NAR Antitrust Commission Lawsuit Training and Tools

October 25, 2023

Top 7 Takeaways from NAR Commission Lawsuit Training

The real estate industry is always changing, but with the current NAR commission antitrust lawsuits, it’s changing faster than ever. We are here to keep you informed.

One of the newest disruptions in the real estate industry right now are the antitrust class action lawsuits against the National Association of REALTORS® (NAR), some of the largest national real estate brokerages, franchisors, and networks. Things are happening fast, and the real estate industry is trying to keep up.

Here at POWER AGENT® Headquarters, our goal is to always stay ahead of what’s happening in the industry for our members. These lawsuits are no exception. To bring everyone up to speed, here are the points in the various lawsuits that the plaintiffs are claiming:

The plaintiffs ALLEGE the following:

There was a conspiracy to require home sellers to pay the buyer broker’s commission, inflating commissions.
Discouraging rebates and commission negotiations through NAR rules and practices.
Requiring minimum buyer broker commissions and punishing lower commissions.
Hiding actual commission costs from buyers by having sellers pay buyer agent commissions.
Conflicts of interest created by representing both buyers and sellers.
Interfering with competitive FSBO and non-MLS properties by restricting services.
Violation of state and federal antitrust laws through anticompetitive commission practices.
The lawsuit specifically challenged NAR MLS rules enabling filtering and restricting listings based on commissions offered. It sought to overhaul industry practices to allow more competition.
Conspiracy to require home sellers to pay the buyer broker’s commission in violation of antitrust laws
Imposing standardized commission rates through NAR rules and MLS policies
Causing higher real estate prices and commissions compared to a more competitive market
Depriving home sellers of their rights to freely negotiate commissions and broker services

Some of these points we know for a fact aren’t true, of course, but the very nature of class action lawsuits is to build up an argument with every possible point of contention or possible perception to make your case, leading to so much difficulty in proving they aren’t true that it’s just easier and less costly for the companies to settle. At the time of writing this, two have now chosen to settle: RE/MAX and Anywhere.

7 Training Takeaways

We recently hosted an online training event for our POWER AGENTS® called Buyer’s Agent Beware: What You Need to Know About the New Commission Model, to really dive into the claims of this lawsuit and the issues that are sure to arise in order to wrap our minds around what this would mean for Agents, Buyers, and Sellers alike. (Members find that training here in the Webinars on Demand section of your Classroom with slides and tools.) Now, let’s boil down that 3-hour long training into the Top 7 Takeaways that every agent needs to know.

Here we go!

Breakdown of the New Commission model: For the last couple of months, I’ve been teaching what I predicted would be a new method of structuring commissions. Essentially, it boils down to having buyers and sellers pay their own agents their own commission. This opens up negotiations that many buyers and sellers didn’t feel they had before.

COMMISSION DISCLAIMER:

The commission examples provided are for illustration only and do not represent actual rates. Real estate commissions are negotiable and not set by law. Professionals should independently determine appropriate commissions based on services provided and their marketplace. Professionals have sole responsibility for transparently communicating their fee structures to clients in compliance with applicable laws and regulations. These examples do not constitute financial, legal or real estate advice.

Now, let’s dive in.

Option 1: Present your fee as a management and marketing fee for the listing for the sellers. Traditionally, on listing appointments, you would tell the seller that your commission was, as an example, 6% and split between yourself and the selling (buyer’s) agent. Instead, you would say it’s 3% for managing the listing and doing the marketing. Now, the sellers will perceive it as a great deal compared to the 6% other agents are still asking. You can then explain that the Buyer’s agent will negotiate their own commission rate and rather than the buyers cut a big check, they can roll that cost into their mortgage rate. During negotiations, these will each become separate lines on the deal.

Option 2: Offer a Seller’s Incentive Fee to the buyer’s agent. This is a new term that we created, and it boils down to the listing agent offering an incentive fee to the buyer’s agent sell the house.  We’re not on the listing getting 6% and then you pay 3% to the selling broker, but rather, presenting it as you, the listing agent, getting 3% period. Then outside of that, you offer a 3% (or whatever you and your sellers deem appropriate) incentive fee to the other agent. It’s very similar to what we have been doing, except it’s splitting the commission in a much more transparent way, keeping the two sides separate. This can also be managed through a seller’s concession.
Option 3: The buyer cuts a check to their Selling Agent for the full amount, or in part combined with the other options above. This can be rolled into the mortgage payment if they are unable to pay the full amount, which can ease the financial burden that many buyers might already be feeling.

How This New Model Helps You Get MORE Listings

Up until now, homeowners have believed that commission rates ranging from 4 to 9% are the standard paid out, and while they know that part of it goes to the buyer’s agent, it’s the number that is stuck in their head. Listing agents have always had to prove their value for that number, which can be difficult, particularly when the seller’s perception of the real estate industry is already that agents are mere salespeople that don’t deserve the money they get.

Now, however, when they hear the 2-4% commission rate, they think “Wow, what a good deal!” While the listing agent still gets the same amount, it’s the perception of this lower rate that makes sellers more inclined to list because you no longer have to convince them you are worth the 5-9%, but now, 2-4%.

Furthermore, when you present your commission as the fee to manage the listing and market their home, they feel they are getting better value for their money because they have a clearer understanding of what it’s being spent on. Also, any resentment that might be created at paying the buyer agent’s fee because they don’t believe they do anything to earn it will disappear. They will feel reassured that their money is being well spent.

The Benefits of Using a Listing Fee Marketing Plans (3, 4, and 5%)

We have been hearing throughout the course of this lawsuit (and even before) that buyers and sellers feel they have very few options when it comes to hiring a real estate agent and their commission’s structure. Even though it isn’t true, they frequently believe that commission rates aren’t negotiable. By creating a Marketing Plan based on percentage tiers, you will create options and levels of service and give a sense of power back to your sellers.

So, what would these tiered marketing plans offer?

The 3% Plan:

MLS Listing
Basic online advertising
Yard sign
Broker Open House launch
Public Open House
Buyer Broker is responsible for fee

The 4% Plan:

MLS Listing
Basic online advertising
Yard sign
Broker Open House launch
Public Open House
Buyer Broker is responsible for fee

PLUS

Professional photos
Virtual tour
Social media promotion
Local advertising

The 5% Plan

MLS Listing
Basic online advertising
Yard sign
Broker Open House launch
Public Open House
Buyer Broker is responsible for fee
Professional photos
Virtual tour
Social media promotion
Local advertising

PLUS

Feature home on top real estate websites
Home staging consultation
Drone photography
Dedicate website for the property

ADD-ON Incentive Fee
This fee is placed on top of the Listing Fee. 100% of this Incentive Fee will be paid to the selling agent from the Listing Agent. This will make your home more attractive to a buyer because they will not have to use their down payment money to pay their agent nor finance their commission, which opens your home to more buyers. As we know, more buyers usually result in a higher selling price, which more than covers this fee.

Now, you might get a savvy seller saying, “But Darryl, if I want that 5% plan, and now you’re staying 2% Incentive fee, that’s 7% total I’m paying.” This gives you the perfect opportunity to negotiate further and say: “You know what? You got a point. Here’s what I’ll do for you, Mr. and Mrs. Hunna Hunna, we’ll do the 2% to the selling agent, and my 5% plan, I’m going to change that to 3% but give you the 5% level of service. Now that’s what we’re going to do. So that’s a total of 5%. Everything included.” Not only do you still get paid, but your sellers are thrilled at getting a deal.

How to Handle Buyers without Representation

With this new commission model, buyers might push back against the idea of paying a commission and decide to go straight to the listing agent instead. However, this is where we come to a bit of a problem. You aren’t getting the selling fee anymore, just the marketing fee for the listing. Having an unrepresented buyer comes with a few pitfalls, like the potential for misunderstanding the contract, aren’t financially ready or credible, and potential legal problems.

Given these concerns, if a prospective buyer expresses an interest in purchasing the property without agent representation, the homeowner should insist that the buyer secure representation from a licensed real estate agent to ensure a transparent, fair and legal compliant transaction process. 

Here’s some dialogue you can use in this scenario: “Mr. and Ms. Hunna Hunna, if some buyer comes to us and want to buy your house without an agent, there are too many pitfalls. Now, my recommendation is that we tell them to get representation. If you decide, as the client, that you want to sell to this buyer who’s got no agent representation, that’s fine. I’m not going to be servicing them because I’m not representing them, I’m representing you, but if the deal doesn’t go through, you take the risk and you still have to pay me my 3% because I did my job. I can’t guarantee this when they don’t have an agent representing the buyer side.”

This underscores the need to have representation when they consider who to sit at the negotiating table with, regardless of how much experience they might have in sales.

How to Validate your Value as a Buyer’s Agent

One of the biggest challenges that EVERY agent faces is validating their value to buyers and sellers. Commissions can run into some big numbers, and every buyer and seller wants to be reassured that their money will be well spent. When you can clearly and concisely convey why they NEED you to be their agent, they won’t argue your fee.

So, what exactly do you have to offer?

Your commitment to getting them the house of their dreams at the best possible price
Using RPR and communicating about properties frequently
You can offer 3D Tours, floor plans, and measurements
You can offer digital signatures so they don’t have to come into the office, which is easy and convenient for them
And more!

Yes, these are things you are already doing, but when you present it as something exclusive, buyers and sellers perceive it as more valuable.

You can also use the list of things you CANNOT do for them without being hired to spur them into action:

Without a contract, we cannot look out for your best interests, but MUST serve the interests of the seller. That means you are actively trying to get the homeowner the most money for their home.
You cannot advise them on what they should offer or terms
You cannot negotiate on their behalf to get the best price
And more!

Psychologically, buyers become more committed to buying a home after they have signed an agreement to hire you because the act of signing a legal document solidifies the seriousness of committing to you. Buyers who have been humming and hawing over homes will suddenly find their dream home after signing because they finally mentally and emotionally committed to buying.

Related reading: Knowing Where Your Value Comes From

Forms and Tools Every Agent needs

With the ongoing nature of these lawsuits and determining the changes the industry faces, that means there are going to be new forms and documents that agents will need to understand and use. We have created some new forms that agents can use already to start shifting the mindsets of buyers and sellers into our new reality:

Commission Disclosure form: One of the chief complaints from buyers and sellers is the lack of transparency where commissions are concerned. By using a Commission Disclosure form, you ensure you are transparent in disclosing commission structure.  One thing that has come away from the lawsuit so far is the requirement that you inform buyers that commission rates are not set by state or federal law. This puts the power of negotiation back into the buyer’s hands

Buyer Agency Agreement: This agreement acts as a legal document that ensures your buyers will pay your commission when they buy a home, no matter who they buy it from. It creates a firm commitment in the minds of the buyers and establishes expectations for both parties so that the business relationship is clear and everyone is on the same page.

POWER AGENTS: Check out the POWER Program Classroom for more forms and items of value that you can use during your listing and buyer presentations. With over 700 pieces that you can use in your business, we have everything you need.

How to Approach Dual Agency

While acting as a Dual Agent has long been a way that agents have enjoyed the benefits of getting the full commission, the industry may be moving away from this. So how do we address the issue of dual agency?

According to this lawsuit (and depending on what your brokerage decides) even full disclosure and remaining neutral isn’t enough because there is a conflict of interest. An agent cannot properly represent both a buyer and a seller and fight for both of their best interests. The lawsuit states that there is no such thing as a transactional deal because you are either representing the buyer or representing the seller because they are revealing their finances, income, FICO scores, what they are willing to pay, what they are willing to sell for, etc. and it’s virtually impossible to remain neutral, nor is it fair to buyers and sellers to not have representation dedicated to them.

So, if we, as an industry, move away from dual agency, how should you treat an unrepresented buyer that comes to you? I recommend that you refer them to another agent in your office, and they can pay you a referral fee. This keeps the other party at arm’s length so that there is no conflict of interest, and both parties get the fair representation they deserve.

The ongoing lawsuits are changing this industry quickly, which means we are here to help you keep up to date on the latest information and predictions so that you can stay on top of your game and ahead of your competition.

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Stay up to date with the training, and tools every agent needs to navigate these new industry changes by bookmarking this resource page: NAR Commission Lawsuit Updates | Darryl Davis | Real Estate Coach (darrylspeaks.com)

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