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How does the recent court verdict against NAR affect home sellers and buyers moving forward?

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by Charles McShan

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04.24.2024

man in black suit standing on stage

Hello everyone

This is Charles McShan with Century 21 Universal in Chicago, Illinois. Take a look at the above photo. It depicts a courtroom situation and an imposed verdict. Everyone in the housing industry has been talking about it. So here is a fundamental question: “How does the recent court verdict against NAR affect homesellers and buyers moving forward?” This lawsuit took its time going through the court system, and late last year, a verdict was brought against the National Association of Realtors (NAR). The lawyers representing our industry said they would appeal the verdict only on March 15th to agree to the verdict and offer a settlement. What was this NAR lawsuit about? Why did they settle so quickly? How does this verdict affect the housing industry moving forward? And where do we, as Real estate professional agents and brokers, go from here?

I will answer these questions using flyers and graphs to illustrate the point. At first, I wrote one post completed in April, but it was too long and complex. I am not a high-tech guy. Getting the charts and graphics to align was challenging. I wanted to say forget it. I needed help to get this post out, and I want to thank Nardia Smith for her invaluable assistance. It took time, but I had to get this blog post out to the clients, friends, and strangers who asked me about this  NAR lawsuit and if real estate agents/ brokers were going out of business. No, we are not. Have we been ripping off the public? No, we have not. Realtors have served the public for over 150 years and will continue to do so. However, there are new rules that we, the general public, must abide by. Many present and future home buyers will not like the new rules, but they will be the law of the land, effective late July 2024. So, through a question-and-answer format, let’s get into this.

What was this  NAR lawsuit all about?

Disclaimer! I am not a lawyer. Professionals in the real estate industry discussed everything you will read in this post, and I am just relaying their message to my local audience so you can be informed as a client and consumer. This way, you will not be in the dark when buying or selling in the Chicagoland area. With that out of the way, I will say that the jury found the National Association Of Realtors, or NAR, guilty of conspiracy. They told the cooperative compensation system was a form of collusion that artificially inflated commission rates. A few years ago, lawyers sent flyers to the news media looking for home buyers or sellers who thought they had been ripped off by their real estate agents who represented them in their transactions.

They obtained enough signatures, which allowed them to bring about a class action anti-trust lawsuit against NAR, all Multiple Listing Services(MLS for short)Real Estate Member boards, Real Estate Corporate offices, and other entities—the opposing. Lawyers also claimed that all real estate agents operated on a fixed 6% commission and that homesellers were forced to pay the buyer’s agent commission through a Co-op agreement on the MLS. The case went through the legal system for years until a guilty verdict was found in late 2023. All the litigants vowed to appeal, but on March 15th, they agreed with the verdict and offered a settlement. While the judge has decided to sign off on the settlement, many changes have already occurred.

I am associated with Daryl Davis and his power group. Throughout this post, I will use slides and photos from our organization to highlight and answer many questions clearly and concisely. The future of our industry and real estate agents/brokers will also be addressed here, so let’s begin.

What came out of this NAR lawsuit verdict?

In a nutshell, the National Association of Realtors (NAR), including all MLS service members and non-service members, had to remove all requirements of co-op agreements from all real estate documents. As real estate agents/brokers, we can no longer say that the homebuyer does not pay a commission fee or that it is included in the contract. The legal system and social media have tried to convince the public that NAR had to cut its standard 6% commission fee. That was a completely misleading statement. The National Association OF Realtors has never set commission rates at 6% or any other percentage. Ever! That is a myth that has continuously been circulated for years. NAR is not our boss. They do not control Realtors. And once again, there is no such thing as a nationwide fixed 6% commission rate. That would be price-fixing.

 I will illustrate it further. I work for Century 21 Universal. Our office is an individually owned and operated franchise of the Century 21 corporate office system. Our corporate office cannot set commission rates for its independent franchise offices. Also, Listing rates have never been fixed. They have and will always still be negotiable. Most agents windup through negotiations charging anywhere from five, five, a half, and six percent rates; if they are good at what they do, they can negotiate a seven or more percent commission fee. Also, each individual-owned franchise office broker can set commission fees for their own office and the brokers under his control. Brokers can display(off-MLS) compensation offers on listings from their brokerage to brokerage buyer brokers or other buyer representatives.

As agents/brokers, we are constantly told that we can talk only about commission fees with the agents in our own office, and that is it. We can not discuss commission fees with any other agent/broker outside our office. That is illegal, and discipline charges would be brought up against us if we did that. So, once again, the legal system and the media got that point of the verdict wrong. So, the first link below addresses the March 15th announcement from the National Association of Realtors, or NAR for short, announcing a settlement to the lawsuit.

The first two questions about commission were answered in the paragraphs above. Next is a statement letting you know what this lawsuit was not about. So, what was this class lawsuit about? It was about breaking up the cooperation policy that has been in effect for decades. Once again, this was a class action lawsuit. If you do not know what a class action lawsuit is, look at the advertisements on television. Look at the legal advertisements in the charts in the link below. These lawyers sought out homesellers who felt realtors victimized them. You have seen these announcements on television, and when you click the link, you will see lawyers in action looking for clients for class action lawsuits. So click here

How are home commissions determined in other countries?

 Many people talk about the six percent commission fee, and the lawyers who won this verdict use examples of what other countries charge their clients for real estate services. They use the example of what the country of Australia charged their homesellers. What was not brought out was what the home sellers in those countries had to put up as upfront collateral to put their homes on the market. If their homes did not sell, those fees were non-refundable and cost thousands.

Also, in Australia, over 40% of the homes are sold at an auction, not in an office but right on the house’s front stoop. Like it or hate, we have a MLS system that works well in this country. Germany, Great Britain, and Australia have nothing inferior to our system. If you want to learn more about Australia’s housing practice, do a Google search. But I found this piece of information that I will share with you. In Amercia, apartment dwellers pay rent monthly. In Australia, most renters pay hundreds of dollars weekly.

While the lawyers brought up how clients sell their homes in other countries. they did not explain how their system differs from ours. In all cases, homesellers are at the mercy of their agents. Here in America, agents/brokers have to put up their own money to market the house, and if that home does not sell, we get nothing back. Is that fair? No, it is not, but that is part of the job, and if we do the job well, we will get paid in the end. So click this link to see how real estate is sold in Australia, Great Britain, and Germany, and decide if you wish to put up the upfront costs to sell your home or if you like how we do things here in Amercia.   >>>click here

You have to admit realtors are paid a lot, Right?

Many people think that, and many real estate professionals make six figures yearly, but there is nothing wrong with that if you do because they earned that money from all their hard work. But once again, everyone is not making six figures. Many think we get to keep all of that commission money, right? Wrong! Everyone wants a piece of your commission cut, and after everyone gets their pie cut, you have your bills to pay. Please click this link to see the financial breakdown of a typical real estate agent/broker commission>>>. click here

Will this  NAR lawsuit affect the value of my home?

Good question. Click the link to see the answer to this question, which is also tied to the next question. >>>click here

What if you sell your home directly to a home buyer?

With this new way of doing things, many home buyers might say forget the buying agent; I will go directly to the listing agent. While that sounds good, look at the slides, then return to this section for an explanation. The first photo shows a cook working on a dish at a preparation table. This cook represents the home seller. In the following image, the home seller invites the buyer to their kitchen to prepare a meal together at the same kitchen table. While two cooks prepare meals together in real life, it never works for a home seller and buyer the way the homebuyer would like it to work. Why not?

Number 1: You will never talk like friends at the kitchen table. Why? This is a business deal, not a chit-chat with old friends.

2: Since this is a business deal. Here is a word the home buyer must get to know and understand: Fiduciary. Have you ever heard people say this phrase? “It is nothing personal; it is just business.”The selling of a home is a business transaction. As a homebuyer, you will never sit down at the kitchen table or prepare a meal with the home seller, and they tell you every little personal detail about their life, the actual condition of their home, and how much money they need to sell their home. This sort of conservation involves the term dual agency. We will get into that subject in part two of this post. But for now, as a home buyer, it is never in your best interest to negotiate alone with the home seller. Why? Because of two things.

The home seller will always have 

1: A realtor 

2: A real estate attorney looking out for their interest.

So, in reality, you, too, must have a realtor and a real estate attorney to look after Your interests. We will explain the meaning of Fiduciary and the term dual agency in parts 2 and 3 of this blog post. So, to summarize  part one of this post, we learned that

1:There was never such a thing as a mandated 6% commission fee repealed due to this verdict because it never existed in the first place. 

2: The class action lawyers for the homesellers used examples of low commission rates from other countries. They failed to investigate how homes were sold in different countries, including the up-front, non-refundable market fees that home sellers were forced to spend to sell their homes.

3: Many people think most real estate agents/brokers live glamorous lives, but most work hard and sacrifice a lot to earn their commissions.

4: Did this lawsuit affect the value of my home, and will home prices begin to drop? No, it did not. Home prices are continuing to rise regardless of the commission rates, interest rates, or any other factors

5: What if I sell my home directly to the homebuyer? That was answered just above. The homebuyer will be at a disadvantage without proper representation. The most significant verdict imposed on NAR was eliminating the co-op agreement. In late July 2024, there will be new rules for compensating real estate agents representing the home buyer. Part 2 will cover this touchy subject because many homebuyers do not want to sign this document. What document is that? You will find out in part 2. Please share this post with family, friends, and workmates if you like it. Also, please leave comments.

                                                                                 Take care for now.

                                                                                  Charles McShan

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