by Chris Fowler and Jon Phillips, Buckley Law, P.C.
Background on the litigation
In 2019, several home sellers sued the National Association of Realtors (NAR) under a class-action suit. The suit alleged that real estate commissions were too high, buyer’s agents and firms were compensated too highly, and that the practices of the NAR led to inflated commission rates. The trial occurred in October of 2023 and the home seller plaintiffs prevailed.
The jury awarded the plaintiffs $1.8 billion. Several additional Defendants and the NAR agreed to proposed settlement terms with additional plaintiffs and those settlement terms are currently under review for judicial approval. These terms, once approved, may significantly affect how real estate professionals conduct business. The court granted preliminary approval on April 24, 2024. The practice changes set forth in the settlement agreement will take effect August 17, 2024, and class notice will take place no earlier than that date. The settlement is subject to final court approval.
Proposed Settlement Terms
The two most significant proposed settlement terms are: (1) the elimination of any discussion of commission and broker compensation from Multiple Listing Service (MLS) listings, and (2) all MLS-participating brokerages will be required to enter into written agreements with buyer clients before entering a home. Put another way, when listing agents list homes on MLS, they’ll no longer be able to include the buyer agent’s compensation, and buyers will need to have written agreements with their agents.
Before this ruling, MLS listings could describe commission compensation being paid to a prospective buyer’s agent, and could set the rate unilaterally. This will change going forward under the proposed settlement terms, and there will not be any discussion of commission compensation permitted on MLS listings moving forward. Commission rates and who they are paid by will still be a negotiable part of the sale transaction, however it must be done outside the MLS listing between the agents and the buyer and seller.
The second major change under the proposed settlement is the requirement that buyers and buyer agents enter into a signed, written agreement prior to showing any properties for sale. Though these agreements currently exist, they are neither required nor regularly used. This will change going forward, and will fundamentally change how buyer agents represent buyers, and the responsibilities of buyers regarding agent commissions. The written agreements will have to disclose the amount or rate of compensation and how it will be determined, the amount must be objectively ascertainable and not open-ended, and realtors may not receive compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer.
What does all this mean going forward?
You may be asking yourself exactly how this all impacts you. The proposed settlement will have a significant, yet differing, effect on agents, principal brokers, home owners and home buyers. As agents and principal brokers, how do these terms change your day-to-day operations? What information needs to be in a buyer agent agreement? How can you ensure you will receive your commission? As home owners selling your home, which agent’s commission are you responsible for paying? What options do you have in paying commissions to agent? As a buyer, how does this affect your ability to purchase a home? What do you need to look for in a buyer agent agreement?
There are significant questions and uncertainties in how the proposed terms will be implemented across the industry, and making sure every party to a sale transaction understands their rights and obligations is paramount.
We at Buckley Law are here to answer these questions and help you navigate these unknowns. If you have questions or need legal assistance regarding real estate and contracts, please contact the Buckley Law real estate team of Chris Fowler, Jon Phillips or Matthew Borghard at 503-620-8900.
Chris Fowler, LL.M.
Chris Fowler is a Shareholder in the Real Estate and Business practice groups. His practice is focused on real estate, and Chris regularly advises clients on both litigation and transactional matters. He also regularly advises clients in the areas of: business, finance, commercial law, construction, regulatory compliance, banking, and litigation.
Jon Phillips is an associate in the firm’s Real Estate & Construction Law group. He is also a member of the Litigation department. His knowledge of business, and real estate matters enables him to provide custom strategies to achieve success for clients. He is also a licensed broker and had worked for several years in real estate and property management.
This material is provided for informational purposes only. The provision of this material does not create an attorney-client relationship between the firm and the reader, and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel. Do not take action in reliance on the contents of this material without seeking the advice of counsel.