8 months ago
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While many in the real estate industry were surprised by the news Friday morning that the National Association of Realtors had agreed to a nationwide settlement of the commission lawsuits for $418 million, Marty Green, a principal at law firm Polunsky Beitel Green, was not one of them.
“It’s been evident since the jury in Kansas City delivered a multi-billion verdict, after barely a few hours of deliberations, that a global settlement including NAR was the only viable resolution,” Green wrote in an email. “With several of the major brokerage houses already having settled, NAR was in the untenable position of fighting to protect a business model that was already compromised by the settlements.”
An industry insider at a top brokerage shared a similar sentiment.
“We aren’t surprised that NAR settled,” the insider, who asked to remain anonymous, said. “Many people in the industry believed that they would and that it would be the best path forward.”
In addition to the $418 million settlement amount, which will be paid into a court-controlled trust over a four-year period, NAR has also agreed to abolish all rules allowing seller’s agents to set compensation for buyer’s agents. It also agreed to prohibit broker compensation appearing in the MLS fields. The settlement agreement also notes that MLS participants working with buyers must enter into a written buyer broker agreement.
According to NAR, these changes will go into effect in mid-July 2024, assuming the settlement is approved.
There is an agreement but what about approval?
Michael Ketchmark, the lead attorney for the plaintiffs in the Sitzer/Burnett and Gibson suits, is confident that Judge Stephen Bough, who is overseeing the Sitzer/Burnett suit, will approve of the agreement.
“We have tremendous confidence in all these settlements and the benefits they are bringing to the class members,” Ketchmark said. “So, we have no concerns about gaining approval.”
While Ketchmark said he is happy with the terms of the settlement and glad that NAR is “finally finding its way forward for its agents,” the settlement still allows for the practice of cooperative compensation to continue, something Ketchmark previously said he would like to see abolished.
Cooperative compensation lives to see another day
Under the terms of the settlement agreement, while sellers and their listing agents cannot advertise the commission they are choosing to offer the buyer’s agent on the MLS, it can still be part of negotiations between the buyer and the seller facilitated by their respective agents. Additionally, if a seller or their agent chooses to advertise the listing somewhere besides the MLS, they can display the commission amount they are willing to pay the buyers’ agent with the listing.
Despite this, Steve Berman, the lead attorney for the plaintiffs in the Moehrl suit, described the agreement as “mission accomplished.”
“We started this case to challenge NAR rules that prevent competition on commissions for home sales in the United States for homes listed on multiple listing services,” Berman, who is a managing partner at Hagens Berman, wrote in an email. “This settlement changes those rules so that competition will occur at the commission level.”
Although Marx Sterbcow, the managing attorney of Sterbcow Law Group, is glad the practice of cooperative compensation will be able to continue, he believes the new rules governing how and where agents can disclose offers of cooperative compensation will create chaos.
“The MLS can no longer contain offers of commission, but agents could still put in the broker comment section that they will give a credit to the buyer to pay their agent,” Sterbcow said. “It is going to be an absolute mess.”
An opportunity for top agents
Despite the potential messiness, brokers and industry leaders said it is important that agents remember that cooperative compensation has not been banned.
“We think that it is most important that the industry, the agents understand that nothing in the agreement precludes seller who have the greatest liquidity from assisting homebuyers with their upfront expenses,” the industry insider at a top brokerage told HousingWire.
However, agents told HousingWire that this does not mean the same practices that work with buyers today will work post-settlement
“What is going to happen now, is like on the sell side, on the buy side, you must earn what you actually make. The days of door opening are over. The days of simply showing a house or waiting for a buyer to send you a listing they like are over,” Jason Posnick, the sales manager at Chinatti Realty Group, said. “You have to find new ways to differentiate and elevate. It is an opportunity for the best agents, the ones with the highest skill, best work ethic, to rise to the top.”
Posnick believes that part-time agents will suffer, something Jason Haber, a Compass agent and the co-founder of the American Real Estate Association, agrees with.
“Agents who don’t communicate well with their clients and have trouble expressing their value proposition are going to have a tremendously difficult time going forward and we will probably have fewer agents because a lot will end up leaving the industry,” Haber said.
A chance for industry-wide consolidation
Steve Murray, the co-founder of RealTrends, believes the terms of the settlement agreement will cause a similar compression among brokerages.
“Almost any time in history the U.S. federal government gets involved in this kind of litigation against a whole industry and imposes Draconian changes to that industry, it causes significant consolidation,” Murray said. “I absolutely think that will happen here.”
Industry experts believe this may be exacerbated by the fact that the settlement doesn’t cover firms that had a transaction volume of more than $2 billion in 2022.
“NAR effectively threw at least 100 of the top real estate brokerages completely under the bus on this,” Sterbcow said of this provision. “There are still all the other lawsuits and the multidistrict litigation panel, so I don’t think this really resolves the issue.”
Ketchmark also addressed this and noted that the agreement provides a mechanism to release the larger volume firms from the commission lawsuits. This may be especially important for HomeServices of America, which is now the only defendant remaining in the Sitzer/Burnett, Moehrl and Nosalek lawsuits.
“Now the entire industry is stepping forward and recognizing that they have to change their ways,” Ketchmark said. “It is time for HomeServices of America and Berkshire Hathaway Energy to do the same thing. We are going to provide them with an opportunity to protect their agents and their brokers and find a path forward.”
HomeServices of America declined to comment on the settlement agreement.
Looking ahead
As HomeServices of America and others contemplate their options, and agents and brokers try to figure out what the settlement means for them and their business, the industry will be again shrouded in uncertainty, but Murray believes it will preserve.
“We will now go into a period of a little bit of chaos as brokers and agent try to sort their way through how they are going to do business,” Murray said. “But, I’ve been through 47 year of this kind of stuff — horrific markets, changes in the practice, new model challenges — and in my view, brokers and agents have always figured out a way to adapt. It will take some time to sort it all out, but they will figure it out.”
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