Will It Stay or Will It Go? NAR Settlement is Poised for Approval…We Hope
By Brett M. Woodburn, Esquire
On November 26, 2024, the trial court for the Western District of Missouri will hear arguments as to why the NAR Class Action Settlement (“Settlement”), should be approved or should be rejected. (Editors note: Settlement was approved on November 26th.) On November 20, 2024[1], the plaintiffs filed their Motion and Suggestions in Support of Final Approval of the Settlements. Based on previous filings made in similar or related class action lawsuits, the arguments made in this filing were expected.
The statistics cited by the plaintiffs’ lawyers are interesting and suggest that the Settlement will be approved. Postcards providing notice of the Settlement were mailed to over 14 million addresses. An additional 25 million email addresses received the notice. Digital and media campaigns were implemented and reached more than 70% of the class members. The entity tasked with overseeing providing notice to class members reported the digital media efforts received over 308 million impressions. Mainstream media outlets carried over 500 news stories reaching an estimated 176 million potential viewers. All told, the plaintiffs suggest that approximately 99.99% of the class members received notice of the proposed Settlement agreement.
In response to the prolific efforts to provide notice, approximately 491,490 claims had been filed as of November 14, 2014, and the deadline for making claims is still six months away on May 9, 2025. Of the hundreds of thousands of class members, thirty-nine members have opted out of the Settlement, and a maximum of thirteen objections were filed on behalf of twenty-three objectors who did not opt out of the proposed Settlement.
Additionally, in early November, the same trial judge who will hear this motion approved similar settlements with comparable notice and objection results. All signs point to the Settlement agreement being finalized following the presentation of the motion and any arguments made to the court tomorrow.
What is truly noteworthy for Realtors®, however, is that the plaintiffs’ filing addresses several of the practice changes established through the Settlement and offer insights into how the plaintiffs interpret the requirements of the Settlement agreement, and how they will argue for the courts to interpret and enforce the Settlement agreement throughout the country.
Amending the Disclosed Buyer Broker Compensation.
The Settlement requires:
all REALTOR® MLS Participants working with a buyer enter into a written agreement before the buyer tours any home with the following: (a) to the extent that such a REALTOR® or Participant will receive compensation from any source, the agreement must specify and conspicuously disclose the amount or rate of compensation it will receive or how this amount will be determined; (b) the amount of compensation reflected must be objectively ascertainable and may not be open-ended (e.g., ‘buyer broker compensation shall be whatever amount the seller is offering to the buyer’); and (c) such a REALTOR® or Participant may not receive compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer.
NAR Proposed Settlement Agreement, ¶58(vi)(a)-(c). Plaintiffs correctly argue that a buyer broker/agent who seeks to increase their fee to match what a seller or listing broker is offering violates the terms of paragraph 58 of the Settlement. If you have been doing the, STOP!
Seller-Paid Bonuses.
I have not heard of seller-paid bonuses being offered for several years, but that does not mean the practice will not resurface when the market conditions change. This practice falls under the same requirements of the Settlement as amending your buyer agency contract to match what the seller or listing broker are offering.
On the other hand, if the seller is offering additional financial incentives to a buyer, then there would be no concerns. If you have been doing the, STOP!
Touring or Showing Agreements.
Paragraph 58(vi)(c) of the Proposed Settlement Agreement is clear. A broker is not permitted to receive compensation for brokerages services from any source that exceeds the amount or rate agreed to in the written agreement with the buyer. Some touring or showing agreements provide that the buyer broker will only provide touring or showing services for a fee, which could be zero. Those touring or showing agreements do not address the possibility that a buyer will want to try to purchase a property that they saw during the term of the touring agreement. Plaintiffs’ attorneys are suggesting that buyers’ brokers are not allowed to receive any more compensation for buying homes showed during the term of a touring agreement than the fee negotiated in the touring agreement.
On the other hand, there are some touring or showing agreements that include provisions for the buyer and broker to negotiate the broker’s fee that will be paid if the buyer purchases a house seen or toured during the term of the touring or showing agreement. If you are using one of those forms, and you complete it correctly, then there is a better likelihood that you are acting consistently with the terms of the Settlement agreement. If you use or want to use a touring or showing agreement, please make sure you discuss this with your broker and knowledgeable legal counsel.
Guaranteed Minimum Level of Compensation Up to a Maximum.
While I have not heard of this practice being employed in Pennsylvania, there are reports of some brokers and agents who negotiate a written agreement with a buyer that identifies a minimum amount of compensation that the buyer will pay the broker, and a different maximum amount of compensation that the broker can accept if that difference is being paid by the listing broker and/or seller. This is a variation on the theme of this article. This practice violates the terms of the Settlement agreement. If you have been doing the, STOP!
Broker Accepting Whatever Is Being Offered by the Cooperating Broker.
Written agreements written this way directly contradict the requirement of Paragraph 58(vi)(b). Buyer brokers must negotiate their fee with the buyer directly. Buyer brokers cannot receive compensation from any source that exceeds the amount or rate agreed with the buyer. The amount of the fee must be objectively ascertainable and cannot be “whatever amount the seller is offering to the buyer.” If you have been doing the, STOP!
Potential Consequences.
What are the potential consequences of violating the terms of the Settlement agreement? Aside from sanctions that may be issued by NAR or the MLS through which the offending conduct transpired, a broker and/or agent who refuses or fails to comply with these terms may lose the protection of being a “Released Party” under the terms of the Settlement Agreement. This means the broker and/or agent are not released from liability, and may be sued by individual, groups, or classes of Plaintiffs seeking compensation for actions that were already determined to be unlawful.
Conclusion.
This is a lot of information to digest, so let me try to synthesize this for you on a simple basis. Realtors® representing buyers should negotiate the terms of their employment with their buyers, including the scope of the work to be done and the fee to be charged. Once the broker’s fee is negotiated, the broker and buyer can certainly work towards getting some or all of that fee paid by the seller and/or listing broker through direct compensation paid by the seller to the buyer’s broker on behalf of the seller (see PAR Agreement of Sale, ¶3(A)), or through concessions paid by seller to buyer (see PAR Agreement of Sale, ¶3(B)), or a combination of the two subparagraphs working together.
While there MAY be circumstances under which renegotiating a contract with a buyer may be appropriate and may be compliant with the settlement agreement, accurately identifying those circumstances are well outside the scope of training of a broker or agent. IF, and I stress “IF” you want to increase the fee a buyer broker charges a buyer, then it should only be considered after consulting with knowledgeable legal counsel and the broker of record. Remember, just because you can, does not mean you should.
[1] The DOJ filed a statement of interest on November 24, 2024. Primarily, the DOJ is asserting and asking the trial court to confirm if the Settlement is approved, that the Settlement does not limit the ability of the United States to enforce anti-trust laws, including seeking greater relief that this Settlement affords.
(Brett M. Woodburn, Esquire is the principal and founding member of Woodburn Law. He serves as general counsel to several local Associations of Realtors® across Pennsylvania. All rights reserved. This article may not be re-printed or reproduced, in whole or in part, without Mr. Woodburn’s express written consent.)