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What NWMLS Did in Response to NAR Litigation?

On Friday, March 15, 2024, NAR announced a proposed agreement in an attempt to settle all related litigation of home seller’s claims.  NAR agreed to pay $418 million to the plaintiffs over 4 years.  NAR also agreed to require brokers to make several practice changes and MLSs to make several rule revisions in return for a release of claims.



 

in court

Background Information


Class Action Litigation


In 2019, two class action lawsuits (known as Moerhl and Sitzer/Burnett) were filed against NAR and several large brokerage franchisors.  The plaintiffs, home sellers, alleged that the defendants conspired to artificially inflate commissions paid to real estate brokers based on a mandatory NAR rule that requires the seller, via the listing broker, to offer compensation to the buyer’s broker. Those cases progressed on different timelines over the past five years.


NWMLS Rules and Forms Revisions


Since 2019, NWMLS has spearheaded initiatives that afford consumers transparency, choice, and clear opportunities to negotiate their broker’s compensation.

In 2019, NWMLS eliminated the requirement imposed by other MLSs that a seller, via the listing broker, offer compensation to the buyer’s broker. At the same time, NWMLS was the first multiple listing service in the country to publish the amount of compensation offered to the buyer’s broker.


In 2022, NWMLS again led the industry by providing even more transparency and flexibility for buyers, sellers, and brokers. The most notable changes included:

  • “De-coupling” broker compensation, meaning that any compensation the seller chooses to offer the buyer broker is set and paid by the seller — not the listing broker; and

  • Any compensation the seller chooses to offer to the buyer broker is prominently stated on the first page of the purchase and sale agreement, with an opportunity for the compensation to be accepted by the buyer and the buyer’s broker or separately negotiated by the parties.


NWMLS’s most recent efforts to promote transparency, choice, and negotiation opportunities are revisions to the Washington state “Agency Law” that were effective January 1, 2024. The new law requires brokers to enter into a written services agreement to represent either a buyer or a seller.  All services agreements must comprehensively address the broker’s compensation, the scope of representation and all related terms.


With the revised Agency Law and NWMLS’s system of rules and forms, buyers agree on how much to pay their own brokers at the outset of their relationship and can then negotiate for the seller to help cover that cost as part of the purchase.  Sellers negotiate how much to compensate the listing firm and also decide whether to offer compensation to the buyer’s broker and the amount of any such offer. 


Jury Verdict


On October 31, 2023, a jury in Missouri issued a $1.8 billion verdict in favor of the plaintiffs in the Sitzer/Burnett case.  The jury found that the defendants conspired to artificially inflate commissions paid to real estate brokers based on a mandatory NAR rule that requires the seller, via the listing broker, to offer compensation to the buyer’s broker.  Prior to trial and after the verdict, several of the defendant franchisors settled with the plaintiffs. 


Since that jury verdict, there have been more than 20 “copycat” cases filed around the country making similar claims by sellers against NAR and a variety of defendants, including brokerages and MLSs.


 

handshake

NAR’s Proposed Settlement Agreement


On Friday, March 15, 2024, NAR announced a proposed agreement in an attempt to settle all related litigation of home seller’s claims.  NAR agreed to pay $418 million to the plaintiffs over 4 years.  NAR also agreed to require brokers to make several practice changes and MLSs to make several rule revisions in return for a release of claims, which are outlined below.


NAR’s proposed settlement agreement is complicated and more than 100 pages long.  The agreement has not yet been approved by the court, and there are still many questions related to the agreement including whether DOJ or any state agency will file an objection to the proposed settlement terms.  Some of the questions will be answered, and others will remain outstanding questions, as portions of the agreement lack clarity. 


Also note that there are several additional cases filed by buyers against NAR, franchisors, and large brokerage firms.  Those cases involve similar claims and issues, the difference being that the plaintiffs are buyers, not sellers.  NAR’s recent proposed settlement agreement does not provide a release from liability related to the buyer side cases.


Please note that this is only a brief outline of NAR’s proposed settlement agreement and is not a complete description of all the terms and requirements of the agreement.  Firms and brokers should consult their own attorney for legal advice regarding the proposed settlement.


Who is released if NAR’s proposed settlement agreement is approved by the court?


  • Individual brokers who are members of the Realtor organization on the date of “Class Notice” (which has yet to be determined), abide by certain practice changes, and agree not to assert any claims against NAR are released.

  • Brokerage firms who had annual transaction volume of less than $2 billion in 2022, are members of the Realtor organization on the date of “Class Notice” (which has yet to be determined), abide by certain practice changes, and agree to not assert any claims against NAR are released.

  • Brokerage firms who had an annual transaction volume greater than $2 billion in 2022 can “opt-in” to the settlement if they pay a monetary amount calculated based on a formula outlined in the settlement, are members of the Realtor organization on the date of “Class Notice” (which has yet to be determined), agree to abide by certain practice changes for a period of five years, and waive any claims against NAR.  Those firms also have the option to mediate with the plaintiffs if they are unable to pay the predetermined amount. 

  • Multiple listing services that are wholly owned by a Realtor association(s) can “opt-in” to the settlement if they agree to certain rule revisions for a period of 7 years and agree to not assert any claims against NAR.

  • Multiple listing services that are not wholly owned by a Realtors association(s) can “opt-in” to the settlement if they pay a monetary amount based on a calculation outlined in the settlement, agree to certain rule revisions for a period of 7 years, and agree to waive any claims against NAR.


Both brokerage firms and MLSs must “opt-in” within 60 days of the filing of the first motion for preliminary approval of the settlement agreement.  That motion has not yet been filed as of the date of this summary.


What are the practice changes required for brokers and brokerage firms covered by NAR’s proposed settlement agreement?


  • Enter into a written agreement with a buyer before the buyer “tours any home.”  The agreement must address the broker’s compensation, which must be a certain amount and not open ended.  The broker may not receive compensation from any source that exceeds the amount in the agreement with the buyer.

  • Brokers may not represent to buyers that their services are free, unless they will not be compensated for their services.

  • Listing brokers must disclose to sellers and obtain the seller’s approval of any payment or offer of payment that the listing broker or seller will make to a buyer broker.

  • Brokers must disclose to buyers and sellers that commissions are negotiable and not set by law.

  • Brokers must not filter out or restrict listings based on the existence or level of compensation offered to the buyer broker.  Note that the settlement is contradictory regarding whether a buyer can instruct a broker to filter out listings based on compensation.


The practice changes must be implemented within 150 days of the of the filing of the first motion for preliminary approval of the settlement agreement.  That motion has not yet been filed as of the date of this summary.


NWMLS brokers who have been complying with the Agency Law (RCW 18.86), abiding by NWMLS’s rules, and using NWMLS’s forms have been substantially complying with these practice changes for some time.


What are the rule revisions required for MLSs subject to NAR’s proposed settlement agreement?


  • Eliminate any requirement that listing brokers or sellers must make offers of compensation to buyer brokers.

  • Require the use of buyer representation agreements before the buyer “tours any home.” 

  • Prohibit brokers from making offers of compensation on the MLS, eliminate all broker compensation fields on the MLS, and refrain from facilitating offers of compensation to buyer brokers.

  • Prohibit any requirements for membership conditioned upon offering compensation to buyer brokers.

  • Develop educational materials consistent with the rule changes in the settlement.


NAR’s proposed settlement agreement does not prohibit sellers and brokers from offering compensation outside of the MLS platform or sellers from offering buyers “concessions” on or through the MLS, so long as the use of such concessions is not limited to buyer broker compensation. 


To be covered by the release under NAR’s proposed settlement agreement, the MLS rule revisions must be implemented within 150 days of the of the filing of the first motion for preliminary approval of the settlement agreement.  Again, that motion has not yet been filed as of the date of this summary.


 

NWMLS and NAR’s Proposed Settlement Agreement




Will NWMLS “opt-in” to NAR’s proposed settlement agreement? 


NWMLS is owned by its member real estate firms.  NWMLS is not affiliated with NAR or any state or local association of Realtors.  Accordingly, NWMLS is not automatically covered by NAR’s proposed settlement agreement or the required rule changes.


NWMLS is not required to participate in the agreement, but NWMLS has the option to “opt-in”.  As noted above, NWMLS has already made rules and forms changes that address issues raised by the national litigation and outlined in NAR’s proposed settlement agreement. 


Like many organizations, NWMLS is still evaluating all of its options related to NAR’s proposed settlement agreement. 


Will NWMLS change its rules and remove compensation from the MLS?


NWMLS’s system of rules and forms, together with the revised Agency Law, already provide both buyers and sellers with complete transparency, choice, and control of broker compensation.  NWMLS’s system also supports brokerage innovation and compensation models.  NWMLS will continue to review its rules and forms to take advantage of every opportunity to enhance the quality of real estate brokerage services in the Northwest. 



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