Central Oregon realtors are grappling with the implications of major pending policy changes for their industry following the settlement of litigation brought by home sellers over broker commissions and transparency.
In a groundbreaking agreement — subject to further review and final court approval — hammered out over several years, The National Association of Realtors (NAR) has agreed to change its guidelines to settle several lawsuits.
The settlement, which once finalized will take effect later this year, calls for the regulatory body to alter its rules on how agents are compensated after a protracted court battle initially brought by a group of home sellers in Missouri.
Industry advocates say one potential positive upshot of the deal is that home buyers will become more aware of the process, and of the mechanism through which the agent representing them is paid.
Sitzer-Burnett was a class-action lawsuit filed in Missouri federal court by a group of home sellers in the state against NAR and other defendants, including national real estate brokerages, claiming that real estate commission rates were too high, and buyers’ representatives paid too much.
It, and subsequent “copycat” lawsuits, alleged the NAR and Multiple Listings Services — effectively private databases that are created, maintained, and paid for by real estate professionals to help their clients buy and sell property — along with the corporate defendants’ practices, lead to inflated commission rates.
A NAR rule that required seller agents to clearly advertise compensation to buyers’ agents — effectively setting compensation for the buyer’s agent — stifled competition, the lawsuits argued.
At the Sitzer-Burnett trial, adjudicated in October 2023, the plaintiffs took particular issue with the “cooperative compensation” scenario, when a listing broker makes an offer of compensation to the cooperating/buyer’s broker.
Despite NAR introducing evidence to show how the real estate marketplace actually works to prohibit anticompetitive behavior and encourage the free market and competition — and how cooperative compensation benefits consumers, including bringing more buyers to market — the jury found for the plaintiffs.
The proposed agreement to end litigation, concluded on March 15, requires NAR to pay $418 million in damages over the next four years and implement process changes that would significantly expand buyer-broker agreement requirements across the country, and remove cooperative compensation information from MLS’s, ostensibly allowing more room for negotiation.
Real estate agents argue that commissions have long been negotiable, and there is no standard set — such as has been suggested in the media, in the 6 percent range.
NAR agreed to create a new MLS rule prohibiting offers of compensation on the MLS. This will mean that offers of compensation cannot be communicated via an MLS, but they could continue to be an option consumers could pursue off-MLS through negotiation and consultation with real estate professionals.
Sellers can still offer buyer concessions on an MLS (for example—regarding buyer closing costs). The changes will go into effect in mid-July 2024.
NAR also agreed to create a new rule requiring MLS participants working with buyers to enter into written agreements with their buyers before the buyer tours a home. NAR has actually long encouraged its members to use written agreements to help consumers understand exactly what services and value they provide, and for how much.
These buyers broker agreements will also set the amount of compensation, how it is determined, and where it comes from.
NAR continues to deny any wrongdoing and maintains that cooperative compensation and professional representation is in the best interest of consumers. Changes triggered by the settlement could also be used as an opportunity to explain their clients’ options, as seemingly many home buyers simply were not aware that the fee for their agents was typically covered by the seller.
The settlement, which must be approved by a judge, provides a path forward for real estate professionals, REALTOR® associations, brokerages, MLSs, and other industry stakeholders.
“Ultimately, continuing to litigate would have hurt members and their small businesses,” NAR Interim CEO Nykia Wright said.
“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.
“For over a century, NAR has protected and advanced the right to real property ownership in this country, and we remain focused on delivering on that core mission.”
At the heart of the proposed rule changes is the uncoupling of commission — buyers and sellers would now each be responsible for paying their own agents rather than making sellers cover fees for both. For buyers, especially those already struggling to amass a down payment for a home, this could present a challenge.
“NAR exists to serve our members and American consumers, and while the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” added NAR President Kevin Sears.
“NAR is focused firmly on the future and on leading this industry forward. We are committed to innovation and defining the next steps that will allow us to continue providing unmatched value to members and American consumers.
“This will be a time of adjustment, but the fundamentals remain: Buyers and sellers will continue to have many choices when deciding to buy or sell a home, and NAR members will continue to use their skill, care and diligence to protect the interests of their clients.”
Some buyers could also opt to approach properties directly, but agents caution that those who go it alone are more likely to fall victim to fraud or misunderstand the process, which could actually end up being more costly.
Wright added, “NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”
Lester Friedman, Managing Principal Broker with Bend-based Premiere Property Group and Central Oregon Association of Realtors (COAR) Board NAR Director, said:” One concern could be that if a Seller is unwilling to participate in a buyer broker fee, how does a prospective purchaser afford professional representation?
“This could be particularly challenging for low- and middle-income buyers who may already be finding it difficult enough to come up with a downpayment. Does that mean buyer professional representation is going to be more a preserve of the wealthier client?
“There are so many unknowns remaining, the settlement process still needs to go through final vetting, but it is mainly creating different mechanics, principally in the way we work with buyers.
“One big issue is the requirement for a signed contract with a buyer before we can show them a property, so, say you are approached at an open house, are you going to have a contract signed with someone you have never met before?
“The way the settlement is proposed a Buyer Broker Agreement would need to spell out what the agent will do for the buyer and indicate the amount of a commission whether percentage or flat fee etc.
“We have always had buyer broker agreements available, and it is good practice, especially as it articulates expectations and parameters of the agent in terms of service and value.
“The other piece is that the MLS will no longer be a place where realtors exchange information on compensation, which often incentivizes more buyers but will not be learned by their agents upfront.
“There has been a lot of misinformation about so-called standard commission rates — in fact, there is not one and it has always been negotiable. I got into the business 25 years ago and the Bend market average compensation for buyer brokers has actually been 2.4%.
“These suits seem to be part of the anti-trust movement, but the settlement was crafted in the best interests of NAR members rather than going through five years of appeals and potentially leaving agents exposed.”
Scott Besaw, owner, and principal broker with Stellar Realty Northwest, said, “My initial takeaways following this agreement is that I still believe that it is in the buyers and sellers’ best interest to use the services of a real estate agent and have their OWN representation.
“I also believe that our current system has been working for buyers and sellers when it comes to buying and selling real estate.
“I do not think this change means the extinction of the buyer’s agent by any means… Obviously, this looks like it is going to change some of the ways we conduct business, but there are still so many unanswered questions.
“One thing I know is that we will navigate this together and figure out the best ways to move forward. For now, I think the best way moving forward in the moment is to first not hit the panic button and start having some proactive discussions with each other within the company on what this means for our clients and the discussions we have with them.”
Owner and principal broker of PLUS Property Management, Lawnae Hunter, who has over 35 years of experience in general real estate brokerage, added, “It may take some time, but this is going to settle out.
“We are going through transition, as have many other industries, but people still need well-informed agents to represent them on both sides.
“In many ways we can see these as positive changes to embrace, including an increased ability for buyers to really understand the role of agents and the services and value they can bring to a transaction.
“We live in a world that is changing. I have seen a lot of changes in my career, and we are going to survive, and ultimately customers will be better educated about the process.”
About NAR:
The National Association of REALTORS is America’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries. The term REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS and subscribes to its strict Code of Ethics.
