The Real Estate industry has been in the news lately as the National Association of REALTORS® (NAR), a powerful trade group with over 1.5 million members nationwide, and several large, national brokerages, have faced a barrage of lawsuits across many states, as well as renewed scrutiny from the Justice Department. The landscape is evolving rapidly, but I will do my best to provide a primer. This month I will share some historical context as well as an explanation of more recent news. Next month I will share my prognostication as to what it all may mean for our local market and any news update that occurs in the interim.
The History
In the 1990s, NAR and its member affiliates, like the Buffalo Niagara Association of REALTORS® (BNAR), developed cooperative databases of listings, called Multiple Listing Services (MLS). This was a way to share information about listings in a local market between brokers. The MLS still exists today, and it is the database that powers the consumer websites where you can search for homes and gives licensed real estate agents additional information about each available listing for sale in the market. Today, the overwhelming majority of residential real estate transactions in our market are facilitated through the MLS.
Before the 1990s, only a listing agent received compensation in a transaction. Because a buyer didn’t have representation, it was considered a disadvantage to buyers who negotiated against a licensed real estate professional who was acting only in the best interests of the selling party. To protect consumers, a buyer’s agency was created. A buyer’s agent has a fiduciary duty to represent the buyer’s interests in a transaction, and this was seen as a way to level the playing field.
Although there are exceptions, most listings on the MLS have a commission that includes an amount set aside for the buyer’s representation. The listing agent negotiates a commission with their client, the seller, and that usually includes a portion that is set aside to compensate a buyer’s agent. This buyer’s commission is published in the MLS, and other agents can see it. If you’ve purchased a home in the last thirty years with the help of a real estate agent, this arrangement likely is how you’ve paid for the buyer’s representation.
By way of disclosure, I am a member of NAR, and it isn’t really a choice. The MLS is an indispensable tool for any licensed real estate agent. To gain access to the MLS, I am required to be a member of both NAR and BNAR, associations that cost me and my colleagues roughly 1,000 dollars annually. At last disclosure, NAR had over $1 billion of assets on its balance sheet. As there is no viable alternative to what the MLS offers to me and my clients, I have no choice but to join NAR if I want to continue in my profession. This leads us to the current headlines.
The Sitzer-Burnett Case
Sitzer-Burnett is a class-action lawsuit that was filed in 2019 in Missouri federal court by a group of home sellers against NAR and other defendants, including Anywhere (parent of Coldwell Banker, Century 21 and ERA), Berkshire Hathaway HomeServices, Keller Williams and RE/MAX. The plaintiffs asserted that commission rates are too high and NAR and the other corporate defendants conspired to maintain commission rates at 6 percent. They also argued that sellers shouldn’t pay for a buyer’s agent and that a buyer should negotiate compensation directly with their own agent.
RE/MAX and Anywhere Real Estate settled before trial by agreeing to pay a combined total of $138.5 million in damages. On Oct. 31, 2023, the jury found that NAR and the defendant brokerages violated antitrust laws and awarded $1.78 billion in damages. Under federal antitrust laws, the court was likely to triple the total damages award to over $5.3 billion.
On March 15, NAR announced an agreement to settle this and other lawsuits, including copycat suits that had popped up after the Oct. 31 jury verdict in other states. If the court approves the settlement, NAR will pay only $418 million in damages over four years in exchange for a release of further liability for NAR and all of its members, with the exception of corporate members with 2022 transaction volume of $2 billion or more. These largest national real estate firms are excluded from the settlement and would not be exempt from further consumer action.
The Department of Justice
Meanwhile, on Friday, April 5, the U.S. Court of Appeals for the District of Columbia found that the Justice Department could resume an inquiry into whether NAR’s practices inflate the cost of selling a home.
The renewed federal inquiry comes after the Justice Department sued the trade group in 2005, and the two sides agreed to a 10-year settlement in 2008. That settlement caused NAR to change some of its MLS rules.
After that settlement expired, the Justice Department reopened its investigation, and in 2020, NAR agreed to another settlement. But in 2021, the Justice Department backed out. NAR took the Justice Department to federal court and prevailed in January 2023. But the Justice Department appealed, and on Friday the three-judge panel of the appeals court sided with the Justice Department in a split ruling.
Pending a possible appeal to the Supreme Court, this ruling could allow the Justice Department to shape the terms of the settlement in the Sitzer-Burnett case, or attempt to create additional changes on their own.
What It Means for the Marketplace
One thing is certain from all of this legal activity. Changes are on the way. We will examine what that might look like next month.
