Editor’s note: The COURT REPORT is RISMedia’s weekly look at current and upcoming lawsuits, investigations and other legal developments around real estate.
This past week was a busy one on the real estate commission lawsuit front as the deadline for NAR practice changes agreed to back in March when the association chose to end its legal fight against a flood of commission lawsuits finally arrived.
NAR practice changes officially go into effect
On March 15, 2024, the National Association of REALTORS® (NAR) agreed to a $418 million settlement to end a series of class-action lawsuits centered around buyer-broker commission structures—and part of that settlement agreement were major rule changes related to how real estate professionals conduct business, which went into effect on Saturday, August 17.
NAR sent a final notice to its members about these rule changes the day before they took effect.
The crucial rule changes pertain to homebuyer representation and the “cooperative compensation” rule. Per NAR’s new rules, offers of cooperative compensation to a buyer’s agent/broker cannot be listed, by a seller’s agent, on an NAR-affiliated MLS. Cooperative compensation agreements between two parties in a real estate transaction are still permitted. However, the advertisement of such agreements has been labeled by certain critics as conducive to agents “steering” buyers toward properties with lucrative cooperative compensation advertisements. This rule change is designed to be preventive of this supposed steering.
The second major rule change mandates that buyer’s agents must obtain a written representation agreement from any prospective buyer before touring a home. This is done in the interest of increasing transparency between professionals and clients from the outset of their business relationship.
NAR’s monetary settlement, $418 million, received preliminary approval by the court in April 2024. As of August 17, electronic and mailer notices about the settlement have been sent to members of the plaintiff class—sellers who used an NAR-affiliated MLS from 2015 to 2022. The Department of Justice (which has suggested that it feels NAR’s rules are in need of antitrust reform) has until November to approve the final settlement.
Michigan brokers sue NAR in opposition to settlement
Not everyone is satisfied with NAR’s rule changes. RISMedia spoke with Pennsylvania broker Peter Gustis about his opposition to the rule changes, which motivated him to write a letter formally objecting to both the Burnett verdict and subsequent NAR settlement.
Two Sotheby’s-affiliated and Michigan-based brokers, and one agent, took this a step further by filing a lawsuit in federal court against NAR. Also named is the Michigan Association of REALTORS®, local real estate associations and MLS-management software company Realcomp II. The plaintiffs, who are currently seeking class certification for Michigan agents and brokers, use the same criticism that defined the class-action commission lawsuits: that NAR’s relationship with MLSs constitutes antitrust violation. This time, NAR members are described as the affected rather than consumers.
The lawsuit cites NAR’s rule changes as the hinge on which their lawsuit sits. The suit claims that changes devalue NAR membership and the access to affiliated MLSs that come with it, with there now being “no guarantee of broker commission associated with using the MLS.” The plaintiffs in turn claim that this, “Eliminated the sole purpose of the NAR and (Michigan Association of REALTORS®) sponsored MLS systems by eliminating the guarantee of compensation between brokers.”
“The requirement of membership in the (named REALTOR®) organizations constitutes a conspiracy to monopolize the use of the MLS and creates barriers to the market for all REALTORS®, agents and brokers who seek to enter the market but who do not wish to belong to one of the (named REALTOR®) organizations,” the lawsuit claims.
The lawsuit details that the agents previously petitioned to retain access to the MLS while discarding their association memberships. Their request was denied by Realcomp II.
An NAR spokesperson told RISMedia, “NAR stands by the practice changes required by the proposed settlement because they bring buyers and sellers greater transparency on compensation and protect consumer choice. NAR will defend against these baseless claims in court.”
