The Real Estate Law Suit
Happy 2024!!!
May your memories of the year behind, and your intentions for the year ahead, fill you with joy!
The new year is always an interesting time in the world of real estate.
Available inventory is nearing its seasonal low – as of this writing, there are 57 homes actively listed in Bellingham proper.
(In January 2011, there were 401 Actives).
There’s also a lot of interesting buzz – and even a new law – inspired by the lawsuit just lost by the National Association of Realtors.
A loyal newsletter reader emailed recently to ask if I would be writing on the subject.
It is certainly a subject I have followed, and continue to learn about through articles and blogs, podcasts, videos, and talking to other professionals in the industry, on a near daily basis.
I have found that many people don’t know about it, so I will share the basics in this newsletter, and some links to further reading.
I can also share that our local Northwest Multiple Listing Service has done its best to stay out in front of the issues that the case is built on, helping to result in a new WA State law that us real estate brokers began adhering to on Monday, January 1.
I’ll share the basics of that new law as well.
It’s a very interesting subject, and I will report on it occasionally throughout the year ahead.
For now, let me briefly explain what the case and the verdict entailed.
What is NAR?
Let me start by explaining that the National Association of Realtors (NAR) is a trade organization for real estate professionals.
Being a “Realtor” means you are a paying member of NAR and one of the affiliated 1200+ local or regional branches of the Association of Realtors.
(Our local branch is the Whatcom County Association of Realtors (WCAR))
As a member, a real estate firm and all its member brokers (agents) adhere to a Code of Ethics and Standards of Practice that intend to raise the bar of the profession.
The NAR is also one of the largest lobbying forces at the federal level, helping shape policy related to the real estate industry, and also homeownership and property rights.
The NAR does not license real estate agents, though.
Actual real estate licenses are issued by the WA State Department of Licensing – a totally separate (and governmental) entity.
You CAN be a licensed real estate broker, helping buyers and sellers, and NOT be a “Realtor”.
On top of that, there is the Northwest Multiple Listing Service – the NWMLS.
The NWMLS sets and enforces rules for real estate brokers, provides legal forms to list and sell houses, provides disclosures to stay in compliance with laws, and also is the central database of Active, Pending, Sold, Canceled, and Expired listings of real property throughout most of WA State.
(Websites like Zillow, Redfin, and others that allow you to search for a home online have an “internet data exchange” agreement with the NWMLS to “scrape” listings and publish them on their sites.)
The NWMLS is yet another entity that is not part of the Department of Licensing, nor is it part of or owned by the National Association of Realtors.
But that makes the NWMLS somewhat unusual, as MOST of the countries 540-ish different MLS’s are owned by their local Realtor’s associations.
And that brings us to the lawsuit, Sitzer/Burnett v. NAR, Keller Williams, and Home Services of America.
Sitzer/Burnett was a class action lawsuit on behalf of 500,000 home sellers in western Missouri, whose sales dated back to 2015.
The core of the lawsuit was over NAR’s rule that all listings on Realtor Association-owned MLSs communicate an offer of compensation to the buyer’s agent – a commission check, built into the price of the home.
The plaintiffs argued that NAR-and-MLS collusion inflated the amount of total commissions paid by sellers.
The verdict, handed down on Halloween, 2023, was in favor of the plaintiffs who were represented by an attorney named Michael Ketchmark.
Ultimately, the jury found NAR and the other defendants guilty, and ordered them to pay $1.78 billion in damages, which can potentially be tripled by the judge to just under $5.4 billion.
Immediately upon the verdict, Ketchmark filed copycat suits on a national level against NAR and 7 additional real estate companies.
It is reported that at least a dozen other copycat lawsuits were also filed, essentially alleging that if you sold a home anywhere in America with the help of a real estate broker, and compensation for the listing broker and a buyer's broker were built into the price of your home, then you have been a victim of a conspiracy.
In my 18 years as a Realtor, I’ve met with many hundreds of sellers, and I have explained the local, customary, competitive expenses of selling a home, including embedded costs like buyer broker’s compensation.
I have never been told by the NAR, the local WCAR, or any firm’s or designated broker’s policy, nor have I ever told any of the brokers that work at my firm, that I or they had to force a seller to pay a buyer broker’s commission, or that there was a required amount it had to be.
I have never, to my knowledge, forced any client to do anything, at any time.
But apparently that’s what’s been taking place in western Missouri and many other areas, somehow, egregiously enough that not even the NAR could put together an effective defense in the courtroom.
Again, though, the NWMLS is not Realtor-owned, so I may have been shielded from that all these years.
To read quotes from attorney Michael Ketchmark, it's as if the NAR, the larger real estate companies named in the (first) lawsuit, and all of us brokers in general, have done nothing short of holding guns to the heads of unknowing buyers and sellers while we conduct a giant conspiracy to steal houses and their owners' equity.
If that sounds like hyperbole, I would invite you to listen to this interview with Ketchmark and draw your own conclusions.
Ketchmark is quoted as saying after the verdict was announced:
"The time has come for the corporations to return the homes to the home sellers."
This article summarizes the verdict announcement well, and includes a lot of links to further perspectives.
I certainly have thoughts and opinions on the real estate industry, and I readily acknowledge that there are areas ready for reform.
I would say the same about education, home construction, health care, banking, government, environmental policy, the Federal Reserve, I could go on and on.
Email me your thoughts or questions, and let’s continue this conversation.
New WA State Law for real estate brokers
On January 1, 2024, Senate Bill 5191 was passed into law.
The bill includes Chapter 18.86 which now requires that buyers enter a written Buyer Brokerage Services Agreement with brokers as soon as is practical upon the commencement of rendering real estate services.
The NWMLS created and provides to us brokers the 3-page form that complies with the new law.
The form requires buyers and brokers to agree at the outset of work together the following points:
The geographic area the broker will represent them;
The term of the working relationship (minimum 60 days);
Whether the relationship is exclusive (of other brokers also working to sell that same buyer a house) or non-exclusive (multiple brokers are working for that one client)
Whether the buyer consents to limited dual agency (buying a house the broker also has listed)
The compensation amount the buyer agrees the broker will be paid at closing;
How the compensation will be paid if not built into the price of the home, or if the built-in compensation is less than or more than the agreed-to amount;
Buyers consent that compensation may be shared between firms and/or paid by more than one party;
Whether broker is obligated to show homes that offer no compensation, if the buyer also did not agree to any broker compensation;
And a few more boilerplate terms.
Most brokers, before January 1, did not use a formal written agreement with their buyer clients.
We have generally practiced explaining when we meet with buyers how and when we are paid for our services, that buyer broker compensation has customarily been built into the price of the home – an embedded cost.
Sometimes if we find an off-market home with a willing seller, they have a price in mind that has not yet taken into account a buyer brokerage compensation, so we explain that we’ll need to adjust the price to embed that cost.
The home loan accounts for that, appraisal accounts for that, the free market of selling homes has customarily – in my experience and to my knowledge – accounted for that.
I have carried the belief that a good buyer's broker and a good listing broker bring tremendous value to the buying and selling process.
The home sellers we have worked with, to my knowledge, have always understood that when we sign the listing paperwork or, if the home is unlisted, we add an addendum to the Purchase Agreement explaining the compensation to be paid at closing.
The notion of that being a conspiracy is a new concept for me that I don’t yet have my head wrapped around, but I will continue to read and listen, and I invite your input.
Meanwhile, as always, we are here to help however we can – with any part of your homeownership or interest in it – and we’re always a phone call or email away.
Cheers and Happy New Year!
