NWMLS not Opting In to NAR Settlement

 NWMLS Continues To Go Its Own Way on Broker Compensation

While many of us are waiting for the Department of Justice (DOJ) to announce its antitrust concerns regarding real estate brokerage practices, there is one non-Realtor MLS who since October 2019 has been operating with its own set of rules regarding offers of compensation and the practice of steering.

As reported in the Seattle Times, “The Northwest Multiple Listing Service (NWMLS), where 33,000 of Western Washington real estate agents share information on properties for sale, will not opt into a national settlement that brought new attention to agent commissions this year. In announcing its decision not to join the settlement, the NWMLS argued that removing commission offers from home listings hurts transparency and could lead to “deceptive practices.”

“NAR’s removal of compensation transparency from the MLS pushes consumers and brokers to make secret deals off MLS, inviting deceptive practices, discrimination and unfair housing,” the statement said. “Depriving buyers of information about the transaction risks harming buyers, especially those buyers who are already disadvantaged, including first-time home buyers and members of protected classes.” Preventing sellers from including their offer to pay for the buyer’s agent “also unnecessarily restrains the seller’s choice and absolute right to offer compensation to a brokerage firm representing the buyer,” the statement said.

Following the 2019 changes, NWMLS continued analyzing potential changes to its rules and forms regarding broker compensation. In October of 2022, NWMLS revised its rules and forms to “de-couple” broker compensation, change the seller’s unilateral offer of compensation to a bilateral agreement between the parties, ensure transparency of compensation for buyers, and create additional opportunities for both sellers and buyers to negotiate broker compensation as follows:

  • The listing agreement clearly separates the seller’s compensation of the listing firm from any compensation the seller might choose to offer to the buyer’s broker.
  • Any compensation offered to the buyer’s broker is determined and offered solely by the seller – rather than “commission sharing” between the brokerage. Any offer of compensation from the seller to a buyer’s broker was converted by the revisions from a unilateral offer, accepted by performance by the buyer’s broker, into a bilateral contract.
  • Buyer broker compensation is paid as offered in the listing if accepted by the buyer on behalf of the broker in the purchase and sale agreement, or as modified by the parties in the purchase and sale agreement.
  • Buyer broker compensation is a term prominently displayed on the first page of the purchase and sale agreement, to be negotiated by the buyer and seller like any other contract term such as the purchase price. NWMLS also prepared an addendum to the purchase and sale agreement giving the parties various options for negotiating any buyer broker compensation.
  • NWMLS revised its buyer representation agreement to include alternatives for buyers and their brokers for compensation that depend on the terms of the listing.
  • For an insightful summary of the current NWMLS policy regarding offer of compensation and steering, read the following link that helps explain why NWMLS is not opting into the NAR Settlement Agreement and why NWMLS may find a ”target on its back” from the DOJ.

Related reading:

Is it worth the risk to take on the DOJ?

Taking on and defying the NAR is one thing, but taking on and challenging the DOJ in public pleadings is quite another. We’ve collected some of the sharp language NWMLS has directed at the DOJ:

  • DOJ’s account of these rule changes in the Statement of Interest (SOI) is incomplete and inaccurate.
  • NWMLS is singularly well-positioned to respond to inaccuracies in DOJ’s description and analysis of NWMLS’s rules and forms changes, and thus help ensure that the Court’s decision regarding the proposed settlement in this matter is based on accurate and complete information.
  • DOJ dismissively asserts that these changes (by NWMLS) were “not meaningful.”
  • DOJ represents its evidence as reflective of “NWMLS’s experience,” but due to omitted critical information and deficiencies in DOJ’s analysis, DOJ’s account of NWMLS rules, forms, and data is not representative of “NWMLS’s experience.” NWMLS cannot let mischaracterizations and incomplete and inaccurate information go unaddressed.
  • Notably, DOJ, at one time, agreed with the importance of transparency for consumers and endorsed NWMLS’s rule. DOJ’s apparent change of heart in its SOI in this case is striking.
  • DOJ’s myopia allows for no criteria other than “decreased buyer broker commissions” to evaluate competition and innovation.  Transparency and the expansion of informed consumer choice are the guiding principles of NWMLS’s revised rules. Providing consumers with more information in turn promotes competition and lowers prices.
  • DOJ ignores that a de-coupled compensation system, in which buyers agree at the outset of the brokerage relationship how their broker will be compensated, eliminates the concerns for steering and buyers’ ability to reduce buyer broker commissions that animate its SOI.
  • The antidote to steering is transparency. The Department of Justice’s ill-informed, ill-supported critique of Northwest Multiple Listing Service’s (“NWMLS”) rules and forms changes fails to acknowledge this.
  • DOJ’s preferred system, in which there is literally no opportunity for compensation transparency in the MLS, invites brokers to make deals in secret, creating opportunities for deceptive practices, discrimination, and unfair housing.
  • DOJ’s preferred system would harm such buyers by requiring them to enter the home buying process lacking critical information, or encourage them to engage in the biggest financial event of their lives without a broker who is tasked with representing the buyer’s interests.
  • DOJ’s Entire Analysis Is Based on a Single Anonymous Source. More than 2,200 brokerage firms operate in the NWMLS service area. And yet, DOJ’s assessment of the rule revisions’ impact on buyer broker compensation relies entirely on DOJ employee Schmalbach’s analysis of a single unidentified firm. This is by DOJ’s choice – DOJ had practically unfettered access to the data, resources, and information from NWMLS.
  • The NWMLS brief points out that DOJ has had unfettered access to information and data from NWMLS through multiple Civil Investigative Demands and interviews over several years and that it had access to other brokers’ data that it failed to consider.  NWMLS shows how these shortcomings render DOJ’s analysis in its SOI unreliable.
  • DOJ obscures, or misses altogether, the purpose and impact of NWMLS’s changes, which ushered in ahead-of-their-time enhancements to transparency, consumer choice, and opportunities for negotiation. Additionally, DOJ’s critique of NWMLS is based on a highly flawed analysis of woefully incomplete data.
  • While DOJ claims to be concerned about brokers’ “steering” of buyers to higher commission listings, it ignores entirely NWMLS’s rule change that made information about sellers’ offers readily available to consumers. DOJ invokes consumers’ access to real estate information when it serves DOJ’s rhetorical purposes (noting the popularity of real estate  sites like Redfin and Zillow), and yet it ignores NWMLS’s concrete actions putting compensation information directly into the hands of consumers.
  • DOJ also cynically mischaracterizes NWMLS’s description of its rule changes to eliminate mandatory compensation and permit publication of offers of compensation. Even if DOJ were correct that decreased buyer broker compensation is the one true benchmark for evaluating whether NWMLS’s rule changes have increased competition, for the reasons explained in Section III, DOJ marshals insufficient and incomplete data to support its claim.

Additional thoughts on the STEERING ISSUE

  • In its filed Statement of Interest (SOI), the DOJ said when sellers set buyer-broker compensation, they “know that if the published, blanket offer is less than the ‘standard’ commission, many buyer-brokers will ‘steer’ home buyers to the residential properties that provide the higher standard commission.” Buyer brokers can steer their clients in several ways: They can decide which properties to show, they can discourage or encourage bids on particular properties, and they can decide how vigorously to pursue a property on behalf of a client. The Rule thus “creates tremendous pressure on sellers to offer the ‘standard’ supra-competitive commission that has long been maintained in this industry.”

Let’s take a look at “steering” from the perspective of the listing agent, rather than from the perspective of the buyer broker  who has a fiduciary duty to act in the best interest of its buyer client to show properties that meet the buyer’s stated criteria.

  • There is a line between doing the listing broker’s fiduciary duty informing the seller of the consequences of not offering compensation, and persuading the seller to offer competitive compensation. “If you don’t offer enough compensation, the buyer broker will not show your property Mr. Seller.” This is not informing your seller. This is convincing your seller; it’s employing the listing broker’s “undue influence.” It’s doing a sales job on your own client. Some people think there’s a huge difference between threatening that the buyer agent will steer vs. whether the buyer will do so. Not so…the difference is between informing and convincing, between advice and sales.

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