In our previous post, we highlighted some changes that recently took place for REALTOR members. In March, the National Association of REALTORS reached a deal to settle a series of lawsuits which targeted the primary way real estate agents get paid -- via cooperative compensation.
Below is an FAQ for your reference. As always, please call or email one of our agents or shoot us a message at hello@goedgerealty.com with any questions.
What were the lawsuits about?
A group of law firms filed the initial case in Illinois federal court, claiming that MLS and industry rules amounted to a "conspiracy" to fix commissions. Last fall, a jury agreed in one of the Missouri copycat lawsuits and awarded $1.8 billion to the plaintiffs.
To summarize, the lawsuits were claiming that the otherwise legal practice of a listing broker offering to split part of the compensation in the MLS with a buyers broker served to keep commissions artificially high. By publishing offers of compensation in the MLS, it was alleged that buyers were being steered away from properties offering low compensation rather than a buyer negotiating for its buyer broker services directly.
Edge Realty has been a member of NAR since 2003, but we do not have a fixed fee, nor have we ever had an agreement with anyone to keep fees at a certain amount. There are many compensation models out there in the marketplace, and we have not heard of an instance where a buyer represented by Edge Realty was steered away from a home they otherwise might have been interested in. Edge Realty takes the fiduciary duties we owe to our buyer clients very seriously.
How many lawsuits were there?
There were more than 20 lawsuits across the country covering a wide range of geographical areas. The original case was filed in 2019. Many were copycat class actions filed more recently after the initial verdict was handed down. Most were brought by plaintiff attorneys representing home sellers, but a few were brought by home buyers claiming they indirectly paid a higher purchase price than they otherwise would have.
Who was sued?
NAR was a defendant in all of them, but each suit has collectively targeted different defendants -- some MLSs, some local and state REALTOR associations, some national franchisors, and some national and regional brokerages. Not every defendant was covered by the settlement.
Who was covered and who was not?
All REALTORS were covered by the settlement, as were brokerage firms with 2022 transaction volume of $2 billion or less. REALTOR-owned MLSs were also covered. However, brokerages with 2022 transaction volume exceeding $2 billion had to opt into the settlement or reach a separate settlement agreement, some of which may become public soon. Edge Realty was not sued.
Were there any problems with the trial?
NAR and other defendants could have appealed the case based on a few potential judge errors. Namely, an allegation of "price fixing" is generally looked at by a court as a "per se" antitrust violations, meaning the existence of the alleged conduct would be price fixing on its face. However, depending on the facts of each case, a court can review an antitrust allegation with a "rule of reason" standard of review, which means even though the alleged conduct existed, there could be other factors which make the conduct pro-competitive and pro-consumer. In this case, NAR and other defendants would have taken the position on appeal that the MLS structure is pro-consumer and pro-competition, leading to faster sales and opening up the market to all buyers who want representation from a buyer's agent. The judge also did not allow evidence to be admitted that the practice of sharing compensation between brokers is legal in all 50 states, including in Missouri where the first trial was held.
Importantly, the Department of Justice, which is charged with enforcing antitrust laws, has said many times in the past that cooperative compensation is pro-consumer and pro-competition. Rather than appeal, however, NAR and many of the defendants settled the case and agreed upon several new practice changes.
What were the agreed upon practice changes and when do they take effect?
The agreed upon rule changes took effect on August 17, 2024. They include:
- Offers of compensation to buyer's agents will no longer be displayed on the MLS or in IDX (MLS-sourced) data feeds to third party portals.
- Buyers need to sign an agreement to work with a buyer's agent prior to touring a home, something that is already required in 18 states. This agreement may take many forms, but it must clearly state the compensation to be paid to the buyer's agent (which can be paid by the buyer, the seller, or shared with the buyer's agent with the listing broker).
- Agents will not be able to collect more compensation from any source that is great than what is in the buyer's agreement.
How will buyer's agents get paid now?
There are several ways a buyer can still engage a buyer's agent to your advantage and compensate the buyer's agent, any and all of which may be used simultaneously:
- Buyers may pay their agent and brokerage firm directly.
- Sellers can agreed to pay the buyer's agent as part of the offer or offer concessions that the buyer may use to pay the agent.
- Listing brokers may still make offers of compensation to buyer's agents (just not on the MLS platform).
So is cooperative compensation going away or not?
No, cooperative compensation remains legal in all 50 states. Offers of compensation are just no longer allowed to be published on the MLS, in light of the alleged "steering" fear noted above. Sellers can still allow listing brokers to share part of the overall compensation with buyer's agents, and agents are allowed to communicate that via email, text, phone call, social media, brokerage website, signage, etc. The key takeaway is that commission and splits, if any, should be negotiated between sellers and buyers in their respective brokerage agreements (listing agreements prior to listing and buyer's agency contracts prior to showing).
Will my financing be affected?
No. As of recently, USDA, FHA, and conventional loan types are not considering any concessions given to a buyer for a buyer's agent fee as part of the "interested party contributions" a seller can otherwise give to a buyer for other costs -- such as title fees, closing costs, appraisals, inspections, surveys, repairs, etc. VA loans used to prohibit a VA buyer from paying their agent, but VA has also followed suit and will allow a buyer to pay their agent directly or indirectly.
Why should I use a buyer's agent?
Prior to the early 1990s, any buyer who worked with a real estate agent to find a property was actually not receiving buyer representation or the fiduciary duties that are commonly set forth in today's agency laws. Rather, every agent worked directly or indirectly for the seller, regardless of which brokerage had the listing. Through this lens, brokers splitting commission was never given much of a thought, as both agents represented the seller and were splitting the work (and therefore the fee) on the seller's behalf.
As buyer's agency laws evolved and became more popular in the late 1990s and 2000s, a small minority of sellers felt it wasn't right for them to pay a second agent who didn't represent them. Various lawsuits targeted this "new" buyer's agency practice, but courts, the Federal Trade Commission, and the Department of Justice routinely supported the notion that sharing compensation was very consumer-friendly, leading to informed consumers, faster sales, and potentially for more money.
Purchasing real estate is one of the largest financial transactions that most people will undertake in their lifetime. For over 30 years, real estate laws have been protecting buyers to make sure they have access to representation, rather than a real estate agent representing a seller directly or as a subagent. Buyer's agents have become a trusted source of competent representation, market expertise, advice, guidance, regulatory/legal compliance, negotiation, and general transaction coordination for buyers. There are plenty of anecdotal accounts of unbeknownst buyers losing money because they did not do certain inspections, did not know what to do when, or because they did not have a professional, trained eye looking at the pertinent aspects of the transaction.