Now They Want a New Trial. Could NAR Ever Drop Its “Clear Cooperation” Policy?

There’s a rule most people follow in the residential real estate world. You’re likely familiar with it. The seller covers the agent fees for both sides of the deal. The seller’s and the buyer’s agents typically split 5% or 6% between the two.

Of course, the home buyer ultimately pays for it all — as an ordinary part of the price of acquiring a home. Well, it’s not so ordinary any more. The industry has now been sued over its fee-sharing practice.

In late 2023, a Missouri jury issued its verdict in the Sitzer/Burnett agent commission trial. The jury determined that the industry owes sellers $1.8 billion for artificially keeping commissions high, through collusion and antitrust violations.

This month, the National Association of REALTORS® called for a new trial.

They’re Putting Up a Formidable Fight…

But the National Association of REALTORs® may need to accept that its “MLS Clear Cooperation” fee-sharing policy won’t cut the mustard in the future of real estate.

Under NAR’s rule, sellers’ agents offer a payment to buyers’ agents to be able to list a home through the multiple listing service (MLS).

But Sitzer/Burnett marked a major milestone for home sellers. The jury agreed with the sellers who said agent groups were essentially conspiring to keep their fees high. The sellers said the agents’ groups were doing it through the key U.S. real estate listing system, where their knowledge and entrenched practices give them an edge over consumers who might prefer to negotiate those fees.

Would ending NAR’s current system be good or bad? Depends on whether you’re for or against the way agent commissions are set.

So let’s take a quick look at the key points on each side.

So, How Do They Defend Those 6% Commissions?

What’s the industry’s argument for those 5% or 6% agent commissions (depending on location) that get split between the seller’s and buyer’s agents? Here are a few arguments in support of the fee-sharing practice:

The rate is necessary to cover the real costs of agents’ time, effort, and liability risks.

These fees were always negotiable.

No consumer is forced to sign a contract saying they will pay a commission.

Another argument from the agent side is that buyers could have to pay more for a home if the standard 6% total fee weren’t there.

The “slippery slope” argument also comes up. If real estate agents can’t set commissions, who’s next? Will anyone paid by commission be accused of collusion and subject to lawsuits?

And the Argument Against the Commissions?

Opponents of the commission-sharing rule say:

A home seller shouldn’t have to cover both agents’ fees to create a purchase agreement.

Giving 3% of the deal to each agent means paying a fee that’s too high.

And agents shouldn’t be shielding themselves and each other from competition.

NAR’s opponents point out that the standard commissions in real estate deals seem firm to sellers (and buyers’ thoughts on the matter are ignored). Who knew sellers don’t have to say yes to 6% agent commissions? Now we know. Maybe the industry needed to make that fact more obvious all along.

What’s New Since October’s 1.8 Billion Jury Award?

NAR and two key co-defendant brokerages, HomeServices of America and Keller Williams, have filed new motions with the court this month.

NAR now wants to demonstrate that its rule for participation in listings “does not restrain trade” and that the jury verdict against the rule amounts to a “miscarriage of justice.” In short, the defendants want a new trial.

The deadline for plaintiffs to respond with their opposition motions is February 26.

Then, NAR and the brokerages get until March 18 to respond again. They’ll need to counter NAR’s claim that they failed to “present the jury with evidence that NAR conspired with another Defendant” to set commissions.

The court has four more months to make its final ruling on the case — that’s slated for May 2024. Also in May, the settlement made by RE/MAX and Anywhere Real Estate is scheduled for a confirmation conference.

Meanwhile, more legal attacks on NAR’s rule are piling on in various states. Seems plaintiff lawyers emboldened by the hefty jury award in Sitzer/Burnett are rising to the occasion.

The continuing need for legal counsel is going to tie up real estate industry funds as well as court resources. Given its willingness to fight on, NAR and the brokerages must believe there’s much more at stake than that 1.8 billion the feisty sellers have won so far in Missouri.

What Was Wrong With the Jury Trial, in NAR’s View?

NAR and the other defendants filed separate papers, but the gist of their arguments comes down to a few points. They blasted the suit for making a federal conspiracy case out of the fee-setting practice — particularly where state law permits fee-sharing.

Although the rule is called the “Cooperative Compensation Rule” in NAR’s words, NAR says the court wasn’t actually shown evidence of cooperating. No one distributed emails or meeting schedules showing active cooperation, NAR argues. So the matter doesn’t warrant class-action, anti-trust treatment.

NAR called the jury’s award excessive. When determining the $1.8 billion figure for damages in the case, the jury used 3% as a blanket amount that a Missouri agent would receive over the 7-year time frame at issue. NAR says individual commissions did not all add up to that amount. NAR further insists that the jury should have considered the value of the work performed. In short, NAR faults the court for failing to carry out “actual calculations” when determining the huge monetary award against the real estate industry groups.

Now, NAR and the two brokerages that are still fighting this case want a do-over. Their new motions were to be expected.

Will This Case Change Real Estate?

The real estate industry as a whole is, yes, being changed. The industry, judging by its latest filings, basically says: People use agents, right? So they must think the rule is OK. Well, because of lawsuits, the public now actually knows that agents’ fees are negotiable. Agents and brokerages are going to have to explain what value they bring to the table for their fees.

That’s not all bad. Yet it’ll take a toll on the brokerages. An analyst from the Keefe, Bruyette & Woods investment firm said the increased competition for agents’ pay could “push well over half of the almost 1.6 million agents out of the industry.”

But there’s more. Canada is looking at changing its fee-sharing rules, taking the case against NAR as a “blueprint.” The suit names the Canadian Real Estate Association as defendant.

And so the fee-fight fallout continues. Watch this space for future updates — and, most important, what they’ll mean for our readers who sell and buy homes.

Supporting References

Steve Murray in HousingWire (from HW Media, LLC): Opinion – Defendants Have Solid Case for Appeal in Sitzer (Jan. 16, 2024).

Brooklee Han in HousingWire (via Yahoo Finance): NAR Asks for New Trial in Latest Sitzer/Burnett Commission Suit Filings (Jan. 10, 2024).

The Real Deal (registered trademark of Korangy Publishing Inc., New York, NY): NAR, Brokerages Want Sitzer/Burnett Redo (Jan. 10, 2024).

Update in Case of Burnett v. NAR et al. – Statement from NAR President Tracy Kasper (Oct. 31, 2023).

And as linked.