Consumer Advocate Group Highlights ‘Opportunities and Risks’ of NAR Settlement

With just over a week before the changes agreed to by the National Association of REALTORS® (NAR) in its lawsuit settlement go into effect, the Consumer Federation of America (CFA), a non-profit that has been sharply critical of the real estate industry, released guidance aimed at consumers ostensibly meant to help buyers and sellers through the new process.

Taking the form of three “suggestions” on how to navigate transactions post-August 17, Stephen Brobeck, senior fellow at the CFA, wrote that the release tells consumers that “the new rules provide both opportunities and risks for consumers.”

“Knowledgeable home buyers and sellers will be able to take advantage of the opportunities and avoid the risks,” he added.

Brobeck and the CFA have long sought changes to how real estate agents are compensated. A 13-page report authored by Brobeck in 2019 was widely cited in the then-nascent commission class-action lawsuits, as the CFA found what it described as evidence that the industry obscured commissions and sought to make negotiation impossible.

In response to emailed inquiries from RISMedia, Brobeck says the organization has more evidence that “brokers are talking about violating the spirit and even the letter of the new rules (e.g., not serving any seller who will not offer buyer agents 2.5%).”

“But I think many of them, on reflection, will realize that they risk public exposure, litigation, and consumer rejection by doing so,” he adds.

In the shadow of the NAR settlement changes, the CFA release tells consumers, and buyers especially, to aggressively scrutinize the forms used by agents, as well as their behavior.

“Many contracts are impossible to read and understand. Don’t sign them. Feel free to seek advice from an attorney or other independent expert,” the CFA guidance reads, continuing on to call any contract that requires a commitment to pay that agent signed before a tour “especially unfair.”

“Some buyer agents will press buyers to sign this commitment before showing them a property, and a few dishonest listing agents at open houses may try to do so also,” the CFA said. “Increasingly, buyer agents will offer buyers the opportunity to sign ‘touring agreements’ that do not require a financial commitment.  But it is important to remember that if a buyer agent shows a house that is later purchased, they can claim a portion of the commission.”

The CFA previously targeted one specific buyer agreement, issued by the California Association of REALTORS®, claiming it was designed to obscure how and when buyer agents would get paid, among other issues.

NAR, for its part, has pushed back, putting out its own resource for consumers last week. A source familiar with NAR’s legal strategy and settlement rollout told RISMedia today that there is an expectation for some short-term shakiness and a need for further education, particularly with a flood of “misinformation and disinformation” propagating online.

The three suggestions

In its framing of the settlement changes, the CFA hit on several of the main criticisms leveled at agents and the industry at large—namely, that a large number of real estate professionals are less than honest, that contracts are often unfair to consumers, and that negotiations are discouraged.

The CFA’s first suggestion is that prospective buyers and sellers put extra effort into finding a “competent, honest agent,” specifically urging them to check recent reviews, how many transactions the agent has been a part of and whether they are willing to read, discuss and potentially modify proposed terms.

Consumers are also “urged” to look into whether their real estate professional is a broker.

The second suggestion is that consumers “read and evaluate” agreements, and remain wary of arbitration clauses, commitments to dual agency and seller contracts that require buyer agent compensation.

Interestingly, the note on arbitration claims that those clauses “effectively prohibit a buyer or seller from going to court,” though notably judges all the way to the Supreme Court ruled that arbitration clauses did not prevent sellers in the Burnett case from suing the brokerages or franchisors involved. Arbitration clauses are also not mentioned in the NAR settlement agreement.

Brobeck claims broadly that binding arbitration clauses “effectively limit consumer access to the courts.”

“Arbitration rulings strongly influence judges. Moreover, they take a great deal of time and consumer effort,” he says. “We don’t think consumers should be required to submit to mediation either but this process is usually quicker and is not binding so (it) doesn’t limit judicial involvement.”

The third suggestion focuses on negotiation, claiming that “(t)he basic reason that the industry has been sued by the U.S. Department of Justice and by private citizens is because for a century, REALTORS® have colluded to set rates.”

It also suggests specifically that consumers aim to negotiate agent commission down to two percent of a home’s sale price.

“There is much evidence that some REALTORS® will try to discourage this negotiation by having listing agents press sellers to commit upfront to specific buyer agent compensation and by having buyer agents assure buyers that sellers will provide this compensation,” the CFA wrote. “We suggest, and some industry leaders now agree, that sellers should not agree upfront to provide any buyer agent compensation but should wait for buyer offers.”

At least one large MLS (CRMLS in California)  recently walked back a field that would have allowed sellers to offer specific “concessions in price” on the MLS platform. CRMLS and others still allow sellers to indicate whether or not they are open to concessions generally.

Brobeck says the CFA “opposes any inclusion of concessions in price on MLS listings.”

“All the initiative here should come from buyers who, if they wish a seller concession to compensate the buyer agent, should include that request in their offer for the property,” he continues. “Then the seller can independently decide if they want to negotiate this concession. True price competition will only occur when listing and buyer agents cannot manipulate this issue.”

CFA finally indicates that it believes that “(i)f buyers had the opportunity to include agent compensation in their mortgages, this would be much less of an issue.”

NAR and mortgage industry leaders have so far indicated they do not believe that rolling buyer agent commission into a mortgage is viable, disrupting risk and valuation calculations, among other things.

Read the full CFA release here.

Editor’s note: this story was updated at 1:40 p.m. eastern time with comments from Stephen Brobeck.