The New Agent’s Essential Guide To The Commission Lawsuits

Whether you’re a newbie or a 40-year veteran, how buyer real estate commissions are negotiated is about to be changed forever. These changes are being driven primarily by the landmark $1.78 billion verdict for price fixing in Sitzer | Burnett litigation, the DOJ’s demands that buyers should negotiate their commission directly in the Nosalek PIN litigation, and the resulting barrage of copycat lawsuits.

Here’s the rundown on what you need to know, what’s most likely to change, how it may impact your pocketbook and steps to take to be prepared for what’s ahead.

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The commission lawsuits in a nutshell

There are four sets of lawsuits that are at the heart of the so-called “bombshell” commission litigation: Sitzer | Burnett, Moehrl, Nosalek PIN, and Batton 1 and 2. 

• These lawsuits, along with all the copycat litigation, come down to two single issues: NAR’s Cooperative Compensation Rule and mandatory membership in NAR to access the Multiple Listing Service in many areas. Defendants in these suits are charged with violating antitrust laws by colluding to fix prices (commission rates). As a result, sellers allegedly paid much higher commissions than they would have paid had buyers been responsible for directly compensating their own agents.  
• Judge Bough’s ruling on the final verdict amount in the Sitzer | Burnett litigation is expected sometime in April. At this point, the two remaining defendants, NAR and Berkshire Hathaway Home Services of America, (Anywhere, Keller Williams and RE/MAX have settled both Sitzer | Burnett and Moehrl), will have 30 days to post a bond large enough to cover the amount of the verdict. Failure to do so usually forces the defendants to settle with the plaintiffs or, in some cases, declare bankruptcy. 

Flying under the radar is Batton 2: ‘The mother of all commission lawsuits’

The Batton 1 lawsuit was originally filed by Judah Leeder in 2021 and Mya Batton ultimately replaced Leeder as the lead plaintiff. The suit was dismissed in 2022, but the plaintiffs amended their complaint. Here’s the latest on Batton. 

On Nov. 2, 2023, Mya Batton filed a new lawsuit known as Batton 2 in Illinois. Like Batton 1, in this litigation, the plaintiffs are homebuyers — not sellers. Inman called it the “mother of all commission lawsuits.”  

The anti-competitive effects outlined in the complaint boil down to the following: 

• Homebuyers have paid inflated total commissions which have been incorporated in the purchase price.
• The retention of a buyer-agent has been severed from the setting of the broker’s commission; the homebuyer retains the buyer-agent, while the homeseller sets the buyer agent’s compensation. (This is the situation that the DOJ insists must be eliminated.) 
• Price competition among brokers has been restrained; agents are “incentivized” to steer their buyers toward properties that have higher commission homes, and the quality of buyer-agent services has reduced. 

The Batton complaints also point to the Cooperative Compensation Rule as the source of these issues. 

A potential problem for Anywhere, Keller Williams, and RE/MAX is that their settlement agreements in Sitzer | Burnett and Moehrl only reference homesellers — not homebuyers. Batton 2 could result in these companies being dragged back into the fray. 

NAR doesn’t have enough assets to post a $1.78B bond for an appeal

Assuming Bough leaves the jury verdict of $1.78 billion in place and denies the post-trial motions to set aside the verdict, NAR lacks sufficient assets to post a bond for $1.78 billion which would be required to mount an appeal, much less $5.34 billion. 

According to Propublica’s Non-Profit Explorer, an organization that aggregates the 990s (the form non-profits use to report their income to the IRS), NAR doesn’t even have enough assets to cover $1 billion and certainly not anything over that amount. 

The chart below shows that while NAR does have $1 billion in assets, its liabilities at the end of 2022 were $263 million, putting NAR’s value at $767 million. 

State associations and publicly traded real estate companies don’t have the money either

In terms of the copycat suits naming state associations, the three largest state associations of realtors have the following net assets: 

In terms of the copycat suits naming additional brokerage defendants, the publicly traded real estate companies show the following net assets on their SEC filings:

• Anywhere: $158 million (Sep. 30, 2023) 
• Compass: $335 million (May 9, 2023) 
• eXp: $121.6 million (Sep. 30, 2023) 
• Keller Williams: $70 million (Feb. 1, 2024)
• Real Real: $170.8 million (Sep. 30, 2023) 
• RE/MAX: $89.8 million (Sep. 30, 2023) RE/MAX took a $59.5 million loss in that quarter to settle the Sitzer | Burnett and Moehrl lawsuits

Confused about what’s ahead and what to do? 

I’ve been covering the commission lawsuits in this column since 2015. Based upon my conversations with those involved in the litigation, those who hold leadership positions in brokerage, state association and MLS leadership, plus other experts who have offered viable solutions, here’s what I see ahead in my crystal ball:

Past commission models that will remain viable in the future

• Agents who work with buyers exclusively: The National Association of Exclusive Buyer Agents (NAEBA), a group that only represents buyers (never sellers), has served this specific market segment since the mid-1990s.
• Exclusive buyer agreements: This type of contract continues to grow in popularity, not only among exclusive buyer agents but among agents who represent both buyers and sellers. The buyer’s agent is paid a specific commission amount, regardless of whether any seller/listing broker compensation is offered. Rocket Mortgage has an excellent discussion of what these agreements are, how they work, as well as facts you need to know about this type of contract.
• Fee for service: This model unbundles real estate services that full-service brokers provide and allows the buyer to select the services they want. For example, if the buyer is purchasing from a neighbor but they need help navigating through the transaction and/or obtaining a loan, they can hire an agent to provide those specific services. Real Estate Witch, powered by Clever, has a list of their top 10 fee-for-service real estate companies.
• One-party listing agreements for a single buyer: This model works especially well with off-market properties and For-sale-by-owners (FSBOs). When there is little inventory, agents are desperate to find something to sell. Many experienced agents actively solicit one-party listings (a listing for a single buyer) for off-market and FSBO properties. The buyer agent is typically the exclusive agent of the buyer and negotiates a buyer commission that the seller will pay if the buyer’s offer is accepted and closed.
• Rebate models: Homebay has a list of the top companies that charge 2 percent or less in commissions. In this model, agents from traditional firms agree to provide a rebate to the buyers. For example, Clever reports an average rebate of $3,000 for buyers or up to 1 percent of the agent’s commission at closing.

Buyer representation agreements must become the new normal 

At Inman Connect New York (ICNY), Russ Cofano, president and CEO of Collabra Technology, Inc., made a powerful argument that buyer representation agreements must become standard practice across the industry in the same way we currently use seller listing agreements. 

Cofano said that approximately 14 or 15 states already have these in place and that he would like to see these adopted in all 50 states. 

If you plan on representing buyers in the future, it’s imperative that you immediately sign up for training on how to use buyer representation agreements in your state. 

In addition, Cara Ameer’s excellent article outlining nine tips for getting prospects to sign a buyer-broker agreement is a must-read. 

The DOJ wins: ‘Contractual offers of compensation’ end

James Dwiggins opened the “What Comes Next for Buyer Representation” panel at ICNY by categorically stating that contractual offers of compensation will cease to exist on the MLS.

In other words, there will no longer be a field in the MLS where the listing agent can post a commission percentage or amount payable to the buyer’s agent. 

While NAR should lead the way in implementing a national change, it seems highly unlikely given their current leadership. Nevertheless, state associations, MLSs, and brokerages have it within their power to require their agents to use buyer representation agreements.

The buyer’s agent commission field in the MLS is replaced with a ‘seller concessions’ field 

Of all the potential workarounds that will allow buyer agents to negotiate directly with both buyers and sellers, Ed Zorn, VP and general counsel of the California Regional MLS in his ICNY session Anticipating MLS Evolution: The Pathway to Potential Settlements,  recommended the creation of an open “seller concessions” field. This is the best option I’ve seen so far. 

Seller and buyer concessions are a pivotal part of the negotiation process in all transactions. For example, anyone who has ever purchased a home and asked the seller to do repairs, to buy down the buyer’s mortgage interest rate or leave the big screen TV has negotiated a seller concession. 

The open seller concession field will allow the seller to specify if they want to directly pay the buyer’s agent a commission, replace the carpet, give the buyer a credit towards closing costs, or any other concession or incentive they may like to provide. This is a viable approach that not only allows the sellers and buyers to determine which concessions they would like but in my opinion, would also be welcomed by the DOJ.  

Zorn also suggested that residential agents take a cue from the commercial side of the business. Buyer agents should include the amount of their commission as well as any concessions as a standard part of any offer they present. 

National settlement or bankruptcy

Because NAR has insufficient funds to pay the judgment in Sitzer | Burnett, one of two things will happen — ultimately there will be some sort of national settlement or NAR will be forced into bankruptcy. 

Based upon the conversations I’ve had with multiple experts, if NAR were to file bankruptcy, plaintiffs would be more likely to settle as opposed to dealing with the bankruptcy court.  

MLS data should be available to all real estate licensees

The three Sitzer | Burnett and Moehrl settlements all contained a provision that agents in these brokerages would no longer be required to belong to NAR, follow its Code of Ethics or its MLS handbook. 

By the same token, belonging to a state or local association should not dictate whether a licensed agent should be able to have access to the MLS. MLSs who implement this model can charge an access fee, but being an association member should no longer be a requirement.  

According to RETechnology, 350,000 non-Realtors can already access the MLS systems without being Realtors. 

“Many states, including California and Florida, have mandated that MLS providers extend their offerings to non-Realtors for a long time. Whether you’re already on board or contemplating this transition, now is the opportune moment to position your organization ahead of the curve.”

RETechnology also advises that now is the time for local and state associations and MLSs to take affirmative steps to provide a “non-Realtor” option that includes a fee for accessing the MLS.

Killing off the commission lawsuits will require a single national settlement

While there could be rulings from the DOJ, FCC or FTC that might impact all the commission lawsuits, the most viable route would be a single national settlement. Since the people who benefited from the higher commissions were agents, it’s impossible to go back and obtain money from them after the fact. 

At ICNY, several people suggested a fee-per-transaction model. Here’s a hypothetical outline of how that could work.

• Assume five million transactions (10 million sides) per year for the next four years.
• Agents on each side would pay a $100 transaction fee that would generate $1 billion annually, and $4 billion over a four-year-period. Agents would participate based upon the number of transactions they close. 
• In terms of the payout, 2025 would pay off those sellers who transacted during year 1 of the agreement; 2026 would be for those who transacted in year 2; 2027 would be for those in year 3; and 2028 would be for those in year 4. 
• All the money should go into a single escrow account, with the judge determining how much is allocated to the plaintiffs and to the attorneys, the same way it did in the Anywhere and RE/MAX settlements. That number will most likely be 30 percent. 

What appeals most to me about this approach is that Michael Ketchmark will have to duke it out with all the other attorneys as to what his share of the 30 percent will be.  

The problems with this approach

• The biggest issue with this approach is that the agents and brokerages who “benefitted” from the higher commission rates are not necessarily the ones who will be responsible for paying the judgment. 
• If I’m a new agent or I worked for a brand that was not part of the litigation and then joined a brokerage that is part of the settlement, why should I have to pay into this settlement?
• If you have to pay through your brokerage, should you also be charged through your local or state associations, and/or NAR? This scenario could be a definite deal killer for many agents who can easily exit these organizations and still retain their MLS access. 

3 reasons you should keep your NAR, state and local association Realtor membership

For 2024, NAR dues are at $156 per member. NAR computes 35 percent or $55 to be nondeductible for the member’s income tax purposes due to NAR lobbying efforts. Please note that the entire $45 Consumer Advertising Campaign special assessment qualifies as fully deductible. 

Quite frankly, I have no idea whether NAR survives given all the scandals, leadership issues and its refusal to face the realities outlined above. Nevertheless, here are some important NAR benefits you should consider before deciding to terminate your membership. 

NARRPR (Realtors Property Resource)

You could pay thousands of dollars just for the Market Intelligence Reports, for all the property research this site provides, plus for the training that shows you how to use this powerful tool to immediately convert leads by using the NARRPR app. Best of all, potential clients happily provide their phone number or email address to get the information they want right away. 

In my opinion, the value of NARRPR, especially to new agents, is worth significantly more than the $156 per year in NAR dues.

Protecting personal property rights and independent contractor status

NAR and your state and local associations serve as a political buffer by lobbying lawmakers at all levels to protect property ownership rights, fight rent control, and to block efforts to end IC status and make agents employees. 

Expanding homeownership

NAR actively promotes making homeownership available to more people through affordability, Fair Housing, and other initiatives that help more people become homeowners. 

Other member benefits

In addition, here is a list of NAR benefits that you are probably not using but could be. Major categories include discounts on the following:

• Computers and mobile technology
• DocuSign
• FedEx
• GE appliances
• Insurance including health, dental, vision and pet insurance as well as auto, home and renter’s insurance.
• Junk removal
• Marketing campaigns, print marketing, and websites
• Risk management and identity theft protection
• Sentrilock lockbox systems
• Specialized niche training including Realtor certification programs
• Travel and car rental 

The bottom line

In this new post-commission lawsuit environment, the entire industry must come to terms with treating buyers the same way sellers are treated. The steps outlined above provide a viable path out of this quagmire that could lead to both new and experienced buyer’s agents never unlocking a single door for a buyer unless they have a signed buyer representation agreement. 

The question is: How long it will take for the industry, and NAR in particular, to embrace this new reality and let us get back to the business of listing and selling real estate?