As Commission Lawsuits Heat Up, Set the Record Straight With Deeper Client Conversations

Tough conversations are never fun, but they come with the territory when you are an agent. Among the list of topics that real estate professionals may encounter in their work, a more controversial one may be unavoidable in the coming months.

As the legal battles involving the National Association of REALTORS® (NAR) persist, the ripples they send throughout the industry pose an existential threat to the way agents conduct business. While these disputes have been talking points reserved for practitioners, that could change as recent developments and pending trials gain wider attention. 

“It seems like with every development, some people are just becoming aware of it when it’s something that we have been living with and defending for nearly four years now,” says Katie Johnson, NAR’s chief legal and membership experience officer.

At the top of the list of prominent lawsuits are the Burnett/Sitzer and Moehrl class action lawsuits, challenging the Participation Rule, which requires listing brokers to offer buyer brokers a commission to list a property in NAR-affiliated multiple listing services (MLSs).  

The latter lawsuit saw the most recent development after a federal judge granted the class action certification in March, opening up the antitrust case to a considerable number of current—and future—home sellers. 

Despite the allegations made in both cases, Johnson claims that fundamentally, both cases and the attorneys for the plaintiffs are trying to position themselves by spreading misinformation about how those consumers are served. 

“We’re really looking forward to that trial in October because we’ll have an opportunity to convince the jury that these class action attorneys have it all wrong,” Johnson says. 

As such, Johnson and other pundits within real estate tell RISMedia that agents and brokers must be prepared to meet inquiries regarding antitrust lawsuits and allegations against the industry.

Opportunity in curiosity

While prevailing in the court of law is ultimately the goal for NAR and the franchisors named in both lawsuits, Johnson stresses the importance of winning in the court of public opinion as the industry addresses the legal challenges ahead. 

Agents and brokers have a part to play in that endeavor, especially when faced with inquiring minds of consumers who may start hearing more about the industry’s antitrust challenges. 

According to Johnson, consumer curiosity about the lawsuits facing the industry presents an opportunity for agents to set the record straight about misinformation while also providing a stage for a deeper conversation about the transaction process. 

“Having consumers ask the question about the lawsuit can very easily transition into a serious and robust conversation about the value and the services and the cost involved with that representation,” Johnson says. 

Johnson thinks agents and brokers should use consumer inquiries and questions to improve transparency regarding the value proposition they bring to both sides of a transaction. 

Much of the commotion in both cases is with the setup of the commission structure. Specifically, that sellers are paying their agents, who then split that payment with the buyer’s broker, alleging that the business practice and the MLS policies that govern them constitute a price-fixing scheme among the defendants. 

While it’s uncertain how either case will shake out following the jury trials, Ken Trepeta, executive director of the Real Estate Services Providers Council, believes that the crux of many issues could be a lack of understanding of practices among agents and the reasons behind them. 

“It’s sort of a strange thing to conceptualize because there are many businesses that work this way where people receive a commission for a sale, and they, in some cases, rely on others to bring someone to the table,” he says. 

As more consumers learn about these trials, Trepeta urges agents to lean on resources and education materials provided by NAR to communicate the value of REALTORS® to clients while clarifying misconceptions. 

That includes NAR’s Competition in Real Estate webpage, which addresses many of the points mentioned in the antitrust lawsuits while providing agents talking points and information they can share with their clients regarding how NAR advocates for consumers.

That includes how to address questions regarding agent commission, which the website acknowledges as negotiable. 

“Consumers have the choice of who they want to pay and how they want to pay them,” read an excerpt from the NAR webpage, which provides messaging for explaining why agents are being paid what they make in commissions. 

Given the circumstances of the lawsuits and the market conditions, Trepeta believes agents will need to better explain these aspects of the business to consumers, who may question the amount being paid and the policies being challenged.

“How I would answer (consumer questions) depends on who I’m talking to,” he says. “(Generally,) I would tell them there’s a rule that governs my relationship as a REALTOR® with my fellow REALTOR® to ensure that we don’t short-change each other when it comes to commissions when we sell properties for our clients.”

Only time will tell how each antitrust lawsuit will pan out for the industry. However, pundits agree that one way or another, these lawsuits are likely to catalyze significant shifts in how agents conduct business. 

Even in a worst-case scenario, significant changes to policies in the industry won’t happen overnight. However, changes can still be made before a ruling to insulate the agents and brokerages from future litigation.

To a certain extent, they’ve already been set in motion, according to Jessica Edgerton, corporate counsel and EVP of operations at Leading Real Estate Companies of the World® (LeadingRE). 

“There’s a lack of faith that this stuff isn’t happening (among agents and onlookers),” she says. “On the ground, I believe that key leadership is aware of the possible implications of these suits, and that reasonable transitions are being made. Key players are educating themselves and their agents. We’ll be ready for whatever happens.”

Aside from the increased flow of content and resources NAR has produced in the past couple of years surrounding agent compensation and value props, Edgerton points toward recent changes made by companies like The California Association of REALTORS® and Northwest MLS to improve transparency within their purchase agreements.

If the industry loses and has to do away with its agent participation and cooperation policies, the consensus is that consumers—buyers in particular—will suffer. 

Given that the current market conditions are riddled with affordability challenges, consumers, particularly first-time and low-income buyers, are already struggling with scraping together down payments and closing costs. 

Toward that end, Edgerton stresses the need for agents to be ready to speak to clients about what’s at stake in the lawsuits and the importance of the current systems and structures in place.

Understanding the significant lawsuits facing the industry will be paramount to agents being able to discuss them with clients. While that doesn’t mean real estate professionals need to speak legalese, Edgerton says real estate professionals will need to be prepared to educate consumers that ask about the cases. 

“I would say, talk to your clients about this not from a place of fear but as a calming force,” she says. “Let them know that because we are an industry that not only competes heavily for the benefit of consumers but also has to participate in certain cooperative activities to get deals done, every decade or so, regulators and attorneys love to put the microscope on our industry from an antitrust perspective. It might get spicy here.”

Edgerton also urges agents to emphasize that the current system is designed with the consumer’s best interests in mind and that, as real estate professionals, they will always be transparent about commissions and share relevant information about the market with them.  

“Overall, my messaging to agents and members is very much about taking the current bombastic headlines with a grain of salt,” she says. “Take a deep breath, get back to business, brush up on what’s happening, and ensure your value proposition is clear.”  

Edgerton also stresses that brokerages should be reviewing their policies to ensure they are guiding agents toward clear, pro-consumer communication and transparency in their client interactions. A focus on education is also crucial. “In addition to policy-based education, right now I’m also encouraging our member brokerages to provide proactive education and training opportunities for agents that focus on honing their buyer representation value proposition.   

“For leadership, you know, make sure you’re reviewing your policies and make sure everybody is clear on transparency and clear on, making sure you’re talking to your consumers about exactly what the commission process is,” she continues. 

“Ultimately,” she says, “the message to agents and consumers alike is the good old ‘keep calm and carry on.’ It’s an overused phrase, but it’s merited in this case. We’re an industry that gets it done. We’re innovators, we’re survivors, we’re passionate about our consumers and our business. We may very likely need to make some changes in how we operate based on the outcome of these cases, but in the end, we’ll continue to serve our consumers with integrity and grace. And we’re not going anywhere.”