What Happens to NAR and the Industry If They Lose the Bombshell Lawsuits? (Part 2)

by | Aug 18, 2023 | Clear Cooperation Policy | 0 comments


Click to read Part 1, which gives background on these lawsuits.

Major risks if the suits are not settled:
Failure to settle these suits could force a complete overhaul of the industry:

  1. Copycat lawsuits ensue nationally. Brokerages, MLS’s, and associations across the country are all named.
  2. There is no coverage by E&O, D&O, GL Insurance because these are antitrust claims.
  3. This can result in massive bankruptcies taking place across the industry.

How can the industry prepare?
The most important step that the industry can take across the board is to make buyer-broker agreements mandatory in every transaction. Dwiggins described what this would entail.

Where buyer broker agreements are required before a listing (can be posted) in the MLS has shown that is a smart, tactful decision that should be enacted today. There are a lot of things that need to be worked out about that (especially) if dual agency is banned in your state. But in general, it should happen. It’s important for fiduciary to the buyer, it creates less looky-loos coming through a property for the seller (because) they know that there’s actually a genuine client working with an agent. There’s (also) no downside from a consumer perspective.

It also levels the playing field, so it’s not just one agent asking for a buyer broker agreement—it’s a requirement. By the way, there are 12 states currently in the US that require this anyway.

He went on to say:

I don’t think you’ll see the FTC, or the DOJ have an issue with any of that. It’s pro consumer and they’ve been wanting to establish fiduciary for a long time—you’ve now done it. That is a smart move that should occur.

Dwiggins also made the following suggestions for NAR, MLSs, brokerages, and agents to be better prepared for what’s coming.

NAR should:

  1. Rescind the Buyer Broker Cooperation policy to make it optional since MLS’s are going to do it anyway.
  2. Immediately pass a mandatory rule to its MLS policy and Code of Ethics that requires buyer’s brokers to have signed buyer broker agreements that clearly spell out compensation terms signed before showing MLS-listed properties.
  3. Mobilize national lobbying resources to explicitly allow mortgage loans to finance the buyer broker compensation and educate members on how to talk to consumers about the value of buyer representation.

The Multiple Listing Services should:  

  1. Make Buyer Broker Cooperation optional, just like Bright MLS, Northwest MLS, and now MLS Pin have done. It’s going to happen regardless.
  2. Prepare for commission pressure and attrition amongst their membership and continue to focus on consolidation to bring MLS’s costs down further. Dwiggins believes this could result in a 30-40 percent drop in NAR membership.
  3. Think beyond being a repository of homes for sale and work together on driving more innovation for their membership.

According to Dwiggins, many of the MLSs he works with are starting to prepare for these changes by considering how they can change their value propositions and thinking about how MLSs will function in a new world. What can they offer their membership? How can they offer cooperation?

Brokerages should:

  1. As soon as possible, require signed, executed buyer broker agreements at the beginning of their agents’ engagements with buyers.
  2. Develop educational, marketing, and training materials for agents that clearly explain the specific value of their buyer agent services and audit their existing materials to comply with NAR rules on buyer agent compensation messaging.
  3. Cut down on overhead and expenses. They will need to be much leaner operationally in the next 12 – 24 months.
  4. Come up with different compensation model options for their agents. They will need to adapt just as their agents will. Buy side commission pressure will occur.

Agents should:

  1. Start using buyer broker agreements at the beginning of their engagements with all buyers.
  2. Start using buyer presentations, clearly articulating their value and why they get paid the compensation they do. It must be 10X better than they are today.
  3. Develop different compensation models such as (percentage, hourly, flat fee) depending upon clients’ needs.
  4. Listing agents should update their materials to address how they and any agent representing a buyer are compensated, the pros and cons of sellers offering or not offering compensation to buyer’s agents, as well as language in their contracts regarding compensation, services, and fiduciary duties in states that allow dual agency or transaction brokerage.

We don’t need to be fearful of this—the sky’s not falling, it’s going to change
Dwiggins believes the industry needs to be able to articulate its values to buyers and have the buyers pay us. These changes make sense—they need to happen.

The end result in three or four years will be (that) it’ll be a better organized business, and you won’t see any more DOJ investigations. You won’t see a lot of this government intervention because it’s set up in a structure where you are representing one individual, you are working as a fiduciary with that one individual, and that one individual is paying you for those services. It is going to end that way, one way or the other, and I think we will be a better industry long term for it.


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