National Association of Realtors Lawsuit

Real Estate

I'm sure you've seen a headline or five about the demise of the real estate industry and its compensation model.

If not, on March 15th, the National Association of Realtors (NAR) announced a settlement in a large class action lawsuit, Sitzer-Burnett vs. The National Association of Realtors.

In a nutshell, Sitzer-Burnett was filed in Missouri federal court by a group of home sellers in the state against NAR and other defendants (real estate brokerages), including Anywhere, Berkshire Hathaway HomeServices, Keller Williams, and RE/MAX. The plaintiffs declared, "Together, Defendants have conspired to require home sellers to pay the broker representing the buyer of their homes, and to pay an inflated amount, in violation of federal antitrust law and the Missouri Merchandising Practices Act (“MMPA”)."

While the settlement has not been filed in court yet, the terms of the settlement agreement that begins in mid-July 2024 include that NAR will:

Prohibit offers of compensation to the buyer's broker on the MLS (although offers of cooperative compensation will still be able to occur outside of the MLS); and
Require MLS participants working with buyers to enter into written representation agreements.

How does this lawsuit impact the real estate industry here in Washington?

For now, it doesn't.

The settlement that has been filed has not been approved by the court hearing the case, and there is no guarantee that the proposed settlement won't be modified or dismissed.

It's important to know that the local multiple listing service in Seattle and throughout most of Washington state, the Northwest MLS (NWMLS), is an independent MLS NOT OWNED by the National Association of Realtors (NAR). This lawsuit is against NAR-owned MLSs. We do not expect the transparency NWMLS currently provides consumers to change.

Washington is the leader in compensation transparency. For years now, we haven't required sellers to offer compensation to buyer brokers, and all compensation offers are publicly published so the buyer knows how much their broker is being paid.

Also, as of January 1, 2024, a new law in WA requires buyers and their agents to complete a written Buyer Brokerage Services Agreement "as soon as reasonably practical after a broker begins rendering real estate services." The service agreement details where the agent and buyer shop for homes together, how long they will work together, and compensation for the agent's services. This means an agreement must be signed before an agent can show a home to a buyer and before any real estate advice can be provided.

Here is a handout published by the Northwest Multiple Listing Service and Washington Realtors with details about these changes and the updated Real Estate Brokerage in Washington pamphlet.

How might this impact you as a Seller or a Buyer?

Let's dispel the biggest myth circulating in news outlets: the real estate industry does not anticipate home prices/values will be impacted due to the changes brought forth by the lawsuit. What will change are the conversations that real estate professionals have with both their buyer and seller clients surrounding compensation.

The notion of cooperative compensation (the seller compensating both their representation and the buyer's representation) originated to protect consumers from dual agency. Dual agency occurs when one real estate agent represents both the buyer and the seller, which creates a huge conflict of interest for all parties, but mostly the consumers (buyers and sellers).

In a very direct way, the buyer's real estate agent works for the seller just as much as they are working for their client, the buyer. They are the procuring cause for the sale. Without a buyer for the property, there is no sale. Sellers tend to understand this concept and that they make a substantial amount of money when selling their home. This is why 82% of Sellers in Seattle in the last 180 days have offered compensation of 2.5% or higher toward the buyer's representation.

What will change for buyers moving forward will be the initial conversations they have with their real estate representation when signing the Buyer Brokerage Services Agreement. In that agreement, you will need to establish a compensation amount. Usually, this agreement is signed well before you've identified a home to purchase, which means you're not sure how much compensation the seller will offer.

If you agree to pay your real estate pro 3% and the seller of the home you're purchasing is offering 2.5% compensation to the buyer's side, you could be liable for .5% of your real estate rep's fee. It's not unreasonable to assume that you will compensate for your real estate representation as the buyer. After all, they provide an incredibly valuable service that you'll likely only need a few times in your life. So, it's important to be financially prepared to contribute to their fee, if needed.

It is also an option to negotiate with the seller as part of the purchase and sale agreement for them to contribute toward your real estate broker's service fee. There is a separate NWMLS contract form (addendum) specifically for this type of negotiation, or a closing cost credit could also be applied. Of course, a seller could always say no thank you, especially in a competitive market, but we find that most sellers want to find a cooperative solution that results in a successful sale of their home.

What will change for sellers moving forward is their conversations with their representatives when signing a listing agreement. I will say this really loud for the people in the back: You're not obligated to compensate the buyer's representation as part of your home sale.

But offering compensation will likely position your property for a faster, more lucrative home sale. If a seller offers no compensation, a buyer might decide to pass on the property because of their cash flow limitations if 100% of their cash is earmarked for their down payment and closing costs. So, they may move on to the next property, where the seller offers their representation a more generous compensation amount.

Or, the buyer may try to negotiate their representation's fee as part of the purchase and sale agreement (as described above).

This is good for the real estate industry but could further marginalize many folks.

Transparency in the real estate industry is always welcomed. We're grateful that other markets are finally beginning to have these conversations around compensation with their clients. It's about damn time! However, our greatest concern with all the media attention this topic is garnering is that the would-be buyers who could already barely afford to make a home purchase a reality may be even further discouraged from entering the market.

If sellers begin to reject a cooperative compensation model, it will seriously harm many buyers (VA and FHA homebuyers specifically) and further disenfranchise those who could benefit from the economic rewards of homeownership in the long run.

We're eager to hear from you with your questions on this topic. It's certainly a hot topic in our professional circles!