NAR’s Commission Lawsuit Just Started But the Effects Are Already Being Felt

By Franco Faraudo

Commercial property owners who are trying to decarbonize their buildings can find themselves stuck between a rock and a hard place. No matter how much they want to procure clean energy they are often stuck with whatever energy source is provided by their local utility. But now there are private solar installations, called community solar, that can provide properties with renewable energy. These installations can be the key to help buildings go green but these large, local solar farms still face pushback from residents and environmentalists. In today’s featured article we look at the benefits and barriers to the adoption of community solar. But first, let’s talk about the repercussions already being felt from the landmark Sitzer/Burnett, NAR lawsuit.

The lawsuit against NAR, as well as some other large brokerages, for their commission split agreements, started this week in Kansas City (the one in Missouri). The class action lawsuit claims that the long-standing commission sharing system used by real estate agents is anti-competitive. The argument is that requiring sellers to pay for both the listing agent and the buyer’s agent violates antitrust laws and drives up transaction costs for consumers. Even though the case just started, jury selection was this week, but already there have been some effects trickling down through the industry.

Last week NAR announced that they were changing their “participation agreement” to allow the buyer’s commission to be any amount (even $0) in a listing. Some thought that this change could be seen as an admission of guilt. It wasn’t just NAR that made the change. NYC’s predominant broker organization The Real Estate Board of New York (REBNY) announced this week that they will now be prohibiting listing brokers from paying the buyer’s agent. Instead, the buyer’s agent will be paid directly by the seller. This change was likely a preemptive move by REBNY to avoid any similar litigation. One of that the defendants of the Siter/Burnett case are not settling is to avoid the copycat lawsuits that will inevitably occur in other jurisdictions.

NAR is confident that they will win the lawsuit. They have already commented that they feel that their agreements let the market decide on what is a fair compensation amount “Regarding commissions, the market decides compensation rates, and compensation is always negotiable. The free market determines broker commission costs through factors like service quality, customer preference and market conditions,” NAR spokesman Wes Shaw said. “The result is an efficient model for brokers to serve sellers and buyers and to enable market-driven pricing and buyer representation for consumers.”

If they do lose it could be disastrous for NAR and their member MLSs. There have already been some pretty high profile defections from NAR, like the online brokerage Redfin’s decision to stop paying for many of its brokers to be in the organization. It could also dramatically change the power dynamic of the real estate transaction. If buyers are forced to pay their agent directly it could be another barrier to homeownership since those fees would be coming at a time when the buyer is already stuck paying for a lot of expenses including the downpayment. Some worry that it could also push buyers to agree to dual representation, where the listing broker represents both parties in the transaction. This type of agency relationship is the source of a lot of legal battles and is even banned in some states. The industry should be watching closely for the outcome of the case but no matter what the jury decides, the lawsuit has already materially changed the way that the real estate industry operates.

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