Realtors^® Deal with New Requirements

Recent settlement leads to early disclosures

Who knew a jury’s decision in a St. Louis courtroom would have such a large impact on the country’s largest trade association, the National Association of Realtors^®? The class-action lawsuit was filed with the intent to seek compensatory damages for standard real estate practices related to how Realtors^® shared commissions on properties listed in their members’ MLS systems.

To unpack the case, and without getting too deep into the weeds, the plaintiffs sought compensatory damages related to the standard practice of how Realtors^® shared listings in the MLS. The practice that generated the lawsuit was that a blanket, unilateral offer of compensation was made to fellow members, including to other firms working with buyers whose agent commissions were usually paid by the seller.

Since the offer included the rate to be paid in the computerized MLS system, it had the effect, according to the plaintiff, of creating a standardized rate. In short, the claim was that Realtors^® appeared to be price fixing. Also alleged by the plaintiff, the seller was paying fees to agents who were actually working for the buyers without realizing that both the commissions and who should pay the fees were negotiable.

The jury found for the plaintiffs and awarded a large settlement. Subsequent to that verdict, the National Association of Realtors^® and other large national brokerage firms reached a settlement that included financial compensation and a change of practices by its members on a national level.

Practices that require change

The primary changes required for all members nationally, including our two real estate entities, Russell Lands on Lake Martin and Lake Martin Realty, are primarily related to disclosure to our clients and customers as well as working with our competing firms.

The big changes, which must be implemented on August 17, 2024, include the following (there are other requirements as well):

• When listing property, Realtors^® must gain written approval from the seller of the property regarding how much commission, if any, the brokerage can share with another firm for selling the property to one of their buyer clients. This disclosure must be transparent, and all fees must be negotiable.
• When placing a listing in the MLS, the listing broker cannot publish in writing in the MLS if the seller will pay the fee or how much the seller is willing to pay. Agents representing buyers must ascertain that information from the listing company either verbally or in writing outside of the MLS. This practice is intended to prevent price fixing.
• When working with buyers, Realtors^® must give to potential buyers for execution a written document that fully discloses the terms of the brokerage services and the fees that the buyer may be liable to pay in the course of acquiring a property through the brokerage.
• The forms that the buyers will be required to sign before the agent can show property listed with another member firm must clearly state the fees the buyer may be subject to pay the brokerage and under what circumstances that fee will be due.
• In all cases, the Realtors^® must, in writing, give both sellers and buyers a clear financial picture of the potential transaction including any commissions that may be paid at the time of executing a purchase agreement.

What this means

We think this will lead to greater professionalism for all Realtors^®, for sure. It will also cause significant changes in the property search process, especially for buyers. Buyers will now be faced with the potential of paying the agent showing them property if they complete the purchase. That does not mean that they cannot still seek to have the seller pay for that fee out of the proceeds of the sale, which was previously the norm. Now, they will have to negotiate the rate and who will pay that fee.

With the help of their agent, sellers will need to carefully assess the market as well as each offer. Our opinion is that, most of the time, buyers will seek to find and purchase properties that can be purchased with the lowest cash outlay possible.

We also think that clear written disclosure is a very good thing! Therefore, we have made every effort to update our documents to provide for clear disclosure and to comply with the spirit of the settlement. Our Realtors^® are ready to answer questions you might have and help you navigate the evolving real estate market.

In virtually every property listed with Lake Martin Realty, our sellers have agreed to pay commissions to the sales agents working with buyers. To help you navigate the new environment or to see which properties are best suited to your criteria, please reach out to one of our Realtors^®. We will work hard to find the right property and terms for all prospective buyers.