NAR Settlement Update: Home Prices WON'T Drop? | What’s REALLY in the NAR Settlement?
So over the last few weeks, there's been a lot of fear and panic in our industry, in the real estate industry. And there's tons of headlines and fearmongering and misinformation about what is going on with a big national lawsuit between NAR, National Association of Realtors, and the settlement that they're trying to achieve. And I've seen everything.
I've seen headlines that home prices are going to come down. They will not. I saw headlines that it's going to be cheaper to buy a home.
I also don't think that's going to be the case. So in this video, we're going to read through the most recent industry update that was released by Northwest MLS, which is our MLS here in Washington state. And I just want to read through the whole thing along with you because I thought they did a really good job of making it concise and easy to understand.
And it covers the background history of what are the lawsuits that caused all of this and how they played out over the years. Then it talks about the most recent settlements and the DOJ ruling, and effectively, what changes can we expect to take place in our industry because of all this. And spoiler alert, I think in Washington, very little, if anything, is going to change.
We have already been practicing real estate in accordance to how they want us to in a transparent manner. So let's read through this together. I think it's well worth your time if you're curious about what's going on with all of the headlines, and you'll be much more informed by the end of this video.
So this summary that we're going to read through provides information regarding the recent developments in the national class action litigation related to broker compensation and the proposed settlement involving the National Association of Realtors or NAR. First, let's cover the background information, which is the class action litigation. So in 2019, there were two class action lawsuits known as Murrell and Sitzler-Burnett were filed against National Association of Realtors and several large brokerage franchisors.
The plaintiffs, the home sellers, alleged that the defendants conspired to artificially inflate commissions paid to real estate brokerages based on a mandatory NAR rule that requires the seller, via the listing broker, offer a compensation to the buyer broker. Those cases progressed different timelines over the past five years. So here in Washington, the Northwest MLS rules and forms revisions took place in 2019.
And Northwest MLS has spearheaded the initiative that affords consumers transparency, choice, and clear opportunities to negotiate their brokerage commission. In 2019, Northwest MLS eliminated the requirement imposed by other MLSs that a seller, via the listing broker, have to offer compensation to the buyer's broker. At that time, Northwest MLS was the first multiple listing service in the country to publish the amount of compensation offered to the buyer broker.
Then in 2022, the Northwest MLS again led the industry by providing even more transparency and more flexibility for buyers, sellers, and brokers. And the most notable changes included decoupling of the broker compensation, meaning that any compensation that the seller chooses to offer to the buyer broker is not said and paid by the seller, not the listing broker. Any compensation the seller chooses to offer to the buyer broker is prominently stated on the first page of the purchase and sale agreement, with an opportunity for the compensation to be accepted by the buyer broker and the buyer's broker or separately negotiated by the parties.
The Northwest MLS most recent effort to promote transparency, choice, and negotiation opportunities are revisions to the Washington state law or agency law that were effective on January 1 of this year, 2024. In the new law, it requires the brokers to enter into a written services agreement to represent either the buyer or the seller, and all service agreements must comprehensively address the broker's compensation, the scope of representation, and all other related terms. So with these revised agency law and Northwest MLS forms and rules, buyers agree on how much to pay their own broker at the outset of their relationship, and can then negotiate for the seller to help cover that cost as part of the purchase.
Sellers can negotiate how much to compensate the listing firm and also decide whether to offer compensation to the buyer's broker and the amount of any such offer. So those are proactive changes that Northwest MLS has started practicing that we're kind of ahead of the curve compared to the rest of the nation. And then in October 31st of 2023 was a jury verdict in Missouri, which issued a $1.8 billion verdict in favor of the plaintiff in that Stitzler and Burnett case.
The jury found the defendants conspired to artificially inflate commissions paid by real estate brokers based on the mandatory NAR rule that requires the seller via the listing broker to offer a compensation to the buyer broker. So we must remember that what we're talking about in these national lawsuits, that's on a national scale. So many other MLSs across the country still have the rule where the seller, when listing their home, had to pay both sides.
That has not been the case in Washington State. And that's why I mentioned that we've been proactively practicing what is now coming to fruition across the rest of the parts of the country. And so prior to that trial and after the verdict, several of the defendant franchisors settled with the plaintiffs.
And since the jury verdict, there have been over 20 copycat cases filed around the country making similar claims by the sellers against the NAR and variety of defendants. Now there was another big class action lawsuit, NOSALIC versus MLS PIN. In 2020, a class action, NOSALIC, was filed by home sellers against the multiple listing service in Massachusetts, which is MLS PIN, and several other brokerage defendants.
The claims in NOSALIC are very similar were brought by home sellers in other cases that we just talked about. And then similar to Northwest MLS, MLS PIN is broker-owned and not affiliated with NAR. In July 2023, MLS PIN agreed to a proposed settlement that included several rule changes, many of which were similar to Northwest MLS' prior rule revisions.
So then recently, NAR proposed a settlement agreement, which was on Friday of March 15, 2024, NAR announced a proposed agreement in attempt to settle all related litigation in the home sellers claims. And NAR agreed to pay $418 million to the plaintiffs over four years. NAR also agreed to require brokers to make several practice changes and the MLS' to make several rule revisions in return for release of claims, which are outlined below.
And this is what we saw the most headlines about most recently, is this particular settlement agreement. This NAR's proposed settlement agreement is complicated and more than 100 pages long. The agreement has not yet been approved by the court, and there's still many questions related to the agreement, including whether DOJ or any other state agency will file an objection to the proposed settlement terms.
Some of the questions will be answered and others will remain outstanding questions as portion of the agreement lacks clarity. Also note that there are several additional cases filed by buyers against NAR, franchisors, and large brokerage firms. Those cases involve similar claims and issues.
The difference being that the plaintiffs are not buyers, not sellers. NAR's recent proposed settlement agreement does not provide release from liability related to the buyer side of the cases. Now, please note that this is only a brief outline of NAR's proposed settlement agreement, and it's not a complete description of the terms requirements of the agreement.
Firms and brokers should consult their own attorney for legal advice regarding the proposed settlement. So now let's talk what practice changes are required for brokers and brokerage firms covered by NAR's proposed settlement agreement. First, to enter into a written agreement with the buyer before they tour any home.
The agreement must address the broker's compensation, which must be a certain amount and not open-ended. The broker may not receive compensation from any source that exceeds the amount in the agreement with the buyer, and this is something we've been doing in Washington since January 1st. Second, brokers may not represent to buyers that their services are free, unless they're not being compensated for their listing service.
The reason they're talking about this is because it was very common for buyer's agents to promote that their services are free, because the buyer would not pay their agent directly, yet they would get paid from the listing agent. So it was not correct for them to advertise the services and say, hey, work with me to buy a house. I'm basically working for free because they knew they'd get paid on the wrong side.
So it was just misleading. Third, listing brokers must disclose to the sellers and obtain the seller's approval of any payment or offer of payment that the listing broker or seller will make to a buyer broker. Fourth, brokers must disclose to buyers and sellers that commissions are negotiable and not set by law.
And then five, brokers must not filter out any restrict listings based on the existence or level of compensation offered. However, the settlement is contradictory regarding whether a buyer can instruct a broker to filter out listings based on compensation. So the purpose of these lawsuits and these settlements is to create more transparency.
And again, here in Washington, Northwest MLS has been spearheading the effort. We are already doing buyer agency agreement. We are already forced to, by Washington state law, to have a conversation about brokerage or about broker compensation upfront before we provide any services.
And we have been very transparent. All of our forms reflect that commissions are negotiable on both sides and they're not obligated and it's not a mandatory. So a lot of these things that we see in the headlines is because real estate is practiced differently in other parts of the country where it is not the case, where maybe there was a ruling that here is the fee and here's how much a seller pays.
That has not been the case in Washington. And that's why I think that the way business is done here is not going to change at all, if anything. So Northwest MLS brokers here in Washington who have been complying with the agency law and abiding by the Northwest MLS rules using MLS forms have been substantially complying with these practice changes for some time now.
So what are some of the rule revisions required for MLSs subject to this proposed settlement agreement? A. Eliminate any requirement that listing brokers or sellers must make offers of compensation to buyer broker. We just talked about. Two.
Require the use of buyer representation agreement before you tour any homes. We also just talked about this. Three.
Prohibit brokers from making offers of compensation on the MLS. Eliminate all broker compensation fields in the MLS and refrain from facilitating offers of compensation to buyers brokers. So that is one change that is not that may take effect in Washington state.
And I don't personally understand how does that create more transparency. Currently, if you go on any listing, you could scroll down and you could see what is the compensation that's being offered by the seller. And it creates an opportunity again for the buyers to renegotiate it or accept it as is.
I feel like eliminating that field completely is going to take away from the transparency that our industry is trying to achieve. Prohibit any requirements for membership condition upon offering compensation to a buyer broker. And lastly, the change requires to develop educational materials consistent with rule changes in the settlement.
So NAR's proposed settlement agreement does not prohibit sellers and brokers from offering compensation outside of MLS platforms or sellers from offering a buyer concession on or through the MLS. So as long as the use of such concessions is not limited to buyer broker compensation. And now Northwest MLS and NAR's proposed settlement agreement.
Will MLS opt in into NAR's proposed settlement agreement? Northwest MLS is owned by member real estate firms. MLS is not affiliated with NAR or any other state or local association of Accordingly, Northwest MLS here in Washington is not automatically covered by NAR's proposed settlement agreement and required rule changes. Northwest MLS is not required to participate in the agreement, but Northwest MLS may have an option to opt in.
And as noted above, Northwest MLS has already made rules and form changes that address issues raised by the national litigation and outlined in the NAR's proposed settlement agreement. So this collectively gives you an overview of where things stand. So the big key takeaways are these lawsuits are national and real estate is being done differently in other parts of the country.
Here in Washington, Northwest MLS is ahead of the curve and they made a lot of these changes proactively over the last few years. So most of the things that are being called for in these lawsuits are already practiced here in Washington. Second, these lawsuits are against National Association of Realtors, NAR, and the MLSs that they own.
So in other parts of the country, MLSs are owned by NAR, and therefore they must cooperate with the settlement that is eventually going to be approved. But in Washington, Northwest MLS is broker owned. That means we don't have an affiliation with NAR.
For those reasons, we have not had these mandatory rules of set compensation. So we've already been set aside proactive and only MLS in the United States that have taken these proactive steps to create more transparency for the consumer. So if you have any questions about this, let me know.
Also, I'll include the link. Be sure to read the whole release that we just read together for more information. And I think it's very, if you're in real estate business, or if you feel like you're going to be buying or selling homes soon, you're going to be affected by these changes.
I would encourage you to actually understand the facts versus just buying into the headlines and fear mongering that's out there. I think it's a good positive change for the industry. But here in Washington, we're already ahead of the curve.
And I think that with the practices that we've been implementing since the beginning of the year, I don't think much is going to change moving forward. But I could be wrong. And we'll see how things unfold as time goes on.
Thanks for watching. And I'll catch you on the next video.
