Real Estate Agent Practice Changes Under the Proposed NAR Settlement

Last year, the real estate profession was rocked by a lawsuit from Missouri known as the Sitzer/Burnett case. This case drew national attention as well-known real estate brokerages and the National Association of REALTORS® (“NAR”) received a $1.78 billion verdict against them. Plaintiffs alleged antitrust violations based on the cooperative compensation model required for participants of the multiple listing service (“MLS”). Following the verdict, other seller plaintiffs copied the successful playbook in Sitzer/Burnett and filed over two-dozen copycat lawsuits across the country.

On March 15, NAR settled the Sitzer/Burnett case and the copycat lawsuits. On April 23, 2024, the Court granted preliminary approval of a proposed settlement between the parties and certain other real estate entities who chose to opt-in.

Under the settlement and in exchange for release of liability, the NAR and the opt-in parties agree to pay plaintiffs a sum of $418 million and implement certain practice changes by August 17 of this year related to usage of the MLS. If you are a broker or a real estate agent who uses the MLS, there is a good chance you are covered by the settlement, and these practice changes are required for you. However, even if the settlement does not impact you, it is a good idea to be aware of and potentially implement these practice changes, so that you do not end up on the wrong side of an antitrust lawsuit.

The first practice change under the settlement is the prohibition of cooperative compensation on an association owned or managed MLS. To effectuate this change, the settlement requires an MLS to remove all broker compensation fields and prohibits the sharing of the offers of compensation to buyer brokers or other buyer representatives via the service. Offers of cooperative compensation may still be negotiated directly between a buyer/buyer representative and the seller/listing agent. As a real estate agent or broker, this means that you will have a separate fee agreement with each individual client and potentially between cooperating brokers. Additionally, the settlement prohibits conditioning participation in MLS on existence or level of compensation to buyer representatives and the use of any non-MLS system to circumvent this requirements. At this time, seller’s concessions to buyers would be permissible on the MLS.

The second practice change is the required use of written agreements for all MLS participants working with a buyer prior to showing them a property. NAR has clarified that “working with” a buyer means an individual providing brokerages services, such as touring properties, negotiating on their behalf, etc., and “showing” to mean both in person and virtual. This means real estate agents who are holding open houses or a listing agent showing a property to an unrepresented buyer would not be required to have a written agreement per the NAR settlement. Further, the agreement must specify the compensation structure for the agent in a way that is “objectively ascertainable and may not be open-ended.” This requirement forbids agents from placing ranges of compensation on the buyer side, nor can they include language such as “whatever is being offered for cooperative compensation.” Additionally, before a buyer’s agent may be paid out of the purchase price, the seller’s agent must obtain approval from the seller after conspicuously disclosing the amount or rate of the payment. 

The last practice change is the requirement to disclose to buyers and sellers that broker commissions are not set by law and are fully negotiable. This disclosure must be conspicuous and included in listing agreements, buyer agreements, and in the pre-closing disclosure documents.

The NAR settlement will impact the business practice of thousands of real estate agents. In the coming weeks, Dickinson Bradshaw will review the recent law changes in Iowa that go into effect on July 1 that mandate elements of the NAR settlement, what brokerages should be doing now to prepare for the NAR settlement, different mechanisms for enforcing buyer agreements, and navigating the post-settlement legal real estate landscape.