NAR Settlement May Pave the Way to Transparency in California Commission Disclosures

by Anna G. Kudla

The National Association of Realtors (“NAR”) is one of the largest trade organizations with over 1.5 million members, providing guidance and access to services such as the Multiple Listing Service (“MLS”) and professional market data from a national to metro-market level. The NAR also claims to have consumer protections in mind by requiring each member to abide by a strict code of ethics and regulations. Up until now, membership mostly gave the realtors credibility through affiliation. However, as seen in recent headlines, the NAR offered to pay $418 million over roughly four years to resolve all claims against the NAR itself and its members reacting to the alleged anti-trust violation litigation.

While membership was optional, the majority of brokerages required salespersons to join, viewing it as crucial. The NAR is one of the top lobbying spenders in the United States. In 2023, the NAR spent millions of dollars lobbying Congress and federal agencies, comparable to heavy hitters like pharmaceutical companies and the tech industry. Despite political influence, NAR is facing significant scrutiny over antitrust violation claims with countless lawsuits sprouting up across the country.

Scrutiny reached an all-time high after a federal jury in Missouri ordered the National Association of Realtors and several large real estate brokerages, including Keller Williams, to pay $1.8 billion in damages, finding that forcing sellers to pay a homebuyers’ agent commission was a violation of federal antitrust law. The potential for punitive damages would have increased damages significantly more causing Keller Williams to give up appeal rights and settle for $70 million. As part of the settlements, it was reported that Keller Williams also offered to no longer require their agents to be members of the National Association of Realtors or follow the trade association’s guidelines; essentially, turning their backs on the NAR. Other large real estate brokerages agreed to similar settlement terms. For example, it was reported that Anywhere Real Estate Inc. settled for $83.5 million, while RE/MAX settled for $55 million. The NAR then proposed their own settlement terms.

NAR’s recent $418 million settlement needed court approval because it was designed to end litigation against NAR, each of its state associations, and all members. The NAR has wasted no time in announcing that this agreement is intended to buy the NAR and its members’ peace, however by settling it is not admitting liability. The NAR further boasted they would add new MLS rules prohibiting any mention of compensation offers. While broker compensation would not be communicated via the MLS, agents are free to negotiate and exchange compensation percentages elsewhere. The NAR also offered to enact a new rule to require their members to enter into written compensation agreements with buyers.

In California, realtors are regulated by the Department of Real Estate with the majority of the residential transactions using California Association of Realtors (“CAR”) forms. Each year, the old forms get updated or replaced. In 2024, some of the new changes to forms forcing compensation to be discussed can be seen in the following:

1. Buyer Representation and Broker Compensation Agreement. While this form does not have a compensation option, it limits the duration of the representation and automatically defaults to non-exclusive representation, meaning the broker only gets paid if they assist in the purchase. The buyer has the option to make it an exclusive representation if they choose. In addition, this CAR form also gives the buyer the ability to authorize his/her broker to include a term in the offer asking the seller to pay the buyer’s broker and obligates the broker to disclose the agent’s expected compensation as well as the final compensation the broker actually receives.

2. Anticipated Broker Compensation Disclosure. In addition to the representation agreement, CAR has a three-part form. The first part of the form advises the buyers that the sellers paying their broker a commission may directly or indirectly influence the sales price and that the buyer’s broker is required to disclose on a “property-by-property basis the compensation promised.” The second part of the form is filled out when a property is being shown or an offer is made, in order to keep the , and let the buyers know from what source the agent learned of the listing. The third part of the form is filled out when the buyer’s broker discloses the final compensation received.

3. Seller Payment for Buyer’s Broker. If paragraph 3(g) is checked off in the Residential Purchase Agreement, the “Seller Payment for Buyer’s Broker” form must used to identify the amount of compensation the buyer is asking the seller to pay his/her broker. This is designed to offer peace of mind that a buyer’s broker does not receive double payment.

When buyers and sellers find themselves in conflict, certain forms address the parties’ rights. For instance, the main contract that buyers and sellers enter into is the “Residential Purchase Agreement”, commonly referred to as the RPA. Although only the buyers and sellers are the main principles contractually bound to the RPA, realtors and brokers are identified throughout as fiduciaries participating in the transaction on the principals’ behalf. Unless the principals waive the alternative dispute resolution terms contained within the RPA, buyers and sellers are contractually obligated to mediate and arbitrate disputes. Real estate agents and brokers, on the other hand, are identified as individuals who could be invited to mediation, in an attempt to avoid litigation and assist in resolution. Hart Kienle Pentecost represents buyers and sellers in disputes arising from the sale transaction, as well as disputes with their realtors through experienced legal representation. Moreover, the firm also offers mediation and arbitration services at affordable rates.

Disclaimer: The information provided is commentary and is intended for general informational purposes only. It should not be considered professional advice or a substitute for seeking professional guidance. Readers should consult with an attorney for specific advice related to their situation.