Masterclass: The Bombshell Lawsuits that Could Change the Real Estate Industry Forever

This Masterclass features Lisa Piccardo (VP Brokerage & Team Consulting, T3 Sixty) and James Dwiggins (CEO and co-founder, NextHome) in an in-depth discussion on the Nosalek v. MLS PIN, Burnett/Sitzer v. National Association of Realtors (NAR), and Moehrl v. NAR lawsuits, dubbed the ‘bombshell’ lawsuits with the potential to completely transform the US real estate market. 

Learn about the lawsuits’ implications for homebuyers, real estate professionals, and the National Association of Realtors (NAR) as our two panelists delve into:

• The origins of the three ongoing class action lawsuits
• Plaintiffs’ arguments in five points
• Potential outcomes for the future of real estate transactions
• How to prepare your organization

Watch our latest Masterclass on The Bombshell Lawsuits that Could Change the Real Estate Industry Forever:

The exchanges in this Masterclass are based on a considerable amount of research, the opinions of our panelists, and discussions with industry experts and lawyers who follow and/or are involved with these cases. For further guidance and professional advice, please consult your lawyers, insurance agents, or CPAs.

The origin of the three ongoing class action lawsuits

There are currently three individual class action cases being heard in court:

• Nosalek v. MLS Property Information Network (PIN) et al.
• Sitzer/Burnett v. National Association of REALTORS® (NAR) et al.
• Moehrl v. The National Association of REALTORS® (NAR) et al.

While these cases are based on the same premise, there are a few key differences between them, which will be examined individually.

Nosalek v. MLS Property Information Network (PIN) et al.

The Nosalek v. MLS PIN class action lawsuit, which was filed in December 2020, alleges that MLS PIN, as well as several other Defendants (including HSF Affiliates, RE/MAX, and Keller Williams), are conspiring to inflate commissions by requiring seller brokers to make a blanket, unilateral, and effectively non-negotiable offer of buyer broker compensation. MLS PIN is not a NAR-governed MLS, which is why NAR is not a defendant in this case, but instead is listed as a co-conspirator.

In these federal antitrust claims, treble damages can be awarded, meaning that the court can triple the amount that a prevailing Plaintiff receives — which, in this case, could reach billions of dollars.

MLS PIN has recently submitted a $3 million settlement offer to the Plaintiffs, which is currently under preliminary review. As part of this settlement, MLS PIN has agreed to remove the rule on buyer broker cooperation. Rather than being required, it is now optional that sellers pay buyer brokers.

Sitzer/Burnett v. National Association of REALTORS® (NAR) et al.

The Sitzer/Burnett v. NAR class action lawsuit is limited to the State of Missouri and filed on behalf of home sellers who paid a broker commission during these past four years.

In this case, the Plaintiffs claim that they had to pay the buyer’s agent commission, which would have been paid by homebuyers in a competitive market. They also claim that NAR conspired with Realogy (now Anywhere), HomeServices of America, Keller Williams, and RE/MAX to inflate commissions through its buyer broker compensation rule.

The Plaintiffs are seeking damages from NAR and other companies as well as an injunction prohibiting the requirement that sellers pay buyer brokers in the MLS.

The case is also unique in that it will be the first to go to trial on October 16, 2023.

Moehrl v. The National Association of REALTORS® (NAR) et al.

The Moehrl v. NAR class action lawsuit accuses NAR of conspiring with Realogy (now Anywhere), HomeServices of America, Keller Williams, and RE/MAX of inflating commissions through its buyer broker compensation rule, which violates federal antitrust laws. 

Although very similar to the two previous cases, this lawsuit would affect commissions in many states across the U.S., and cover hundreds of thousands of agents and millions of transactions worth billions of dollars.

Aside from seeking more than $13 billion in damages, the Plaintiffs also want a permanent injunction against NAR’s requirement for sellers to pay buyer brokers and its restriction on competition among buyer brokers.

Plaintiffs’ arguments in five points

Plaintiffs will use these five points to argue their case:

1. NAR governance of MLS policies: NAR governs most MLSs’ policies, which is why they are the Defendants in two of these cases. 
2. Large broker involvement in NAR decisions: Large brokerages, such as Keller Williams, HSF, and RE/MAX, are involved in NAR and decision-making processes.
3. MLS buyer broker compensation policy: The policy stipulates that you have to offer cooperation to the other party if you put a listing on an MLS.
4. MLS clear cooperation policy: Within 24 hours of marketing a property to the public, the seller broker must submit the listing to the MLS for cooperation with other participants.
5. High commission rates: The U.S. has one of the highest commission rates in the world.

Potential outcomes for the future of real estate transactions

Potential consequences of these compensation lawsuits can be catastrophic for the real estate industry, and the challenges tied to them could be difficult to overcome. It is important that the industry begins thinking about different contingency plans as these class action lawsuits unfold.

As a whole, the industry must prepare for:

• The best case scenario: NAR and the Defendants win the lawsuit
• The worst case scenario: NAR and the Defendants lose the lawsuit
• The most likely scenario: NAR and the Defendants settle

Best outcome: NAR and the Defendants win the lawsuit

In the event that cooperation becomes optional in the MLS, it will eliminate a significant amount of conspiracy because it removes this requirement from the MLS.

Worst outcome: NAR and the Defendants lose the lawsuit

If cooperation in the MLS is outright banned, damages will amount to billions of dollars — capital that the industry doesn’t have. There will be copycat lawsuits filed across the country if this outcome occurs.

Since these are antitrust claims, insurance carriers, such as E&O, D&O, or GL Insurance, will not provide coverage for legal defense or damages. Defendants will be forced into bankruptcy if they are unable to defend these cases, leading to a complete overhaul of the industry.

Most likely outcome: NAR and the Defendants settle

Cooperation in the MLS becomes optional nationwide with a 50% chance of being banned. NAR and the other Defendants will open the class action lawsuits to bring in as many Plaintiffs as possible into the settlement. Settlement amounts will be decided and paid out over the next few years.

NAR enacts a mandatory rule through its MLS policy and Code of Ethics that requires buyer’s brokers to sign buyer broker agreements that clearly outline compensation terms before showing properties listed in the MLS.

There is also a 50% chance that the clear collaboration policy is rescinded, and off-market listings become normal.

How to prepare your organization

The real estate industry must prepare for several possible outcomes by implementing contingency plans as it moves to limit liability. Adapting to these changes, such as cooperation being optional in the MLS, means that NAR, MLS, brokerages, and agents must find unique ways to market properties and improve their skillset.

…as NAR

NAR needs to make it easier for MLS to rescind the buyer broker cooperation policy by making it optional. A signed buyer-broker agreement stating all compensation terms should also be required before showing a property listed on the MLS.

In addition, they must mobilize lobbying resources so that mortgage loans can be used to finance the buyer’s agent’s compensation. They will also need to train members on how to explain the value of buyer representation to consumers.

…as MLSs

As commission pressure and attrition increase, MLSs should make buyer broker cooperation optional in order to limit their liability. Some MLSs, such as BrightMLS, Northwest MLS, and now MLS PIN, have already started defying the rules set by NAR by making cooperation optional for the sake of limiting liability as soon as possible.

To reduce costs, they should contemplate further consolidation and think beyond being just a repository of listing information. MLSs must work better with the industry to drive innovation, increase data sources, and demonstrate how they can benefit brokerages and agents.

…as brokerages

Brokerages should require signed buyer broker agreements when their agents first engage with buyers. They need to educate agents, promote their services, and train them to talk confidently about the value of their buyer agent services.

The buy-side compensation will be under pressure, so they should reduce overhead and expenses to become more operationally lean. Brokerages need to start thinking about how to adjust and structure different compensation models for their agents.

…as agents

Agents need to start using buyer-broker agreements as soon as they engage buyers. Since agents spend a lot more time working with buyers than sellers, they should also use buyer presentations to communicate their value to the buy side and justify their compensation request. 

It is important for agents to develop different compensation methods based on the needs of buyers — whether that is a percentage, hourly rate, or flat fee.

There is still a great deal of uncertainty surrounding the outcome of these compensation lawsuits, but one thing is for sure: once all of this is said and done, the real estate industry will be better for it.