The National Association of Realtors (NAR) has agreed to a $418 million settlement that will resolve a series of lawsuits that challenged its rules on real estate broker commissions.
The New York Times reported that it obtained a copy of the settlement, which will be filed in the coming weeks and will require a federal court’s approval.
As part of the settlement, NAR will jettison its rules requiring that most residential listings to include an upfront offer that informs the buyers’ agents how much they will get paid. Under this system, sellers set the fees for the buyers’ agents.
The settlement represents a major about-face for NAR, which vowed last month to appeal October’s verdict in the Sitzer/Burnett case by arguing that the verdict was fueled with “erroneous rulings by judge” while insisting the cooperative compensation issue raised in the trial is not anti-consumer. That lawsuit, which was filed in April 2019 by a group of Missouri home sellers, resulted in a $1.8 verdict against NAR and unleashed a skein of copycat lawsuits across the country aimed at the organization, along with targeting brokerages, multiple listing services and regional real estate trade groups.
NAR’s settlement leaves HomeServices of America, a division of Warren Buffett’s Berkshire Hathaway, as the only defendant in the Sitzer/Burnett case who did not agree to a settlement.
Update: NAR issued a statement acknowledging the Times’ report, adding that it “continues to deny any wrongdoing in connection with the Multiple Listing Service (MLS) cooperative compensation model rule (MLS Model Rule) that was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation.” It stated the $418 million settlement would be paid over approximately four years.
NAR also noted that it “agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS. This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them. Further, NAR has agreed to enact a new rule that would require MLS participants working with buyers to enter into written agreements with their buyers. NAR continues, as it has done for years, to encourage its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much. These changes will go into effect in mid-July 2024.”
Nykia Wright, NAR’s interim CEO, said that “continuing to litigate would have hurt members and their small businesses. While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances. It provides a path forward for our industry, which makes up nearly one fifth of the American economy, and NAR.”
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Everybody asking how to get away from NAR,
We are forced to be a member whether we want to or not. Or we can’t be part of MLS. I guess our fees will go up even more to pay for this lawsuit.
I am independent and I have the option of being a Thompson broker to get access to MLS without paying all those dues.
But I would still have to follow all those MLS rules and so be subject to their array of penalties.
I got my FL license in 1982. I am tired of MLS being so much more contolling than state laws!
NAR sure did a piss poor job of defending our pay.
The jurors got it wrong, they must have been a bunch of disgruntled tenants who don’t understand business or how things work. Our agreements & disclosures are very clear as to the fee being charged and what companies are being paid. There is still no set fee in the industry and never has been. I cannot believe that NAR didn’t fight this harder rather than cave. It is just another example of how the deep state is going after organizations and people trying to destroy our free enterprise system. I also think why we were targeted is that we as Realtors the largest trade organization in the country.
Something else just hit me… I am predominantly a listing agent, and if I am not able to offer compensation in the MLS for the buyers agent, my phone will be ringing off the hook for any new listings because buyer agents will be calling just to ask if the seller is going to pay a commission! This is not going to turn out well, and is so unfair to the buyers agents who are going to have to work even harder than they already do, and for less compensation.
Agreed!
I guess that is what our dues pay for, the NAR paying for Frivolous lawsuit & not defending us, our pay or the NAR themselves! I’m getting past clients calling me & asking me what this lawsuit is all about. I guess the purchase contracts will have to have a box to check if the seller wants to pay a buyer broker & how much as part of the terms of the agreement which it is already in place with the listing agreement & the MLS. The lawsuit is a joke & NAR fell for it & didn’t even defend themselves.
For having such a large national membership, we sure have the weakest representation and trade group!
NAR has certainly done nothing to protect us in spite of all the money we are required to pay them annually.
NAR is like a toothless guard dog…
There must’ve been some pockets lined for NAR to sell-out their members like that – again.
Sell outs
I’m out as soon as possible. This NAR rollover has finally pushed me over the edge. Thank God I’m retirement age and won’t have to deal with this crock of bull any more!
Welcome to the circus that will ensue!
Thank you NAR for screwing over your 1+ million members because you didn’t have the stomach to fight a bogus, money-grabbing lawsuit! What do I need to pay NAR dues for now?
Why would Nykia Wright, an interim CEO who as far as I can tell has never sold a house, be allowed to make such a massive decision? Also, I’m pretty sure the small business would rather fight the lawsuit with the dues they’ve paid for decades than to go out of business.
Is it time for the NAR members to file suite against the Nar?
I agree sell outs again
Why is there only one organization that could represent us! I feel like we are unionized without the benefits!
I am not a lawyer, but I feel that NAR should have argued this “commission” case from several different angles, but, if they had, it might have opened up more questions (and more lawsuits).
However, I think much more would have been gained by examining what has been happening up to this point with NAR’s policy of a Listing Contract, wherein the Seller sets both the commission rates for the listing agent and for the Buyer’s agent, yet, the Buyer has had ZERO say in those commission rates, even though it is the Buyer who should have had the most (or all the) say these past many decades.
The question should have been:
Why did NAR ever have Sellers set the Buyer’s Agent’s commission rate via the Seller’s Listing Agreement?
It makes no sense because the listing agreement is a contract that actually obligates the Buyer to pay both the commissions (see why below), but the Buyer has had NO say in the commission rates that will be paid to the Buyer’s own agent nor the commission rate paid to the Seller’s agent.
It has always been my view that Sellers should pay for their own listing agent’s commission, and Buyers should pay for their own Buyer’s Agent’s commission, and those fees NEVER should be rolled in the “Total Sales Price” of the home. All other costs should be separated out from the cost of the home, itself, and for several good reasons.
When you take a deep look at WHO really pays the commissions for the Seller’s Agent and for the Buyer’s Agent, it is really ONLY the Buyer who has been paying BOTH commissions all along, simply because the “Total Sales Price” (which includes both commissions) is only paid by the Buyer who brings all the money to the table, either with a Cash Purchase or with a Down Payment and a Purchase Loan that will be paid off by the Buyer (or paid off by a future buyer of that home if a mortgage balance remains at the time of a future sale).
The Seller isn’t bringing money to pay for anything; the Buyer is!
The Seller is selling; the Buyer is buying; it’s in the definition of the words, themselves!
This point is clearer if you look at what happens when NO buyer ever buys a particular home, and, in those situations, NO commissions ever get paid to the seller’s agent or to the buyer’s agent, and the listing expires. But, when a sale does happen, it is the Buyer who is paying for both of the commissions, as well as for the seller’s escrow and title fees, and prorated seller taxes, etc. and all those costs have been rolled into the “Total Sales Price” that is paid by the Buyer.
At the close of escrow, the buyer (and lender if there is a loan) have deposited the Total Sales Price money to be paid to the Seller, and only then does the Seller use a portion of that money to pay for the commissions, the seller’s escrow and title fees, prorated seller taxes, etc.
But the source of all that money to pay those seller costs actually came from the Buyer, alone, NOT the Seller.
In addition, the payoff of any Seller’s mortgage balance (or other seller liens) is also paid by the Buyer’s funds. And this is all part of “leveraging” a home purchase because the Seller often has a loan balance outstanding, and the seller has, thus, “co-owned” their home with the Seller’s lender, and the Seller’s lender also gets “paid off” by the Buyer’s purchase funds.
NAR may have chosen the historic cooperating broker compensation policy simply to lower the initial cash costs for the buyer. Many buyers already struggle to come up with cash for down payment and closing costs. So, if the Buyer is going to be asked to pay for their own Buyer’s Agent’s commission, that would pose a heavy financial burden on many, if not most, buyers.
But there is an easy solution, and that is to allow purchase loans to also include (and itemize) the separate cost of the Buyer’s Agent’s commission fee, and that fee would be set by (and paid by) the Buyer. In this way, the Buyer would be financing the cost of the Buyer’s Agent’s commission through the loan, which is easier for many Buyers who don’t have a lot of cash on hand.
In point of fact, this already has been happening because when buyers take a purchase loan, that purchase loan is already paying money towards the “Total Sale Price, which (as stated before) includes not just the Buyer’s Agent’s commission, but also the Seller’s (Listing) Agent’s commission, and that raises another contract problem with what NAR has been allowing to happen.
The Buyer also has been paying the cost of the Seller’s (Listing) Agent’s commission through the Buyer’s purchase funds, but the Buyer has had NO say in negotiating that listing commission fee, and the Buyer has never been a party to the Listing Contract that obligates the Buyer to pay the Seller’s Listing Agent’s fee, and that is a very relevant legal problem with contract law.
How can a Seller obligate a buyer to pay the Seller’s Agent’s commission when the Buyer was never been a party to that listing contract, and, in fact, the Buyer is never allowed to see the listing contract at all? To me, this is legal nonsense and a huge violation of contract law, and this problem has been ignored for many decades.
Property Taxes
Another reason to remove commissions (and other fees) from the “Total Sales Price” is because Buyers have been paying more property taxes (in certain states) than they ever should have paid, and that has been happening for decades running.
Let me dive into this because people seem obsessed with “overpaying on their taxes”, and it is surprising that this loophole has been gapingly wide open for decades running and slowly bleeding buyers in an unfair fashion. The amount in overpaid property taxes under the historic NAR policy may be a fairly small percentage of the total property taxes paid by buyers, but, taken together with millions of buyers and over many decades, that slow drip has added up to a gushing river of money paid out in unfair tax burdens.
In states like California, the “Total Sales Price” becomes “the basis” of the new property value when the Buyer buys the home. The “new property value” determines the property taxes that the buyer will pay, which (via CA Prop. 13) is a percentage of the new property valuation (plus any other taxes that may have been added by voters).
But remember that the “Total Sales Price” includes not just the cost of the home, itself, but also both commissions and the seller’s escrow & title fees, etc., and that means that “the basis” valuation is set a bit higher than it should be (about 5% to 7% higher), and Buyers have been paying a slightly higher yearly property tax because the other costs have been rolled into the Total Sale Price, making the property tax basis for that home higher. It’s stupid. Why should buyers ever have paid property taxes on the commission fees, seller escrow & title fees, seller prorated taxes, etc. via the “Total Sales Prices” accounting fiasco.
It would have made a lot more sense to keep the “costs of commissions, escrow, title, etc.” separated out from the real sale price of the home (meaning just the home and the land upon which it sits).
Those are my thoughts on this quagmire, and I think NAR should have explained why these policies were selected and why they need to be changed, even IF we cannot role back the hands of time entirely, but we can choose to NOT make the same mistakes going forward.
This entire lawsuit seems backwards to me, and NAR should have argued that
it is NOT the Sellers who have paid “the commissoins, at all. It has been the Buyers who have actually paid those commissions via the Buyer’s Purchase Funds.
And, it is the Buyers who have been shut out of the listing contract commission terms even though the Buyers have been forced to pay those commissions anyway, while also paying higher property taxes (in some states) because of NAR’s historic commission policies and “Total Sales Price” accounting methods that did not separate out the costs of selling from the actual cost of the home, itself, and land.
NAR might have been able to through out this lawsuit based on “The Seller was NOT harmed” defense. (But the Buyers were).
Those are my observations.
Sellers own the property and should be free to create an incentive to have professional agents represent buyers. It is their house, their money and their choice. A seller is never going to lower the price of their home by the amount of what the commission would have been for the buyers agent. Why would they? To net the same amount while dealing with someone that has no clue what they are doing? Further, buyers cannot get financing to pay an agent a commission directly. So they would have to go out of pocket to pay them a commission when a lot of buyers have a hard time coming up with the minimum down payments – especially first time buyers. For sale by owner has always been allowed and there are websites dedicated to it. This is about destroying independent businesses. Your post is complete nonsense.
I completely agree. Many buyers they think if they show up without the agent they are entitled to full discount. It’s just sad they have no common sense.
The seller pays commissions out of proceeds- the buyer can negotiate the purchase price- the people in charge at NAR need to be replaced with people who can’t be bought or have better judgement or try to do their jobs- attorneys should not be calling the shots!!!!! The membership needs to file a class action suit against the NAR for malfeasance and dues refunds are warranted !!! Where do I sign. Charlie Gardiner -Realtor for now !!!!!
Class action lawsuit, is exactly what I was thinking. Can we sue the attorneys, too? Also, can we sue NAR and CAR for charging us fees? How about the cable companies? Their fees are insulting.
This is interesting but very one sided point of view. From Sellers’ side, they pay commissions. Let’s say the value of the property is $500,000. The Buyers paid it. Total commission is 6% = $30,000 Let’s say that other fees amounts to $5,000. The Sellers will get only $465,000. If there woud be no agents involved the Seller would get $495,000. So coming back to your story – who paid the commission? For sure not a buyer.
My point number two:
If you don’t want to pay property tax on the fees and commissions you just restructure your deal. As a Buyer’s agent, you offer a seller insted $500,000 redused amount of $465,000 and pay all commissions and fees. I’m sure Seller will agree, but the problem is that Buyers needs to come up with extra $35K out of their packet since the loan would be based on lower purchase price.
Point number three:
Unfortunately 80% of agents are uneducated ignorants. They don’t take a time to read their own contract (supply by Association of Realtors). You, as the agent representing Buyers should sign the contract with them. In that contract you set the commission you want to be paid (let’s say 3%). Your clients (the Buyers) are responsible to pay that. If the Seller is willing to pay it in full or partially ( for example 2.5%) you still getting your 3% commission. The only difference is that your clients will have to pay the difference ( in the above example 0.5%) So why so many agent are whining about that they don’t have any saying how much commission is paid? Its simple! If you representing Buyers is not your business how much the listing agent is paid and you set your own commission with your clients. Don’t complain that those commissions should be separated because they are!!!
Grab any Real Estate Law book and educate yourself.
Doesn’t matter what the MLS says about the Buyer’s agent commission. This is just the amount the Seller is offering to pay the Buyer’s agent. Remember that EVERYTHING is negotiable. If the Seller offers 2% to selling agent in the MLS listing you can still put an offer requesting 3%. The listing agent has to present your offer to Seller and the selker has to decide what they willing to pay. And again, no matter what Seller decision would be, you will be paid your full commission by Seller, Buyer or both.
Regarding the court case, for me, there are no basis in law or fact, so I’m with you on that. NAR should do better job.
In your wacky scenario, what happens when you get to the close and the buyer says I don’t have the funds to pay you the commission out of pocket?
Very Thoughtful Analysis. Although I do not agree with all your conclusions. I have never understood why the seller paid for the buyers agent commission since agency required the BA to solely represent the buyers interest? In any case, I do not see the end of the world scenario myself. The BA representation agreement in TX already has a section for buyers to agree to pay compensation to their agent (however that would be reduced if BA received any compensation from the seller or listing agent). If the buyers balk at agreeing to pay BA any fee for their work in finding them a property, then walk away. Regarding a document between the seller and the listing agent, I plan to meet with a real estate attorney to draft a template that spells out the commission fee and have the document notarized for each seller. The question I have, will active listings using the current listing agreements require to be changed to reflect the settlement requirements or will they be “grandfathered” in?????
Quite the word salad but doesn’t make any sense
Your analysis is incorrect. Property taxes are based on the assessment the town or city values your property, not the selling price of the home. Each town does a revaluation process usually every 5 years in the state of NH. Its not individual as a home sells. As far as the buyer not in control of the commissions it’s up to the sellers what they want to pay. The buyer is indirectly paying for the commission, but the seller is getting less in the end for the home after paying the commissions, transfer taxes and outstanding mortgage, ect. Compare it to the tenant who pays rent as it includes property tax indirectly also and a condo tenant pays condo fee indirectly. It’s all in how you look at the glass half full, or half empty.
Clarification:
Property Taxes in California uses the “new propery value”, aka “the basis”, and then applies the Prop 13 allowed percentage on that valuation to set the yearly property taxes.
The new valuation (the new basis) is usually the posted “Sale Price”, but the county tax assessor takes a look to see if the posted (recorded) sales price seems reasonable because a seller and buyer could illegally hide the real sales price, making it appear lower while extra money is exchanged under the table.
I’ve seen the signs of this in certain areas wherein a sale price is remarkably low compared to current comps, but I have yet to see a Tax Assessor question the sales price, except in extreme cases and when some watch dog group calls out the questionable sale price.
Are the attorneys worried that the plaintiffs in this lawsuit are going to sue them in a few years for taking the standard percentage amount of the judgment?
Lol. GEEAT POINT!!!
THIS!!!! ^^
This is a big FU to the greedy brokers/agents who wouldn’t cooperate with the buyers agents so they could double up the sale.
Also NAR has been trying to avoid the internet taking over home sales for years. Too bad guys !
Julie:
You make the statement, “Buyer has had NO say in negotiating that commission…” Where does he get that right? He is not even a buyer when the commission is set in a free market when the listing is agreed on between the seller and agent
As a consumer, let’s see you go to Walmart and negotiate the price of eggs because you were not asked to be part of the negotiations with Walmart’s egg supplier. The price of the eggs is set by Walmart based on their cost and profit potential before you even showed up. Whether or not you buy the eggs is your decision. Whether or not someone purchases real estate is one’s decision based on the price (among other factors). The commission to be paid is a cost to get the property sold. If it’s not worth paying an agent, the the seller won’t do it. If a low commission is not worth listing the property, then the agent won’t do it. It’s free market capitalism.
True Statement