At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
After the topic of agent steering caused a kerfuffle at its latest conference, the National Association of Realtors says its proposed settlement of multiple antitrust lawsuits “eliminate[s]” steering and makes the amount of compensation a listing broker or seller offers to a buyer broker “irrelevant.”
Katie Johnson
On Friday, NAR Chief Legal Officer Katie Johnson emailed NAR’s 1.5-million members to let them know the trade group had updated the settlement FAQs on its facts.realtor website to address steering, specifically questions 46-49.
NAR’s guidance on steering is particularly relevant given the U.S. Department of Justice’s focus on the phenomenon and the DOJ’s view that offers of compensation should not be made anywhere, including outside of the multiple listing service.
NAR’s settlement, which has not yet received final approval and which the DOJ may yet interfere with in court, specifically allows such offers to be made anywhere except the MLS.
Michael Ketchmark
Asked for comment on NAR’s guidance, Michael Ketchmark, lead plaintiffs’ counsel for one of the major suits the proposed settlement seeks to resolve, Sitzer | Burnett, declined to say whether NAR statements were accurate, but nonetheless issued a warning.
“Steering is a very serious legal issue in the antitrust world,” Ketchmark said in a statement. “Anyone who thinks they can send out a few emails or bury their head in the sand and avoid the application of the law is wrong. As these new rules take effect we will take legal action to enforce the settlement agreement.”
NAR declined to comment on Ketchmark’s statement.
Steering refers to buyer agents or brokers either preventing buyers from seeing homes that offer commissions lower than is typical for a market or denigrating those homes to discourage buyers from considering them.
It also refers to instilling in sellers the fear that buyer agents will engage in such behavior and therefore impact the seller’s ability to sell their home or its sales price.
The majority of commission lawsuits thus far have argued that listing agents use the threat of steering by buyer agents to convince homesellers to agree to a far higher commission rate than they would have otherwise.
That argument helped win over a Kansas City jury in October in Sitzer | Burnett, ending in a multibillion-dollar verdict against NAR and major real estate franchisors Keller Williams, Anywhere, HomeServices of America and RE/MAX. NAR’s proposed settlement would resolve that case against the trade group as well as any similar cases nationwide.
NAR’s Friday guidance makes clear that the Realtor Code of Ethics prohibits steering buyers based on the amount of broker compensation and that a Realtor “must never put broker compensation before their client’s interests.”
But the trade group went further, saying the practice changes in its proposed settlement will make the amount of cooperative compensation offers “irrelevant” and get rid of steering altogether.
NAR contends this is because the deal requires buyer brokers to enter into written buyer agreements with buyers they are working with prior to touring a home, requires that those agreements specify the compensation buyer brokers will receive, and doesn’t allow that compensation to exceed the amount or rate agreed to in the agreement with the buyer.
“Written buyer agreements, required by the NAR practice changes that will be implemented on August 17, 2024, will also outline that MLS Participants 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’s FAQ says.
“Since a broker working with a buyer cannot receive more compensation than the buyer has agreed to in that agreement, the amount of any offer of compensation is irrelevant to the buyer-broker’s compensation.”
“Under these practice changes, NAR has eliminated any theoretical steering because a broker will not make more compensation by steering a buyer to a particular listing because it has a ‘higher’ offer of compensation,” the trade group added.
After the Sitzer | Burnett verdict and settlement, NAR continues to staunchly stand by the practice of cooperative compensation. The trade group has detailed ways that listing brokers could advertise offers of compensation to buyer brokers outside of the MLS, including sign-riders, marketing materials, and listing brokers’ websites for their own listings.
Its legal team has also encouraged buyer agents to contact listing agents prior to showing a property to ask if there is an offer of compensation.
Many MLSs, including the largest, are also creating the ability for listing brokers to post seller concessions when a listing is entered into the MLS.
Depending on the MLS’s implementation, listing brokers will not be able to specify in the MLS that the concessions are for buyer broker compensation, but such concessions may still be used for buyer broker compensation and, when a sale closes, listing brokers will be able to post the amount that went to buyer broker compensation.
Buyer agents and brokers will therefore know, or be able to find out, what a listing broker or seller is offering in compensation, if anything, before any written buyer agreement is required under the settlement, potentially affecting the buyer broker compensation in that agreement and the listings that will ultimately meet that compensation threshold.
Listing brokers will also know, or be able to find out, what other listings are offering before deciding buyer broker compensation in their own agreements.
Kevin Sears | NAR President
In addition, NAR President Kevin Sears has said that agreements with buyers can be amended to change the compensation amount and NAR’s FAQs state that a broker may have more than one agreement with a buyer.
Therefore, if a listing is offering a higher commission than another, it is unclear how the settlement changes would prevent a buyer agent from steering the buyer toward the higher-commission listing, or from convincing the buyer to amend the agreement to pay the buyer agent what that listing is offering.
Inman asked NAR how the settlement’s practice changes make the offer of compensation irrelevant and eliminate the possibility of steering. NAR declined to comment.
Anthony Lamacchia
NAR’s guidance also touched on an incident at its midyear conference in May in which panelist Anthony Lamacchia, broker-owner of Lamacchia Realty, told a crowd of MLS executives that if a seller client asks about buyer broker compensation, the listing agent should tell that seller that “you’re going to turn away a lot of buyers” if the seller doesn’t offer that compensation.
NAR’s FAQ stresses that “Realtors MUST be honest and truthful in their real estate communications and MUST NOT exaggerate, misrepresent, or conceal pertinent facts relating to the transaction, including facts about broker commissions.”
The FAQ does not provide examples of what constitutes exaggeration, misrepresentation or the hiding of pertinent facts in relation to broker commissions.
The FAQ does say, however, that listing brokers should not tell sellers that buyer brokers will steer buyers based on the offer of compensation.
“The listing broker should explain to her client the benefits and costs of the various types of marketing that can be done for a listing, and how potential buyers might respond to such marketing—including any buyer costs that the listing broker or seller may offer to pay,” NAR’s FAQ says.
“A listing broker should inform the seller about costs the buyer will incur, how the buyer might react to those costs, and how the seller can market a house considering the buyer’s costs; but a listing broker must not tell a seller that a broker will steer buyers based on the amount that broker is compensated.”
Inman asked NAR whether this means a listing broker can tell a seller that a broker may steer buyers based on the amount that broker is compensated.
Inman also asked whether this means a listing broker can tell a seller that a buyer may or will choose to stay away from a listing based on broker compensation, as Lamacchia warned.
NAR declined to comment.
