It’s been a rocky few months for the National Association of Realtors.
The Chicago-based trade group was named in two commission lawsuits leveled at some of the largest U.S. brokerages. The class action suits have been billed by some as titanic legal showdowns that could force defendants to pay punishing damages, possibly in the billions of dollars.
NAR, which led the defendants, has been left in the crosshairs as trial dates approach and two of the other parties, Anywhere Real Estate and RE/MAX Holdings, have settled.
But along with the external challenges, the group is dealing with internal turmoil after a sexual harassment scandal sparked the exit of one president and cries for the resignation of another.
Class actions cloud industry’s future
NAR is at the center of the plaintiffs’ claims that it colluded with brokerages to inflate fees charged by real estate agents. The plaintiffs say that antitrust laws are violated when listing agents are required to compensate buyers’ agents for listing properties on MLS.
If the plaintiffs prevail, some forecast that buyers’ agent commissions, which range from 2.5 to 3 percent, could be at risk.
Sitzer et al. v. NAR et al. (also known as Sitzer/Burnett) is scheduled to start Oct. 16 in U.S. District Court in Kansas City, Missouri, and Moehrl v. National Association of Realtors et al is scheduled to start in early 2024 in U.S. District Court in the Chicago area.
NAR and fellow defendants Keller Williams Realty and HomeServices of America are expected to continue to litigate the lawsuits after Anywhere settled for $83 million and RE/MAX for $55 million.
While those may seem at first glance like hefty sums, they pale in comparison to the $4 billion on the line if a jury rules against the defendants, according to one of the lead attorneys for plaintiffs on the Sitzer/Burnett case, Michael Ketchmark.
RE/MAX’s settlement commits the firm to making “certain changes to its business practices,” according to an SEC document filed Sept. 18. Though the details of the settlements are unclear, one of the biggest potential changes comes down to the MLS, which requires Realtor membership.
“Some consumers made it clear that they want brokerages to work differently.”
But even if the power of the lawsuits has been deflated by what some would call lowball settlements (observers such as real estate consultant and blogger Rob Hahn pointed to Anywhere and RE/MAX’s market caps, which at the time were $842 million and $462 million, respectively), this is not the end of the legal challenges NAR is facing.
The U.S. Court of Appeals in late August revived an antitrust lawsuit regarding the trade group’s policy on pocket listings. The lawsuit by private listing service Top Agent Network over NAR’s Clear Cooperation Policy is headed back to district court.
The current slate of lawsuits could be defined as another chapter of arguments over agent commissions that have been going on in courts for about 100 years. But the discussion over compensation has been more prominent than ever, said California-based broker Spencer Krull, and public sentiment to reform the industry has increased.
“Some consumers made it clear that they want brokerages to work differently,” said Krull, who works as a managing broker at the white-label firm Side. “Brokerages that take advantage of consumer sentiment may have an advantage by creating a new paradigm.”
If judgments in various antitrust cases made buyers’ commissions voluntary, buyers’ agents’ compensation would plummet, Anthony Marguleas, a Los Angeles agent and founder of Amalfi Estates, forecast this year.
“No buyer will want to cut a check between 2.5 to 3 percent of the purchase price,” Marguleas told TRD earlier this year. “I can foresee buyers’ agents getting paid hourly, like attorneys.”
For more than a decade, new players like the iBuyers Opendoor, Redfin and Zillow have concentrated on rethinking how agents list and sell properties.
“Under the current model, everything is listing-focused,” Krull said. “Buyers’ agents are going to have to become just as good as listing agents at articulating their unique value.”
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Calls for new culture
Kenny Parcell stepped down as the NAR’s president in August after several women accused him of sexual harassment. Parcell denied wrongdoing, and the organization said that it does not allow discrimination, harassment or retaliation and follows “clear reporting procedures to investigate any issue of concern brought to our attention.”
Tracy Kasper, whose long-awaited turn as president came early with Parcell’s resignation, led NAR executives in reassuring members they were committed to addressing their concerns.
But the response has been less than confident. A letter from a law firm hired for an internal investigation into allegations of misbehavior at NAR undercut promises from the trade group’s top brass.
The law firm uncovered evidence that leaders engaged in “creepy” and “disrespectful” behavior last year, including lying to staff and members, being racially insensitive and engaging in sexual communications, according to its letter addressed to CEO Bob Goldberg. The findings predated the public accusations against Parcell and added to members’ concerns about figures like Kasper — a longtime insider — being able to bring about a much-needed culture change.
Goldberg has since responded with policy changes involving how the group will investigate claims of harassment, discrimination and other misconduct. The chief executive did not address calls for resignations across the trade group’s leadership, however, leaving the internal tensions simmering as the association heads into a critical next chapter.