Why the landmark settlement that changed how Realtors get paid may not be fully settled
CNN
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The US Department of Justice threw even more doubt into a new way of paying for real estate brokers this week, raising concerns about a recent wide-ranging legal settlement.
The DOJ's objections have left many Realtors—already uncertain about the future of their industry—scratching their heads over how to negotiate pay without breaking the law.
The new rules included in the settlement represented the biggest upheaval to the US real estate market in a century, sowing worry among real estate professionals. Now, the looming threat of an even longer legal slog has compounded that confusion.
"I think there's been a high level of frustration through the whole process, especially for agents who feel like they haven't broken a single rule," said Leo Pareja, the CEO of eXp Realty, one of the largest residential real estate brokerages in the US.
The $418 million settlement binds the more than 1.4 million members of the National Association of Realtors to a new set of rules, after critics said previous practices illegally pushed home sellers to shell out 5% to 6% commissions split between the buyers' and sellers' agents. The NAR settlement was originally announced in March, and the new rules took effect in mid-August.
But just two days before a judge was set to approve the settlement terms, the Justice Department said in a filing that a new requirement that potential homebuyers and their brokers enter into a written agreement before touring homes together raises antitrust concerns.
The DOJ's filing offered two recommendations: that the settlement remove the requirement for buyer-broker agreements or that the NAR specify to its members that the settlement does not provide immunity or defense from future antitrust litigation from the US government.
But a Missouri federal judge on Tuesday approved the settlement without any changes.
"This is an important moment for NAR members, home buyers and sellers, and the real estate industry," said NAR President Kevin Sears in a statement about the settlement approval. "As consumer champions, NAR's members have been working tirelessly to implement the practice changes required by the settlement and shepherd consumers through this period of transition."
But because the Justice Department's requested changes weren't included, many real estate professionals worry that the settlement doesn't actually settle anything and that they could still get sued over how they negotiate commissions, again.
A rocky adjustment
More than three months after the new rules took effect, several Realtors told CNN that the industry was beginning to adjust to the two key changes.
The first prohibits agents' compensation from being included on multiple listing services, which are centralized databases used by Realtors to share details about homes for sale. Compensation details can still be advertised or communicated elsewhere, though.
The second change, which was the primary subject of the DOJ's warning, requires buyers' agents to discuss their compensation upfront, meaning that all agents working with a prospective homebuyer must enter into a written buyer agreement before touring a property together. The agreement is designed to inform buyers that they are responsible for paying their own Realtors if a seller chooses not to cover the cost.
The new rules came after a series of lawsuits alleged that home sellers should not be responsible for paying the fees for buyers. NAR maintained that commissions were always negotiable.
The DOJ has previously taken a stand against commission sharing, but its concerns about the buyer agreements are newer, said Tanya Monestier, a professor at the University at Buffalo School of Law.
"Filing at such a late date was definitely surprising," she said. "I think they wanted this to be a warning that this does not immunize Realtors from further antitrust scrutiny."
With the threat of potential lawsuits from the US government, some Realtors are turning their anger toward NAR, the organization founded to protect their interests.
Rob Crawford, the owner of Florida real estate firm Loch Realty, said he has heard of real estate brokerages weighing whether to leave the organization.
"For us, the transition is going well," said Crawford. "But some people don't want to have to abide by all the new rules and regulations coming down from NAR anymore."
Leslie Heindel, a Realtor based in New Orleans, said she has tried to be as transparent as possible with home buyers before asking them to sign the new required agreements, which she said has helped clear up most of their confusion. Still, she said, the adjustment period to the new rules hasn't always been smooth.
"Most of my buyers have said, ‘Of course we want you to get paid.' We haven't had issues with them. The issues have come from other agents," she said. "In the first couple weeks, some threatened not to show properties if you didn't tell them how much commission was being offered."
"There is definitely form confusion," Heindel added of the new requirement for signed buyers' agreements.
Heindel said she felt irritated that even if she follows NAR's new rules, she and other Realtors may be at risk of additional antitrust lawsuits from the DOJ.
"This is the hard thing. We all kind of knew that once this was finalized, there might be even more changes after this," she said. "I do feel like it's damned if you do, damned if you don't."
