregon REALTORS® and NAR to help members navigate all this?Read More

Please share these FAQs with other members. Visit competition.realtor for information from NAR including tools to help you explain your services and your value to clients, to understand the economics of buying a home as it relates to commissions, and the role and value of the MLS broker marketplaces.