Now Is The Time To Reconvene the NAR Settlement Parties

If there is one thing about the proposed NAR settlement that everyone can agree upon, it is this:  the terms of the Practice Changes in paragraph 58 leave much room for interpretation and debate.

 13 Key Provisions of paragraph 58 of NAR settlement

Why the need for more certainty? Well, it’s all about compliance. Brokers and agents want to comply with the terms of the new practices yet they need to be clear on what behavior is expected. For example, brokers are unclear whether certain advertising practices comply with the new requirements, leading to hesitation and potential legal risks. Likewise, regulators need to be clear as to what rules to enforce. What were the intentions of the different parties when they structured the settlement and did they get most of what they wanted?

Now is the time to reconvene. Let’s find out, for example, whether the Settling Parties agree with the interpretations of the NAR Settlement FAQS; as well as with the definitions of touring, buyer agreements, concessions, closing costs? What about the practice of making offers of compensation “off of the multiple listing service?”  Does the buyer agreement requirement intentionally omit the word agency as a compromise to customer status or to transaction broker and designated agent states?

Some commentators have suggested that the original group attending the settlement discussions should reconvene and aim for more clarity and precision in the terms and practice changes. Based on what is known of the DOJ’s position, what might the result be of such a reconvening? And will the DOJ take a more active role? Or is the DOJ waiting in the background ready to ‘drop the hammer’ and take a path to achieve its goals toward restructuring the real estate industry nationwide — with lower commissions and housing costs, buyer agency contracts, limiting offers of cooperative commissions until the purchase stage, decoupling the MLS from Associations, as well as opening up access to the MLS making it more like a public utility? Note that the DOJ claims “real estate commissions in the United States greatly exceed those in any other developed economy” — without hearing NAR rebuttals as to WHY there is a distinction.

We understand that Assistant Attorney General Jonathan Kanter was “in the room” during some of those settlement meetings. And, late last month Kanter and DOJ regulators informed NAR executives, including NAR President Kevin Sears, that the federal agency requested a delay in releasing new forms pending review by DOJ. This sudden delay comes under the August 17 deadline for MLSs to implement the paragraph 58 terms at the same time that associations and brokerages are making form updates and changes to comply with terms of the settlement agreement crafted earlier this year by NAR and the Plaintiffs in the Sitzer/Burnett civil, class action case…after a jury rendered a $1.83 Billion verdict (tripled to $5 Billion).

While we’ve been dealing with the DOJ in connection with civil actions that involve DOJ’s ability to order administrative subpoenas called Civil Investigative Demands (CID), the DOJ/FTC do have the strategic leverage of a Criminal Antitrust Division with the power to investigate and initiate federal criminal indictments as they have done in white-collar cases.

Here’s the unresolved question:

What is the DOJ looking for? How can any “DEAL” be consistently understood and enforced?

Possible Answer: CONSENT DECREE

Absent a national agreement (Consent Decree) that includes an enforcement mechanism, the real estate industry will continue to experience delay, confusion and risk of never-ending litigation, which are OK if you’ve got a balance sheet — but that’s not REALTORS® or its organizations.

What is a Consent Decree?

A consent decree is a court-ordered agreement between parties reached without expensive and lengthy litigation — and, like any agreement, it may involve compromise and trade-offs of party positions. The decree has the force of a court order and is typically used in situations where:

  • The parties want to avoid the expense and uncertainty of a trial.
  • There is a need for judicial oversight to ensure compliance with the terms of the settlement.
  • The parties wish to maintain some control over the resolution process, as opposed to having a resolution imposed by the court.

In 2008, NAR and the real estate industry operated under a 10-year DOJ Consent Decree in connection with Internet advertising of listings.

A recent Consent Decree was issued last year when the Federal Trade Commission (FTC) blocked the merger between Black Knight and the Intercontinental Exchange (ICE). The FTC believed the deal would give ICE “too much power in the multi-trillion dollar U.S. mortgage market, and come at the expense of both higher home prices for consumers and competitors in the mortgage data and services industry. To address these concerns, the Commission’s order provides structural relief and a variety of tools to preserve competition in these critical markets.”

And, of course, there is the ongoing dispute between the NAR and DOJ over the withdrawn proposed Consent Decree in the DC Circuit Court case in which the dissenting Judge Walker articulated that now, because of the majority’s holding, “Buyer Beware” is the lesson for future parties negotiating a settlement with the Antitrust Division. See Related Reading below.

What if there is a reconvening meeting(s)?

If there are more closed meetings to clarify the terms of the settlement, here are a few points of clarification we believe could be included in the outcome, based on the public comments made by the DOJ recently, and its position over the years towards the real estate industry. The new practices need to be consumer-centric.

Points of Clarification

  • Offers of Compensation : Offers of compensation to buyer’s agents shall not be presented by sellers or their agents directly or through third parties. At the listing stage, no offers of any compensation to brokers representing buyers. No commission sharing between listing agents and buyer agents. The listing should only cover the listing agent’s commission and no allocation for payment of cooperative commission. In short, the time for negotiating offers of compensation is at the purchase agreement stage.
  • Representation Agreements: All buyer’s representatives must execute representation agreements (consistent with state law), including compensation terms and conditions, with prospective buyers before physically presenting available properties for purchase. We’ve heard from trainers that some buyer agents initially resist any system that makes them try to decide what they will get paid prior to knowing if anything will be available or offered from the seller. Is it just a math problem for the buyer agent (BA)? What if the BA expects X amount; the Seller is paying Y; the balance remaining is Z; where does BA get the Z? And what does BA do if Y is greater than X?
  • Commission payment: Buyer agent compensation terms may be proposed within the purchase offers of qualified buyers to sellers and their agents. The terms of any buyer’s offer can include a provision for the seller to pay all or a portion of the broker’s fee and, like any provision, can be negotiated between seller and buyer. Currently, some broker/agents are improperly  directing their energies to outsmart the system, while using creative contract language that could invite the scrutiny of the DOJ and copycat attorneys.
  • Permissions: Lenders are a logical source to fund buyer’s agent commissions. To avoid RESPA, the funds would be directed to the buyer (borrower) who would be allowed to pass through payment to the agent. Major lenders have formal programs to incentivize borrowers by funding closing costs or offering seconds that are not subject to payment until the loan is paid off. This provision would create a sanctioned source of funding without the complications of rolling the compensation into the mortgage.
  • Enforcement: The 13 “Practice Changes” have been specified — how broadly they are implemented, their effectiveness, and the evaluation of the consumer acceptance, and source of funding requires new data. This requirement could be addressed by NAR aggregating data through the MLSs reporting directly to Realtor Property Resources (RPR) or some other recognized private entity.
  • Resolution. All Realtor organizations who sign on to the agreement will receive relief from any and all copycat or pending litigation involving cooperative compensation — until at least 2027.

The end goal of any reconvening to rewrite paragraph 58 should revolve around the key word — NEGOTIATION — that is, negotiation between the seller and the listing agent; negotiation between the buyer and the buyer’s agent; and negotiation between the seller and the buyer.

Look for a bright forecast for the professional real estate agent:

The ability to negotiate effectively will differentiate the skilled agent from the unskilled agent. Transparency should be the goal. Truth and opportunities to learn how to become a better and true negotiator should be forthcoming from trusted trainers and coaches.

Training and clear language with examples will offer the best opportunity for agents to enforce the new practice. Brokers should make sure trainers give actual examples of what is okay and what isn’t. Have exercises to try different things and discuss so there is understanding. Classes with dialogue and improvisation would be very helpful to enable agents to think more on their feet and learn how to use their critical thinking skills

 

Practical Exercise: Assume you are part of any reconvening meeting, what suggestions would you make so that the upgraded Settlement Agreement better defines what is acceptable practice for brokers, agents, MLSs, and interested participants in the residential real estate industry…..AND would be acceptable to the DOJ, as well as to consumers.  Use the Reply at the bottom.

Related Reading:

Click here for Consent Decree article

Click HERE  Does the DOJ Buy in ?

Summary of DOJ WithdrawalClick Here

From NAR: The Paragraph 58 Practice Changes are detailed here

NAR Consumer ChoiceClick Here

NAR Settlement FAQs — Click HERE #54-73

 

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12 Responses

  1. I like the idea of the “Consent Decree” despite the fact that it may seem more cumbersome. I think erring on the side of transparency and clear procedure is needed. It is alarming how many versions I hear of what is happening, the next steps and best practice. This is an opportunity to boost the professionalism of the entire real estate industry and get this right. Those who want to do things “the way we have always done them” will either step up or step out. Technology is changing the business and I believe this will be very rapid in the next few years so adapting to change and being flexible will be necessary. Don’t assume things. Instead find reliable sources for process and procedure. In addition to that, agents can learn to think better on their feet by boosting their critical thinking skills. Doing that will aid agents in showing their value while technology accurately does all of the administrative details.

    John graciously offered me the opportunity to plug my program. I am currently working on a book/workbook for new and newer agents and those needing a reboot. This is based on my “99 STEPS” Course that is offered for CE credit in Colorado. It is expanding to the entire US and Canada. Currently you can sign up for a coaching program based on this program, info in the link below. Reach out to me with questions!
    ruthcatchenrealetstate@gmail.com
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  2. As reported in Inman on July 9, NAR President Kevin Sears did reconvene with DOJ’s Jonathan Kanter in Washington DC and “had conversations about the settlement and the written agreements that we need to have with buyers and how it’s a negotiation between the licensee, the Realtor, and the consumer, the buyer, as to what would be an appropriate amount that the buyer’s rep will get paid. So we had a healthy conversation about how that is pro-consumer and I think we cleared up some misunderstanding or misconceptions on what it was that we haven’t come to any agreements on. But we definitely made some good inroads.”

    The only thing about offers of compensation that Sears added is that “the DOJ will be closely monitoring this after Aug. 17. If they believe any salespeople/practitioners, brokers and/or brokerages are not complying with the terms of the settlement, then they will take that seriously. They, like us, want to make sure the consumer is fully informed and protected.”

    Sears also said: “One of the words that Kanter used multiple times was, ‘Is there common ground?’ And that’s what we strive for. Is there a way that we can find enough in common that, despite our differences, we can come to an agreement and find some peace? There is a promise of more meetings.”

  3. There needs to be some disclosure within the industry that Non-Realtor brokerages and Non-Realtor agents, and those who are not part of the settlement are not bound by any of the changes issued by the courts.

    1. Great point and I wondered about that. Non realtor brokerages may decide to comply or not. What happens if they don’t? Will agents move to the Non-Realtor brokerages? Could it get more convoluted? Can you mandate non-realtor brokerages to comply?

  4. Great job on this piece John. I know it was difficult to construct. Major restructuring is in the works and yet it seems many have their eyes closed. Hopefully this will get some folks thinking more deeply about what is taking place.

  5. Great piece, so well thought out and articulated. Who ever said you were just another pretty face.

    Having been familiar with the DOJ’s sniffing around real estate since the 1970s, the question of what does the DOJ want is critical because they want something, have been after for half a century and will likely continue until they get it.

    If we do not get the answer to that question, there is a part of me that wonders if the DOJ is simply waiting for organized real estate to demonstrate that it is unable to self-regulate and consequently must be federally regulated.

  6. I am in an MLS that is not Realtor owned. The MLS opted out of complying, mostly because we had already done most of what the DOJ is now asking others to do. The 2 things we didn’t already do, we still don’t think are good for the general public. I am already in a non-Realtor firm, but I wonder how the Realtor firms can comply if the MLS does not. I might be overthinking it.

    Generally the DOJ wants commissions to be set with the Agent and their Client. Reasonable. They don’t want the Seller’s Agent to be involved at all in what the other Party’s cost will be. Seller can be negotiated into paying it. But “it” is between buyer and their agent only. No offering from the seller. Reasonable. Why is this complicated?

    Changing everything to accommodate what the DOJ wants is complicated. But knowing what they want is not that hard.

      1. Our headstart changes have been effective, but the DOJ will never admit it because it would detail their game plan. It’s kind of an everyone’s right situation. Now we just stand back and see who wins. 🙂

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