The Burnett-Sitzer case verdict against the National Association of REALTORS® ushered in a sense of uncertainty in the real estate industry last year.
On Friday, March 15, the National Association of REALTORS® announced it reached a proposed settlement agreement resolving claims stemming from the compensation-related case, putting in motion changes to long-held compensation rules.
Under the terms of the proposed settlement, NAR has agreed to remove cooperative compensation from the MLS and create a rule that would require buyer agreements in every real estate transaction. It's important to remember the proposed settlement must first be approved by the court.
The Lawsuit
The proposed settlement ends litigation of claims brought on behalf of home sellers related to broker commissions, including the copy-cat lawsuits filed against state and local associations and a number of brokerages following the Burnett verdict last year.
The Iowa Association of REALTORS® was not named as a defendant in compensation-related litigation. However, we proactively took steps to ensure our members were protected and had the resources available to continue your business. The Iowa Association of REALTORS® crafted a legal team and framework together to make sure we were prepared for any eventual legal outcome.
While IAR was not a named defendant in any litigation, it and many of our members are covered under the proposed settlement.
In all, the agreement will resolve claims against:
- more than one million NAR members
- all state/territorial and local REALTOR® associations
- all association-owned Multiple Listing Services (MLSs)
- all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below.
We are aware of at least one brokerage in Iowa that is not covered under the proposed settlement. IAR will continue to work with NAR to provide avenues of resolution for any parties not covered by the proposed settlement.
Who's Covered? Learn More Here.
Under the proposed settlement, NAR maintains it did not engage in any wrongdoing in connection with the Multiple Listing Service (MLS) cooperative compensation model rule (MLS Model Rule) that was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation.
Under the terms of the proposed settlement NAR will pay $418 million over four years and will enact new rules related to the MLS and compensation.
Moving Forward
The proposed settlement will have implications on the real estate industry in the state of Iowa, impacting the way in which our members conduct business. However, be reassured that the Iowa Association of REALTORS® has proactively prepared for the changes outlined in NAR's proposed settlement and is well-positioned to advance in this changing landscape.
We have no doubt that our members will continue to provide trusted, reliable representation to buyers and sellers in the state.
Exclusive Buyer Agreements
Last year, IAR's leadership team, staff and members began the process of preparing an Exclusive Buyer Agreement for use by our members across the state. This form launched in February and is available on Remine and Form Simplicity.
The form aims to help elevate the real estate business by creating contractual relationships, explaining REALTOR® value propositions to buyers, and protecting member interests in transactions.
Real Estate Transparency Act
As part of the form creation process, IAR began to explore avenues in which to ensure this form is used to protect our members. With that in mind, we crafted legislation known as the Real Estate Transparency Act.
The bill, which passed both the House and Senate on a unanimous, bipartisan basis, will:
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Require licensees to have signed buyer representation agreements.Maintain agency disclosure requirements to ensure the role of a licensee and their value in a transaction is clearly communicated to clients.
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Provides transparency in the allocation of compensation of brokers in a real estate transaction.
However, we are aware that as the bill currently stands, it does not meet some of the stipulations of the changes outlined in the NAR proposed settlement.
After several weeks of laying the ground work, the Iowa Association of REALTORS® began this week to build the path forward following the announcement of the proposed National Association of REALTORS® settlement.
IAR staff and leadership members took tangible steps to ensure that stipulations of the proposed settlement are implemented in Iowa real estate rules and codes. These measures will ensure our members are protected and represented in real estate transactions well into the future.
At the Iowa Capitol, the Real Estate Transparency Act was modified to include important measures from the proposed settlement. We believe these changes will only add value to the real estate transaction, both for our members and consumers.
An amendment to the Real Estate Transparency Act was proposed and passed by the Senate and is expected to be reviewed by the House soon. Once approved and signed, this law will take effect on July 1, 2024.
Additionally, IAR Leadership and staff have been working on proposed admin rule changes, also as a result of the proposed settlement. We presented these changes to the IREC on April 4, 2024. They accepted and have noticed to publish these recommendations. This is on pace to take effect in July.
The recommended changes:
- Remove a provision that compensation cannot be in a purchase agreement.
- Open the door for additional methods of payment outside of cooperative compensation.
- Increase flexibility of negotiations between agents, their clients, and cooperative brokers.
We understand that receiving factual and timely information on changes to the real estate industry in Iowa is vital to the success of our members' businesses. With that in mind, IAR leadership and staff created a course, Addressing the Changing Real Estate Landscape in Iowa, available to all members.
The course provides a comprehensive review of the tools and benefits the Association offers that assist licensees in the daily practice of real estate, including the implementation and practice of buyer representation in the state of Iowa.
Staff and leadership members have and will continue to travel the state to provide this class in conjunction with our local boards. Remaining dates for this free course can be found here.
We understand that some of our members will be unable to attend these courses. We are currently in the process of creating additional opportunities to provide this critical information to our members in coming months.
Offers of Compensation
Under the proposed settlement, offers of compensation will no longer be allowed on the MLS. NAR anticipates these changes will take place in mid-July.
We understand this area of the proposed settlement has caused concern for our members and the future of the industry. Know that we are working to create clear and precise guidance to help our members understand these changes.
Important notes on offers of compensation: We are aware of the erroneous narrative currently circulating in the media that a standard commission rate is going away. We believe this claim is rooted in misconception and false.
Real estate commissions are negotiable, have always been negotiable and will remain negotiable in the future. REALTORS® have been and will remain able to set their commission based on their own business practices. If you are approached with this misguided assumption, please reiterate and continue to practice that compensation is negotiable.
We know that the way in which these offers of compensation are communicated will change. Per the proposed settlement, offers of compensation will continue to be an option for consumers but they must pursue these negotiations off the MLS.
NAR has provided additional guidance and answered frequent questions related to the proposed settlement. An FAQ can be found here.
Housing Affordability
As we continue to parse out shifts put in motion by the proposed settlement, one of IAR's tenants has come under question. IAR is a fierce advocate of housing accessibility and affordability. This will not change.
We have and will continue to partner with organizations and groups across the state to empower our members to seek out and elevate homeownership opportunities for all Iowans.
IAR is aware that certain financial products currently have stipulations that do not fall in line with the proposed NAR settlement agreement. We are working to understand these areas and provide information to our members. In the meantime, NAR has provided a thorough FAQ addressing the facts about financing related to the proposed settlement. You can find that information here.
Moving forward, please reach out to IAR staff and leadership with your questions. We anticipate providing a weekly update as the proposed settlement progresses.
Proposed Timeline from NAR
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