The National Association of REALTORS®, along with HomeServices of America and Keller Williams Realty, begin trial Monday in Kansas City, Mo., in the case Burnett et al v. National Association of REALTORS® et al. NAR will present the facts and law about its pro-consumer, pro-business competition rules that plaintiffs in the case are calling into question.
In the trial, set to begin Oct. 16 with a verdict expected by Nov. 10, plaintiffs allege commission rates are too high, buyer brokers are being paid too much, and NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants’ practices, lead to set pricing. The case covers the Kansas City, Mo.; St. Louis; Springfield, Mo.; and Columbia, Mo., markets.
“NAR fundamentally disagrees with how class action attorneys are characterizing our rules,” says Katie Johnson, the association’s chief legal officer and chief member experience officer. “NAR’s rules and local MLS broker marketplaces very much benefit consumers and allow business competition to thrive.”
Among the rules that contribute to those marketplaces is the compensation rule, which calls for a listing broker to make an offer of compensation to buyer brokers who bring a buyer to the transaction. That offer can be any amount whatsoever. Like other rules related to REALTOR®-affiliated local broker marketplaces, this guideline was established as part of a very involved and public process, and it is aimed at efficiently and transparently providing information for brokers and their clients.
The Case NAR Will Make
The very reason NAR exists as a trade association is because there was a need, identified more than 100 years ago, for a higher level of ethical practice in real estate. The further realities are:
- Compensation is set between brokers and their clients and is always negotiable.
- Commission rates are market-driven and have fluctuated over time. Those costs are spelled out to buyers and sellers, and NAR doesn’t tell anyone what to charge.
- The free market and competition are encouraged by NAR.
- There’s incredible value in using a real estate agent, especially a REALTOR®, when you buy or sell your home.
- REALTORS® look out for their clients above all else, and buyer brokers exist because consumer protection advocates thought they were important.
- Article 1 of the NAR Code of Ethics requires a REALTOR® to “protect and promote the interests of the client.” NAR also has rules that prohibit antitrust behavior.
What Is at Stake
Changing NAR’s pro-consumer rules would jeopardize consumers’ equal access to homes for sale, affordability and the stability of the entire housing market. Because of NAR’s rules and how well local REALTOR®-run MLS broker marketplaces function, consumers have access to the largest database of properties available. The rules and marketplaces also facilitate competition among businesses of all sizes, pricing and service models. If the plaintiffs were to be successful:
- It would lead to increased out-of-pocket expenses for buyers and threaten their ability to afford a home and professional representation.
- Sellers would have fewer potential buyers seeing their homes.
- Small brokerages and small businesses would have more difficulty competing with larger brokerages and likely many would go out of business.
- A fracturing of local MLS broker marketplaces as we know it would lead to a disorganized market, piecemeal approaches to finding properties for sale, and less reliability in the information available on properties for sale.
Potential Trial Outcomes
The optimal scenario is an immediate win for consumers in the trial, which means NAR and the corporate defendants prevail. Another outcome is a monetary damage award against the defendants. Another could be a court order changing NAR’s policies or how commissions are paid to brokers. It’s also possible that the jury will not reach a verdict, which means the case could be re-tried later. It’s highly likely that no matter which side prevails at trial, the losing side will appeal. That means a definitive ruling is not imminent, and it will likely be several years before the case concludes.
Anywhere Real Estate (formerly Realogy) and RE/MAX—previously also defendants in the case—recently reached a tentative settlement with the plaintiffs. It appears Anywhere and RE/MAX are agreeing to do things already required by NAR’s Code of Ethics or MLS rules. The proposed settlement does not change how NAR’s case is presented in court. NAR also has been open to a resolution outside the courtroom that maintains a way for buyers and sellers to continue to benefit from the cooperation of real estate professionals and eliminates our members’ risk of liability for the claims alleged.
What NAR and You Can Do
NAR is preparing for all outcomes. At the same time, the association has been sharing with news outlets and interested parties how our rules and local MLS broker marketplaces benefit consumers and advance business competition. In addition, there are two main ways REALTORS® can take action:
- Sellers already sign contracts agreeing to what they will pay in commission to their agent. When you work with buyers, it’s important to use buyer broker agreements and be reminded of your obligations under the Code of Ethics to clearly advise your clients about the terms of the transaction.
- Always let your clients and others know the value of working with a REALTOR®, a member of the National Association of REALTORS®, how commissions are market-drive and negotiable, and how competitive the market for real estate services is.