The National Association vs Sitzer/Burnett Lawsuit Settlement Details & Consequences

The National Association of Realtors® has settled.

The Real Estate industry is experiencing some interesting situations and it is important to us to ensure that the information that is being perceived by our clients and customers is factual.  There seems to be a substantial amount of misinformation through various media outlets, social media posts, articles and comments.  We believe dishonesty is not at the core of reporting, but misunderstanding is what is currently driving the narrative.  At best, most commentaries are speculation, however we believe we can predict some of the fall out and unintended consequences. Time will tell how this bedrock change will effect the industry, but our hope is that consumers are not damaged. It is important to understand the true context and where the industry is heading so our valued customers and clients have the information they need to make wise decisions for themselves.  Although this may be an extensive explanation there are certain items we want to ensure that you don’t miss.  

The National Association of Realtors® (NAR) was involved with a lawsuit known as the Sitzer/Burnett case in Missouri.  A jury of 9 people decided that NAR and other companies “conspired” to inflate commissions for sellers through a compensation agreement with other brokers that violated the Sherman Anti-Trust Act of 1890.  The issue at its core is the compensation between the listing agents and buyer’s agents.  It has long been a legal way for listing agents to market their properties by sharing their commission with other licensed agents to procure buyers for their sellers. Many clients want to work with specific agents for various reasons, but the main one is that they have relationships with them and they trust them.  The Sitzer/Burnett jury deliberated for 2 ½ hours.  It was reported that they did not ask for any additional facts since many pieces of information and evidence unfortunately were not allowed in the court process.  It was also reported that the jury could not have ever used a Real Estate agent themselves. There were a number of important issues that were not permitted in court.  It is also important to note that the Department of Justice has long been pressuring our industry to make changes because their attorneys don’t like the systems that have long been in place.  They have prior settlements with the NAR, which have been held up in court; however the DOJ has continued to pursue avenues to force the industry to make changes.  These attorneys apparently don’t seem to understand that our clients are not adversaries.  They are simply two separate parties starting in different positions and our goals are to bring people together through negotiation.  Ultimately our services are designed to serve both the buyers and sellers through brokering transactions.  It is also important to understand that our goals are to ultimately come to a win-win situation between buyers and sellers.  The buyers and sellers are always in control of what they decide is best for them.

The preamble of the Realtor® Code of Ethics states in part “They (Realtors®) identify and take steps, through enforcement of this Code of Ethics and by assisting appropriate regulatory bodies, to eliminate practices which may damage the public…”  Unfortunately this proposed agreement violates this premise simply because some buyers are expected to be hurt by them.  We wish our leadership would have led from a stronger position, but they did not.  They led from a position of fear.

The NAR, along with other Real Estate companies, have decided to settle this lawsuit instead of continuing to pursue an appeal.  Details of the pending agreement can be found here. Although an appeal would have likely been successful, it would have taken years and substantial amounts of money for a bond & legal expenses.  This strategy would also keep encouraging copycat lawsuits throughout the country.  Unfortunately, the NAR backed themselves into a corner where this seemed to be the best option for them at this point instead of continuing to face futures of uncertainty.  It is important to note that agents and the NAR maintain that nothing illegal or unethical was ever done over these issues, and we fully stand by this as well.  We have always maintained that our services have been transparent and benefitted both buyers and sellers. Both buyers and sellers fully understood how the system worked, lenders allowed for fees to be associated with the transaction, and everyone agreed to the details of how it worked.  In a time where a lot of things are twisted upside down, this is just another example.  It is our position that the leadership within the Association over the past handful of years has not been what it should have been.  In a time where Realtors® grew 35% in membership over 5 years, it allowed many hobby type salespeople into the space and the level of service and professionalism has decreased immensely.  This is a problem and needs to be addressed, however we are now paying the price for it. The total amount being settled is approximately $625.5 Million.  As of this writing HomeServices of America is the last remaining company that is continuing to challenge through the appeal process.  Re/Max, Anywhere Real Estate, & Keller Williams have decided to settle at different times.

How this affects our clients:  There are two main points that may directly affect buyers and sellers. 

  • The settlement agreement requires that buyers agent commissions are no longer able to be published or communicated through the Multiple Listing Service (MLS). 
  • The settlement also requires agents belonging to the association to have a Buyer Service Agreement with their buyer clients.

One of the major indirect changes that we are seeing as a result of the lawsuits is that listing contracts are being revised to move from a single fee model to a separate fee model. This was an attempt to avoid litigation. In an ironic move, contracts are being written by our leadership to separate out listing agent commissions and buyer’s agent commissions, giving the seller the direct option to offer as little as 0 commission to buyer’s agents. This is the essence of what has been misunderstood in the commentaries; that the sellers have long paid the buyer’s agent fees. We are unsure what the listing contracts model in other states, but the listing agent has been the one to pay the buyer’s agent by sharing the commission amount from their own fee in our area.

This could impact the industry in a few ways.

  • If clients want representation, then the fee for buyer’s agents can easily be tacked on to the costs of a home purchase.
  • Buyers choosing not to be represented may be at a disadvantage and will continue to pay market prices.
  • Sellers should understand that by not paying a buyer’s agent commission, then their buyer prospects are likely to decrease; hence limiting their buyer pool.

This policy change may greatly benefit sellers in a strong seller’s market as we saw in 2020-2022. We believe our regulated policies should transcend all markets for the benefit of homeownership opportunities for all. Our biggest concern is that certain buyers may be negatively affected by these new rules; underprivileged buyers, new home buyers and our Veterans to be the most impacted.  Currently the Federal VA program will not allow VA buyers to pay for their real estate agent’s commissions. They have what are called “non allowable fees” for them to pay. Down payments, buyers closing costs, lender fees and reserve costs are already challenging feats for many buyers to save up for.  Adding additional agent fees on top of this is going to make it even more difficult for some buyers to realize the benefits of homeownership.  There is a good chance that we will see sellers continue to understand the importance of offering a buyers agent commission as it will encourage more offers.  It will take some time for the industry to test the new policies, then react before it settles again. Lending policies and practices will need to change quickly and the industry is advocating for those changes to limit disrupting homeownership opportunities.

Sellers have for a century contracted with licensed Real Estate agents to market and sell their properties.  The listing agent’s fiduciary responsibility is to serve their client to the highest level of service and ability.  This fee included all of the scenarios possible that face the marketing of any property.  It allows the listing agent to search high and wide through marketing, networking, advertising and other forms of communication to find as many buyers as possible for the seller.  This included procuring buyers themselves as well as cooperating with other licensed agents.

The listing commission fee has always been a negotiable option for sellers as we have seen many business models throughout the history of this industry.  There have been systems in place for a “Help You Sell” type model, limited representative models, all the way through to “Full Service” models with varying amounts of service and commission charges available. Unfortunately the “Pay per hour” model has never been popular because of the speculative & risky environment that Real Estate provides. Many clients didn’t want to pay for something in which they didn’t get results because there are too many uncontrollable moving parts.

Through industry practices over time certain systems were established to centralize the marketing of properties for sale.  These systems were identified as Multiple Listing Services where Real Estate professionals were able to communicate the details of the properties they were marketing for sale.  One of the aspects of the MLS is that commissions were published so other licensed agents could identify what the listing agent was offering to incentivize that agent to find a buyer themselves through marketing, advertising and other forms of communication.  These have been published for full transparency for everyone to see within public spaces.  This also benefited the seller. This is the core issue of our current change.  The settlement agreement requires that buyers agent commissions are no longer able to be communicated through the MLS.  This may make it a challenge for listing agents and sellers to market to incentivize buyer’s agents to work to procure buyers for the sale of their properties.  Outside MLS systems are permitted to communicate these fees and we will see if outside companies will step up to fill this void. We’d expect the large corporate Financial Technology (Fintech) companies to work to establish new systems themselves.

In addition to the way buyer brokers are being paid, the settlement also requires agents belonging to the association to have a Buyer Service Agreement with their buyer clients.  Buyers are not required to hire a broker, however if they are represented, then a Buyer Service Agreement will be required.  Details of the policy will be written out in the next few months.  We have instituted this change in our office already although the requirement will go into effect in July of 2024.  The Oregon legislature recently passed a law to require this change in January of 2025 for all Real Estate agents regardless if they are NAR members or not.

The agreement is subject to court approval, but expected to take several months to finalize.  There will be ongoing developments as the details unfold, however we want to address the many articles and pieces of information that have been presented.  With these, there are a number of misconceptions being circulated. 

Frequently Reported Misinformation:

Agents conspired to inflate commissions which increased property values: This is a highly competitive industry and we have never witnessed any efforts to conspire to keep commissions at a certain level.  This is similar to accusing CPAs or attorneys of conspiring to keep their fees high since they are also comparable in their industries.  There were substantial amounts of testimony and evidence that were not permitted in court and the jury only deliberated for 2 ½ hours without requesting important information.

The NAR and MLS systems have required high commissions to buyers agents:  Our MLS did have a cooperative model, but the minimum was as little as $1.  This requirement was also removed prior to the trial.  It can be argued why they had that policy to begin with if it was so insignificant, however it did not inflate prices.

Agents’ commissions inflated the prices of properties:  The market determines the value of a home.  They are worth what buyers are willing to pay for them.  This is often proved when a similar home sells ‘For Sale By Owner’ for a similar price to one listed by an agent.  Unless sellers are not good at negotiating or they don’t care, they don’t pass along savings of commissions to buyers.  They attempt to sell ‘By Owner’ to make more money. The only times we see savings for buyers is when the sellers want to bless the buyers, as in a family situation, or when the sellers are unrepresented and don’t understand negotiating. The market has never taken into consideration the commission amounts in valuations. A similar example is including personal property in a sale.  Anything from appliances, tools and equipment, to animals left on a hobby farm; they typically do not increase the value of any home.  Agents bring value in marketing, negotiating and protecting their clients. There is a cost to do business.

Agents withheld, filtered out, or restricted properties to buyers that had smaller commission amounts: Even if agents wanted to accomplish this, it is virtually impossible. Ever since technology has expanded the exposure of properties for sale, each listing has been advertised as widely as its competition. Finding properties used to be a value of a Real Estate agent decades ago, however that information has been widely available to everyone with the expansion of the internet. Most buyers find their homes prior to agents because the technology has advanced well enough to have the immediate alerts sent to prospective buyers upon activation through the MLS systems. Any changes to a listing including price, status, etc. are also alerted to buyers that have their predestined criteria established.

Sellers do not have to pay buyer’s agent commissions anymore:  Sellers have never paid buyers agent commissions in our market up until this time, other than offering direct bonuses on some rare occasions.  Listing agents have shared part of their total commission with buyers agents to incentivize sales for their sellers.

Sellers can’t offer buyers broker commission anymore:  Sellers may offer any compensation or incentive through their agent or any other legal means they feel necessary.  The only change is that agents are not able to publish buyers agents commissions through the MLS after July 2024.  Agents will need to communicate this through other avenues.  It has long been understood that transparency is the best practice, but this flies in the face of that logic.  Unfortunately many buyers will not be able to know if their agent is being paid through the listing agent without further research.

The standard 6% commission to buy or sell is gone:  There has never been a standard of commission amounts.  They have always been negotiable, however the market oftentimes encourages a certain amount of commission for a certain level of service.  We have experienced commissions in the industry as high as 7% in some situations down to 1%, or a small flat fee.  This has been proven over the years with discount broker systems like “Help U Sell” and other limited representation companies available to the public.  This business model is difficult to maintain and therefore often fails because of the liability and costs associated with this industry.  There are not many of these models in existence today.

The changes will help decrease the prices of homes:  Prices of homes are directly the cause of supply and demand.  The market always determines prices.  Interest rates, inventory, and the economy are the driving factors to supply and demand.  The fees that a professional charges for services has no bearing on Real Estate prices.

Buyers will be able to afford more:  Unfortunately this policy change will hurt some buyers.  Many are going to be the lower income earning segment and Veterans.  It will be difficult for some buyers to afford all of their down payment, closing costs & prepaid expenses, and now their own agent’s commissions.  Seller concessions are capped by all lenders so there is a limit to what sellers can contribute towards buyer fees.  The Veterans Affairs currently does not allow VA buyers to pay their own agent fees. The VA will need to amend their lending policies in order to encourage homeownership for Veterans.  Our Veterans deserve better. 

On a typical home purchase, that alone could save folks an average of $10,000 on the sale or purchase:  Our U.S. president seems to think that buyers and sellers will have it both ways.  The market usually parallels itself.  Have you ever experienced a situation where regulation and policy by the government made items or services cheaper?  Costs are usually passed on to consumers.

More buyers are going to be unrepresented expecting to receive a discount: This scenario will be tested, however buyers should understand that even though they are not being represented professionally, the agents will still handle all of the details of the transaction to protect the seller including opening up for appraisers, managing the inspection processes, communicating with buyers lender to ensure their performance, etc. These details of service will come at a price to the seller, hence the reason why the traditional model prevailed for so many years. Those costs will be addressed through negotiations.

Agents will share the saved commission with buyers: Unfortunately in Oregon, Real Estate commissions are not able to be legally given to anyone who is not licensed with the Real Estate Agency.

The settlement protects agents and companies from future litigation:  Unfortunately there are additional lawsuits from buyers that are not covered in this agreement, so this might just open the door to many future lawsuits.  We can expect more lawsuits to continue from both sides.  Some buyers have filed suits in Illinois named the Batton and Batton 2 cases.  Buyers are also upset so it seems to be coming from both sides.

The settlement will help pay sellers who were harmed:  There are so many people involved in the class action lawsuit that it is estimated that each person will be rewarded small amounts of dollars.  Last time we checked there were over 500,000 members in the class action lawsuit.  They will be allocated amounts based on their sales price and commission amounts that they paid. The real winners are the attorneys who are reportedly making over 30% of the settlement.  Based on the settlement amounts of $626.5 Million, this amounts to over $180 Million.  Michael Ketchmark and his team of 3 attorneys will do just fine. 

Here is a little history of the National Association of Realtors® and why it exists. 

In the early days there was significant fraud, forgery, corruption and disinformation in the early years so the founders created a more ethical way to conduct their services. They created the Real Estate Exchanges which ultimately became the National Association of Realtors®.  This organization has been at the core of fighting & advocating for honest practices, homeownership opportunities and against the countless attempts to overtax and regulate homeownership.  We have been critical of the NAR leadership as of late because they have encouraged practices and lowered the bar to the point that our industry has suffered integrity and professionalism.  Lately some leaders  have been accused of inappropriate behavior and under investigations.  Even through the poor leadership, we have maintained to be NAR members because the organization has fought hard on the national level to protect homeowners interests by lobbying to fight aggressive tactics that would harm them.

Homeownership is at the core of healthy families, mental and physical stability, and wealth creation for all to name just a few valuable reasons.  Homeownership opportunities are also some of the most important economic drivers to preserve. 

Time will tell and 2024 will be a year of testing the new model, but we believe little will probably change as a direct result of the settlement in the long term.  If the market reacts, it will be the cause of supply and demand.  We started to see the market slow down and SHIFT expecting it to have some corrections in 2018-2019.  The pandemic changed everything.  When the government shuts everything down, forces people to stay in their homes, and pays them not to work; you can understand why we are in the position that we are currently in.  All stats that we were researching indicated that we were heading into a shifting market; New Listings vs Under Contract Listings, Absorption Rates, Days on Market, Terminated & Withdrawn Listings, Price Reductions, List to Sold ratios, Median Sales Prices, etc. Here are a few graphs to show the historical trends. (Graphs courtesy of Eric Templeton at AmeriTitle)

The market will continue to guide values and agents will continue to charge for their varying services.  What changes is who might be paying for those services.  A person always gets what they pay for.  Some choose lesser, cheaper services and some desire a higher level & quality of services.  We will probably see more big Financial Technology (Fintech) companies try to further infiltrate the space by attempting to persuade buyers and sellers to use their systems versus the services of a local & trusted real estate professional.  Companies like Zillow, Redfin, Homes.com, Open Door and even Realtor.com along with thousands of others have infiltrated the space for one purpose, and it is not to serve people. They are lead capture sites and they are salivating right now as they position themselves to seize this opportunity.  These companies have traditionally not been Real Estate companies, but technology companies backed by wealthy corporations and Wall Street investors who have one goal: to take over market share and a profit for their shareholders.

Here at Paramount Real Estate Services, our goal has always been to serve our clients to the highest level of quality and professionalism with the highest level of integrity.  We pride ourselves on raising the bar of excellence with our abilities to understand our local market, marketing our properties, negotiating and protecting our clients.  Our focus has not changed as we continue to work hard to earn your business as we strive to be the very best in our industry.  With environments including so many moving parts and exposure liabilities, it is difficult to fully explain to people what we do on a daily basis; but if you’d like to learn more about the details of what we do, please visit this page. We also believe that since this industry is so competitive there are differences in agents, companies and services. Our points of interest are marketing & exposure, negotiations, and protection. We experience a lot of situations, people and consequences to understand that there are different value propositions. Some common experiences can be read here.

We will continue to raise the bar in the industry of service and professionalism and hope that we can be the agents of choice for you and the people who you care about. If you have any further questions or discussions, please contact us as we’d love to have a chance to articulate this in further detail.

National Association of Realtors® Settlement Agreement

This proposed agreement is subject to change and is subject to court approval.

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