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“Breakdown, breakthrough.” I’ve always liked this expression. These two simple words — immortalized in the 1996 film Jerry Maguire, starring Tom Cruise — perfectly encapsulate the transformative power of disruption and change.
In the movie, Maguire’s professional unraveling forces him to confront uncomfortable truths, ultimately leading to a more transparent and meaningful path forward.
A similar dynamic has been unfolding in the real estate industry. After years of entrenched practices being challenged, the breakdown of the status quo brought about by class action commission litigation has set the stage for a breakthrough in transparency and reform.
The National Association of Realtors’ (NAR) settlement, proposed in March, has undoubtedly become the embodiment of that change and a central focus within the industry, albeit accompanied by much conversation and debate.
Fast forward to today: Following the long-awaited hearing in the Sitzer | Burnett case, the NAR settlement has officially received final court approval. Despite the Department of Justice’s (DOJ) last-minute Statement of Interest (SOI), U.S. District Judge Stephen Bough approved the settlement as-is, without any changes, which most observers had anticipated.
So where are we now? Truthfully, I expected to experience my own “breakdown, breakthrough” moment as we moved beyond the final approval of the settlement. Instead, I find myself wrestling with a mixed bag of takeaways, ranging from emerging clarity to lingering confusion and new compliance hurdles.
I suspect many Realtors are likely facing similar feelings of uncertainty as they attempt to grasp recent developments in the real estate industry. Let’s unpack current events.
Clarifying real estate practices
Over the past few months, despite efforts to understand, train for and implement the practice changes promulgated by the settlement, Realtors have been confronted with varying opinions, competing interpretations and diverse approaches to adaptation.
As a result, no unified plan for effecting change has taken shape. This “gray” area, which I covered in another piece, has fostered confusion and hindered uniformity. In some ways, it has also delayed the realization of the “true value” potential promised by the new practice rules.
Before the final court approval drew widespread attention, there was a significant positive step in the Sitzer | Burnett case that seemed entirely eclipsed by the DOJ’s SOI and the subsequent court approval.
With little media coverage — or at least not enough focus on the meaningful details — the plaintiffs’ attorneys filed a motion in support of the final approval of settlements with NAR, the HomeServices defendants, and the Opt-In entities (the Motion).
Of particular interest, the Motion addresses Professor Tanya Monestier’s lengthy objection to the NAR settlement, shedding light on commission workarounds, among other questionable activities.
Notably, whereas straightforward recommendations have been hard to come by in the post-NAR settlement era, particularly when determining whether innovative activities comply with practice rules or fall short, the Motion actually offers unexpected insight into key issues. Borrowing from the title of this article, these clarifications to the practice rules represent “the highs” I’m referring to — and it would benefit all Realtors to take a moment to review them.
The following points, drawn directly from the Motion but presented in Q&A format for simplicity, highlight important areas for Realtors to review, understand and apply going forward.
1. Amending the disclosed buyer broker compensation
Question: Can a buyer broker amend their original written agreement with a buyer (entered into prior to property tours) to increase their compensation after learning of higher compensation offered by a seller or listing broker?
Answer: No. The Motion affirms that buyer brokers may not amend their disclosed compensation with buyers to increase compensation after touring homes.
It states:
“The Settlement protects consumers from conduct where an agent seeks to increase the previously disclosed compensation with the buyer once the agent learns the compensation the seller is offering.”
2. Seller-paid bonuses
Question: Can a buyer broker collect bonuses offered by sellers (or builders) in addition to the compensation agreed upon with the buyer in a written agreement?
Answer: No. The Motion prohibits this practice, as all compensation must be objectively ascertainable and included in the agreement with the buyer.
It further states:
“A broker working with a buyer is unable to receive any compensation other than the specific compensation disclosed to the buyer prior to touring a home — regardless of whether that compensation is styled as a ‘bonus’ or otherwise.”
3. Touring or showing agreements
Question: Can a buyer broker first engage in a touring agreement with a buyer (outlining zero compensation for touring services) and later supplement it or enter into a second written agreement covering compensation for buyer broker services in connection with a specific property?
Answer: No. While the Motion reiterates that the settlement does not dictate any specific duration when it comes to the “binding price disclosure agreement” between a broker and buyer, just as long as it is entered into prior to the home tour, it makes certain that brokers may not collect more compensation than specified in the touring agreement for homes viewed during its scope.
Hence, any tiered strategy for executing written agreements with buyers must comply with the settlement’s requirements.
4. Guaranteed minimum level of compensation up to a maximum
Question: Can written agreements with buyers include vague compensation terms or specify a range of compensation, such as minimums and maximums, depending on whether the seller is paying?
Answer: No. The Motion emphasizes that compensation terms must be “objectively ascertainable, not open-ended.”
For example, it states:
“To the extent there are provisions in written agreements that ask a buyer to vaguely agree to a minimum amount of compensation they will pay their buyer broker and a maximum amount of compensation the buyer broker will receive if the seller is paying, this is impermissible, and the Settlement prohibits such conduct.”
5. Agent accepting whatever is being offered by the cooperating broker
Question: Can a Realtor’s written agreement with the buyer allow them to accept compensation equal to what the cooperating broker offers, even if it exceeds the buyer’s original agreement?
Answer: No. The Motion defines this practice as not permitted, stating that a broker’s compensation is limited to the amount agreed upon in the written agreement with the buyer. Therefore, additional compensation from any source is not allowed.
6. Tailoring the buyer representation agreement to seller-offered compensation
Question: Can a Realtor wait to enter into a buyer representation agreement with a buyer until the terms of compensation with a listing agent or the seller have been negotiated?
Answer: No. The Motion reinforces that the settlement mandates that written agreements must be entered into before any home tours, with clear disclosure of compensation from any source. Agreements left open-ended or finalized after property tours are not allowed under the settlement.
Accordingly, it states:
“If a provision is being tailored to the commission being offered by a particular seller and is left open-ended in the written agreement to be filled in based on whatever the seller or listing broker is offering, or is being entered into after touring a home with the broker and learning what the seller is offering, that is inconsistent with the Settlement.”
Interestingly, critics of Monestier’s objection may owe her some gratitude. Her thorough analysis prompted plaintiff lawyers to clarify real estate practices that are disallowed under the settlement, providing Realtors with more detailed and actionable guidelines.
By identifying specific activities deemed noncompliant with the settlement, the plaintiff lawyers resolved vital questions that had sparked conflicting answers. They closed disputed gaps, addressed exploited loopholes and dismissed misinterpretations of practice changes.
Some of these practices may have seemed acceptable based on Realtors’ prior understanding, but they are now unequivocally prohibited. This newfound clarity, which could easily be overshadowed by other developments, is essential for Realtors to understand and embrace fully.
More importantly, these clarifications — delineating what is permitted and what is not under the settlement — are likely to drive necessary updates to brokerage policies, forms and training. Fortunately, they also bring new compliance goals within reach.
While the above discussion — the good news, if you will — is a “tough act to follow,” it is equally important to delve into “the lows” that have emerged post-final court approval, along with other pressing considerations.
DOJ’s role and ongoing confusion
At this pivotal moment for the real estate industry, with the final court approval now in the rearview mirror, one might have expected a more defined and reliable course of action going forward.
In an ideal scenario — appeals notwithstanding — Realtors could feel a sense of certainty with the decision, perhaps even closure, enabling them to renew their commitment to the practice changes introduced by the settlement, which have been in effect since August.
The reality, however, is quite different. The conclusion reached with final court approval feels far from final, largely due to the DOJ’s eleventh-hour intervention.
Despite having ample time, the DOJ filed its SOI in the Sitzer | Burnett case just two days before the court’s approval hearing, catching many by surprise. In essence — and I’ll leave the detailed legal analysis to antitrust attorneys — the DOJ calls out two important points:
- No shield from future scrutiny: The DOJ indicates that adherence to the settlement does not shield Realtors or NAR from future scrutiny or enforcement actions related to antitrust laws.
- Buyer-broker agreement mandate: The DOJ specifically takes issue with the settlement’s requirement for brokers to enter into written agreements with buyers before home tours. They argue that this rule could harm buyers and limit competition among brokers, even suggesting its removal to avoid potential antitrust issues.
When I first read the SOI, given the DOJ’s criticism of the required buyer-broker agreement, I couldn’t help but think — perhaps somewhat naively — that the parties might have to return to the negotiating table. After all, why would they accept a settlement that clearly leaves them exposed to continued DOJ examination and potential enforcement actions?
Put differently, even if Realtors comply — perfectly, I might add — with the practice changes, they remain vulnerable to DOJ action.
Now, like many others, I’m left scratching my head and wondering: What does this mean for ethical Realtors who are working hard to comply with the settlement?
A call to NAR for action
Before I propose what I believe should happen next, let’s ensure the table is properly set. On one hand, Realtors may find comfort in NAR’s response to the DOJ’s SOI. In its filing, NAR contends that the DOJ’s assertions regarding the buyer-broker agreement are unfounded, stemming from a misinterpretation of the settlement.
Addressing the request to remove the buyer-broker agreement rule, NAR says: “there is no need for the parties to ‘eliminate the provision,’ as the Antitrust Division requests — as written, it already is expressly subject to state and federal law and regulation.”
By framing its actions as aligned with established legal standards, NAR positions itself within a defensible framework, seeking to diminish the DOJ’s claims and reduce its potential leverage.
Additionally, NAR’s letter to members from President Kevin Sears — which I found on LinkedIn following the final court approval — and information on its public website seem to downplay the DOJ’s role as a major threat, offering Realtors a sense of reassurance.
Naturally, it’s also possible that NAR’s public confidence serves to coalesce its members and stakeholders, aiming to prevent panic or speculation. By controlling the narrative, NAR appears to underscore compliance with the settlement over the potential risks of DOJ enforcement.
On the flipside, and trust me, I cringe to suggest it, but it’s entirely feasible that things may get worse before they get better. At least, that’s one perspective if you’re looking down from this compliance molehill surrounding the settlement.
Nevertheless, one thing I know for sure — or more aptly put, what I would like to see happen — is that NAR must take some fundamental actions immediately. The written guidance and FAQs on its website, which Realtors, stakeholders, industry professionals, and even consumers rely on for direction, need a thoughtful and timely update.
In doing so, there are at least three priorities that require urgent attention:
- Clarify prohibited activities: NAR must act swiftly to publicize prohibited activities under the settlement, primarily those that were not initially seen as noncompliant. Realtors need a “crystal clear” understanding of these boundary lines to more accurately align their practices with the new rules.
- Address settlement hotspots head-on: NAR should directly tackle the contentious issues arising from the settlement, including cooperative compensation, the use of association forms by Realtors (and whether this introduces more risk than compliance), and the buyer-broker agreement mandate. Realtors cannot operate effectively with one institution stating that something is permissible while another asserts it is not. It’s already challenging enough that state law and the settlement do not always coincide.
- Provide a practical compliance roadmap: NAR might offer a comprehensive, actionable roadmap for Realtors — both brokers and agents — detailing steps for achieving compliance with the settlement. This is especially paramount in light of the DOJ’s concerns about practices that have become part of Realtors’ professional landscape. The elephant in the room remains the DOJ, and a pragmatic approach involves acknowledging this reality so that Realtors can prepare for what lies ahead.
Bottom line
As a compliance consultant observing from the sidelines, the current situation the industry finds itself in is challenging, to say the least. Above all, it feels unfair to those who are truly dedicated to their clients, fiduciary duties, and the profession — those who have been “on board” from the beginning with shifting norms and the industry’s push for transparency.
At this unique juncture, and without the benefit of a crystal ball, all I can prescribe is proactive and vigilant compliance, prudent and multipronged risk management, and the chief task of actively monitoring news, developments, industry support, and legal actions.
In fact, if revised guidance from NAR doesn’t materialize, Realtors should request it, as they find themselves once again in new territory with identifiable roadblocks.
Although I would prefer not to end on this note, I feel compelled to: Critical thinking is a must. Don’t simply receive, accept and move on. Conversely, Realtors should assess, question and vet all information, suggested real estate forms and advice from any source.
Ultimately, this isn’t about trivial matters; it’s about the core of individuals’ careers, their professional longevity, and the significant liabilities they face in the new normal that is real estate.
Editor’s note: Licensed real estate agents should always check with their responsible brokers for guidance, direction and policy regarding the new practice changes, and licensed real estate brokers would be wise to consult with a licensed attorney for legal clarification and support.
The opinions, suggestions or recommendations contained in this discussion are based on Summer Goralik’s experience working for, and knowledge of the laws enforced by, the California Department of Real Estate and must not be considered legal advice or relied upon as legal advice. You should consult with your brokerage, and/or appropriate legal counsel in your jurisdiction, for further clarification.
Summer Goralik is a real estate compliance consultant and former CA DRE Investigator in Huntington Beach, California. Connect with her on LinkedIn.
