Amid legal uncertainty, MLSs explore cooperative compensation workarounds

As multiple listing services look to navigate potential changes to cooperative compensation following the verdict in the Sitzer/Burnett commission lawsuit trial, some MLSs have preemptively changed their policies.

Though these policies have been put in place to avoid future antitrust lawsuits, legal experts who spoke to HousingWire said they might not be enough.

Let’s break down the changes and the implications.

Moving past cooperative compensation

In early August, Bright MLS, the nation’s second largest MLS, began allowing listing agents to use a $0 blanket offer of compensation for buyer brokers and still list a property on the MLS. (The National Association of Realtors also began allowing this under its Clear Cooperation policy in early October 2023.) This change does allow for listing agents to no longer offer any monetary compensation to buyers’ brokers. But the policy may still present a legal issue, as it requires listing agents to make an offer compensation, even if that offer of compensation is in fact nothing ($0), law professors said.

The plaintiffs in the Sitzer/Burnett case “were looking at this as a horizontal conspiracy, or, in other words, a conspiracy among competitors,” Paul Rogers, a law professor at Southern Methodist University’ Dedman School of Law, who specializes an antitrust law, said. “They used NAR’s Clear Cooperation Policy to prove a conspiracy, finding that brokers for the most part follow those guidelines, and then they argued that it has the anticompetitive effect of raising commissions.”

Depending on whether or not Judge Stephen Bough’s final ruling and injunction calls for just an end to NAR’s Clear Cooperation rule or an end to all cooperative compensation practices, even independent MLSs like Northwest MLS, which do not require cooperative compensation in order to participate in the MLS, may come under fire.

Although Northwest MLS does not require cooperative compensation, according to testimony shared by Lawrence Wu, the president of the National Economic Research Associates, during the Sitzer/Burnett trial, listing agents still make offers of compensation roughly 99% of the time. However, if cooperative compensation goes away via injunctive relief, brokers and agents in Northwest MLS would have to curtail this practice.

Despite continuing to allow the practice of cooperative compensation on its platform, Northwest MLS has worked with Washington state government to enact the “Agency Law,” which goes into effect on Jan. 1, 2024. According to Justin Haag, Northwest MLS’ general counsel, the new law will require brokers to enter into a written services agreement to represent either a buyer or a seller.

“All agreements must comprehensively address the broker’s compensation, the scope of representation and all related terms,” Haag wrote in an email. “With the revised Agency Law and NWMLS’s system, buyers will agree on how much to pay their own brokers, and buyers can then negotiate for the seller to help cover that cost as part of the purchase.”

Of all the compensation policy changes made by MLSs and NAR since the various commission lawsuits gained class-action status, the most significant originates from the non-Realtor Association-owned Real Estate Board of New York.

As of Jan. 1, 2024, REBNY, New York City’s most powerful real estate trade organization, will no longer allow residential listing brokers to pay the buyer’s agent. Instead, the trade group will require the home sellers to pay the buyer’s agent commissions directly. In addition, the rule will require listing agreements to clearly outline the seller’s offer of compensation to the buyer’s agent.

Although this eliminates any agreement between the listing and buyer brokers on commission, it still requires there to be an offer of compensation, which Mike Ruggio, a partner at Taylor English Duma LLP and an antitrust law professor at Pittsburgh Law School said still constitutes an antitrust issue.

“I still see that as an antitrust violation because there are still barriers of entry and limitations on who can offer the compensation,” Ruggio said. “I don’t see that getting over the core antitrust issues.”

However, Ruggio sees a way to keep the spirit of REBNY’s new rule while avoiding potential antitrust issues. If a seller chose to offer to pay some or all of the buyer broker’s compensation, similarly to how a seller may choose to pay all or some of a buyer’s closing costs, that would be allowable under antitrust law.

“That would not be an antitrust issue because you are actually determining whether or not to pay compensation based on the situation,” Ruggio said. “If you are incentivized to move the product, then it is your choice.”

Rogers shares a similar view.

“It would be OK because it would not be a product of any type of agreement among competing brokers,” Rogers said.

Although no other MLSs have announced major policy changes, MLS executives say they are committed to continuing to provide agents with the tools and service they need to do their jobs.

“The value of the multiple listing service (MLS) remains unchanged,” Denee Evans, the CEO of the Council of MLSs, wrote in an email. “CMLS and its members are committed to providing and championing marketplaces that meet consumers’ evolving needs. We value transparency and believe the MLS best serves real estate professionals and consumers with complete, accurate, and timely data.”

Source link

About The Author

Scroll to Top