BARRISTER'S BRIEFING: A View From 30,000 Feet: Understanding Current Legal Issues in Today’s Real Estate Industry

If you’re anyone involved in the real estate industry today, you know the environment is a vortex of laws, litigation and issues. However, from 30,000 feet you can get a calmer, bigger picture of what’s going on. Today, I’ll be your pilot and take you up into the air for a bird’s eye view of what’s happening around you, so place your trays in the upright position and fasten your seatbelts.

Cold Calling

Cold calling is still tied to any state of emergency. Currently, there are two states of emergencies (gun violence and asylum seekers) and even though they are wholly unrelated to real estate, they are in place and, therefore, it prohibits anyone from cold calling a member of the public regarding any possible future business unless they already have an established relationship.

However, there is a new law that increases the fine for cold calling from $11,000 to $20,000 for each violation.

Property Condition Disclosure Statement

A new law was passed that requires the addition of mold and flood disclosure information on the Property Condition Disclosure Statement (PCDS). But, more importantly, the law now prohibits the option to “opt-out” of the execution of the form for a payment of $500 at the closing by the seller. This law takes effect on March 20, 2024; meaning that if you have a listing that goes under contract on March 20, the form must be provided. If prior to that date, you can still waive the form and pay the $500. There are some issues with this law, including the fact that it has no enforcement or punishment provision if the form is not provided. There is also the question of whether the parties can agree to waive the PCDS. Some attorneys are looking to find loopholes in the law. Stay tuned for developments as this matter progresses.

NY Salary Transparency Law

New York State now requires that any job posting for an employee must now provide a salary range. While this may not appear to directly affect real estate agents, it may affect brokerages that hire employees, including assistants who work for real estate agents. Additionally, while independent contracts may not be required to comply with this rule, those of you who perform work in New York City are required to comply with the city’s salary transparency law, which does apply to independent contractors. NYSAR has stated that it would be a best practice to include the following language (or similar) when looking to hire: “Real estate agents wanted. Compensation is based on commissions only.”

0% Cooperating Compensation on the MLS

Previously, OneKey MLS required a nominal cooperating compensation on every listing that went on the Multiple Listing Service. Often, members would see cooperating compensation of $1.00. However, recently, in line with NAR’s clarification and other MLS actions, OneKey MLS has now indicated that offering $0.00 is, in fact, offered compensation. They emphasized that while $0.00 cooperating compensation is permissible, no member is required to offer that and that all members are encouraged to freely negotiate commissions with their clients. They further encouraged buyer agents to provide their value proposition to their clients and negotiate buyer agency agreements.

National Association of Realtors Litigation

Sitzer/Burnett and Moehrl Cases: These suits allege that some NAR rules, including one that requires listing brokers to offer buyer brokers a commission in order to list a property on the MLS, violate the Sherman Antitrust Act by inflating seller costs. In effect, they claim that commission rates are too high, buyer brokers are being paid too much, and NAR’s Code of Conduct and MLS Handbook, along with the corporate defendants’ practices, lead to price fixing. NAR’s position is that its rules are intentionally pro-consumer and pro-competitive.

Both lawsuits were certified as class actions. Sitzer/Burnett is scheduled for trial beginning Oct. 16, 2023, and should last approximately three weeks. In that suit, plaintiffs seek reimbursement of $1.3 billion in commissions, as well as treble damages, which could amount to around $4 billion.

Two parties have agreed to settle in these lawsuits. Those parties are Anywhere Real Estate Inc., and RE/MAX. Most importantly regarding these settlements is that both defendant parties have agreed to a settlement payment to plaintiffs, they will remind all agents that the company has no rule requiring offers of compensation, that all compensation is fully negotiable, and that brokerages may choose not to belong to NAR or follow the NAR Code of Ethics or MLS Handbook. However, while brokerages may give authority to permit offices/agents to withdraw from NAR membership, this does not negate the MLS membership requirement that many MLSs carry that indicates that in order to gain access to the MLS, you must be a NAR member.

Regardless of outcome, it is anticipated that an appeal will be filed by the non-prevailing party and it will be years before we see the full results of this litigation.

A possible outcome of this litigation would be that, in a worst-case scenario setting, agents would be prohibited from offering cooperating compensation to buyers. In a best-case scenario, things would be “business as usual.”

What is encouraged as a best practice is that agents begin to have a dialogue with their buyer clients to establish their value proposition and employ exclusive or non-exclusive buyer agency agreements that set forth compensation paid for by the buyer in the event that the listing agent does not offer any cooperating compensation. This may also require brokerages to review their New York State Standard Operating Procedures and educate their agents as to the different ways in which buyer agents can collect commissions.

Redfin

As a result of the recent NAR sexual harassment and hostile workplace allegations, Redfin has indicated that, although not required, it is permitting its brokerages to withdraw from NAR membership.

Again, this permissive authority to withdraw from NAR membership does not negate the fact that many MLSs require NAR membership to gain access to the MLS.

REX Litigation

In this litigation, REX, a real estate company sued, NAR, Zillow, and Trulia, alleging that NAR conspired with these portals to separate MLS listing and non-MLS listings, as well as asserting that Zillow’s actions amounted to false advertising or violated consumer protection statutes.

NAR was dismissed from the case, as the court found that there was not enough evidence to show a conspiracy between NAR and the portals. Then, in a recent jury decision, the court found in favor of all remaining defendants.

MLS Property Information Network (PINS) Litigation

In this case, NAR was not a defendant. In the case, the plaintiff asserted that MLS PINS, the largest MLS in New England, required listing brokers to offer a blanket, unilateral offer of compensation to buyer brokers in order to submit a listing.

MLS PINS agreed to settle the matter but did not admit any wrongdoing. As a part of the settlement, they agreed to pay the plaintiffs $3 million in the settlement and overhaul their listing policy, including, removing the requirement that listings must offer cooperating compensation, and that listing brokers are to notify sellers that they’re not required to offer compensation to buyer brokers and that they can decline if a buyer broker requests compensation; and they will clarify that if the seller makes an offer to a buyer broker and the buyer makes a counteroffer, then any commission to be paid is negotiated among the seller, the buyer, the seller broker and the buyer broker.

Recently, the Department of Justice intervened in this settlement to question its “competitive impact.” As a result, the court has provided a two-month extension of time to the deadlines related to the settlement.

Department of Justice Matter

In 2020, the Department of Justice began an inquiry into NAR’s Participation Rule and Clear Cooperation policy. The parties came to a settled agreement in that matter. However, thereafter, the DOJ attempted to back out of the agreement and they sought to reinvestigate the same issues again. NAR filed a petition in court to compel the agreement and the court held that the DOJ must abide by the agreement and shut down the new probe.

As a part of that prior agreement, NAR moved forward with the terms of the settlement in good faith, including increased transparency for consumers by enabling brokerages to make offers of compensation public on their websites, and by amending the Code of Ethics to include that representation is not “free” or available at no cost to their clients, unless the Realtor will receive no financial compensation from any source.

Conclusion

As we come in for a landing, you can see that the real estate landscape is quite rocky. As things continue to develop, continue to check out my monthly articles. It’s far better reading than the Skymall magazine in the seat back compartment; although I always wanted to buy one of the upside-down tomato plants.