The NAR commission settlement is final, yet we’re still waiting

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It seems like we’ve been in a time warp ever since the Sitzer | Burnett verdict was rendered on Oct. 31, 2023, and we have spent the better part of this year learning new ways of doing business, including new forms, procedures and protocols. 

The lead-up to the Aug. 17 transition was filled with a lot of anxiety about what was to come. Would consumers be willing to sign a buyer representation agreement? Would they be willing to compensate us if the seller would not or at least pay the difference? What would happen if they ultimately could not afford to pay or decided not to?

The date of final approval, Nov. 26, 2024, seemed way off in the distance, but that long-awaited date finally arrived. It went mostly according to plan, but with appeals in progress, there’s no sigh of relief for the real estate industry.

There were many objectors; not all could attend in person, and there were time limits on how long they could speak.

I listened in on the final settlement hearing, and between all the phones beeping from people joining the call and listeners forgetting to put their phones on mute, one quote stuck out to me from Ethan Glass, one of the lead attorneys representing the National Association of Realtors, who said, “It is a liability to be a real estate broker anymore.” Wow.

You would think we were performing life-saving surgeries on people. There is tremendous significance in what we do — shepherding people through one of the single largest transactions they make in their lifetime — but who would have thought that a profession whose focus has always been on helping people from all walks of life achieve the American dream of homeownership would become a risky undertaking? 

And all of that risk falls on the real estate professional, who typically doesn’t get compensated for their time and effort or reimbursed for expenses spent on behalf of clients until closing. Often, the compensation at closing isn’t enough to cover the time and expenses spent on the transaction, nor the incubation time it took to get to that point.  

4-fold settlement outcomes

I am all for establishing some parameters for working with buyers and making sure they understand that our services are not free. That has been a positive outcome of the settlement, but to the tune of millions of dollars paid to attorneys? 

The outcome of this settlement is four-fold:

1. The attorneys are running all the way to the bank.
2. The Department of Justice (DOJ) has left the door open to come after our industry.
3. Lawsuits will continue in many ways, shapes and forms (as it is, appeals to the settlement have been filed).
4. We, as an industry, are questioning our own practices, including the “three-way” agreement, with its mandatory membership requirements for NAR tied to our state and local associations, along with rules surrounding the Clear Cooperation Policy. 

In some ways, this has felt like coming out of a cult where we never questioned what we were told we had to do and just moved in lockstep with the masses. Now, our industry is stepping outside of itself and looking from the outside in. Everything is being questioned, scrutinized and reevaluated. 

The settlement leaves us with more questions than answers and no clear path ahead. It reminds us of numerous unresolved issues and incredible frustration and resentment by many toward an organization that we don’t have a choice to belong to (for the most part). Even one of the attorneys who appeared at the hearing to object made comments referencing NAR’s lavish spending as recently reported.

The settlement, practice changes and the DOJ’s challenging of it have proved too much for sorting through the confusion for even the best legal minds out there, and real estate brokerages who paid jaw-dropping amounts of money to settle these claims, along with agents who really have no clear path of certainty ahead, other than to follow the practice changes until the next lawsuit tells us not to, are also victims here. 

Can we make this simple?

Perhaps a simpler solution would have been to provide buyers with a disclosure explaining how buyer’s and seller’s agents are compensated, along with a disclosure explaining what buyer representation is and what the various options look like. The buyer signs an agreement when an offer is made.

We, as an industry, have been kept in the dark about so much. Over the summer, NAR President Kevin Sears relayed that our trade organization had several conversations with the DOJ, and he felt those conversations were productive. We don’t really know the specifics of what was discussed.

Plaintiff lawyer Michael Ketchmark also said he had discussions with the DOJ, as did the Consumer Federation of America. Surely, the concept of buyer agreements had to come up, and the DOJ probably gave feedback. 

Before a seller signs a listing agreement to commit to an agent, a seller does not have to sign anything just to meet with them to discuss the selling process, provide market information and insight, discuss marketing strategy and pricing recommendations, and even provide resources to help them prepare. 

Buyers want and need to see properties with an agent and to engage with them in order to buy, whether virtually or in person (even if they have seen properties by attending open houses). The difference is that now, buyers have to sign agreements before seeing homes. We can’t build a relationship over a mandatory document when the reservoir of trust is zero with the agent before they have seen us start to work for them.

While we can be as buttoned up and prepared in our buyer presentation as possible, the buyer might be reluctant to get tied up in something for fear they may pay a costly financial penalty for working with someone when they have no idea how all will go. 

Sure, there are touring and limited representation agreements that can be utilized where no compensation would be owed, but that has risks for us, and this shouldn’t be a game that we must play. This settlement has shoved us in a box with no way out.

We are in an impossible-to-predict business, as every transaction and buyer is different. The requirement that we must put a round peg in a square hole with compensation that can’t be modified, except when reducing our fee, doesn’t work so well in an industry that is TBD, with a variety of factors involved.

Start too high with your fee in the buyer’s agreement, and you may scare the buyer. Start too low to make the buyer comfortable, and you may cheat yourself out of hard-earned compensation wherein the time expended likely exceeded the paycheck. That is why attorneys bill for their time instead of charging a flat fee, and it always goes up, never down. 

Legislation and legal verdicts often yield unintended consequences, and the people involved in making these decisions are not typically involved in the industry that it affects. It is much easier to architect policy than to be involved in its implementation and execution. 

Unintended consequences

There seems to be a false sense of hope or propagating the narrative to justify the outcome of these lawsuits that costs will significantly go down for buyers and sellers. I fail to see how. Consumers understand our services are not free.

Home equity is not eroding (and if it were, we would have a significant problem on our hands like 2007 and 2008 all over again). There is no doubt that buying and financing the purchase of a home sale has gotten significantly more expensive due to tremendous price gains resulting from the pandemic and the rise of interest rates. While buyers don’t like it, they don’t want to see home values plummet whenever they choose to buy.

No one wants to lose money on the single largest transaction they make. Mortgages come with closing costs, and a buyer is required to secure and pay for one year’s worth of homeowner’s insurance before closing, in addition to money for prepaid taxes and insurance. Lenders are not reducing or wiping out closing costs for buyers the last time I checked, and their services are not free, either. 

Many states, cities and counties impose fees when buying and selling real estate. For example, Florida has two taxes on mortgages called note stamps and intangible tax, coupled with deed stamps on the sales price of a home. This adds several thousands of dollars to a transaction for consumers.

Many cities have point-of-sale requirements and require inspections, or there is a transfer tax. These must be collected at closing, or the closing won’t happen. Who pays may be negotiable, but this is money coming out of the consumers’ pockets. 

Title and escrow companies perform services related to the transaction with regard to title search, exam, insurance and closing fees. They are paid on a per-transaction basis, and I don’t see them eliminating or cutting their fees in half or more. So, where are the savings?

We are just a few months into the new normal, preliminary reports indicate compensation has not gone down. I’ve said it before, and I’ll say it again: If the attorneys involved in this case really wanted to reduce costs for consumers, a significant portion of the settlement should have been set aside for a housing trust fund whereby consumers could apply to receive funds to assist with buying or selling a primary residence. 

Where all of this goes in the next one, two or five years is anyone’s guess. The future holds myriad litigation, and the DOJ weighing in may change everything again. Our industry is used to the constant change, and we know never to get too comfortable.