Last Thursday, the National Association of Realtors (NAR) shared a five-minute video of President Kevin Sears speaking on the proposed NAR settlement

Like many of NAR’s videos to members—whether on sexual harassment claims or commission lawsuits—the messaging seemed to lack answers to the questions that so many members were asking last week. Sears quickly touched on what led NAR to a settlement decision and the two new rules that came with it before moving on to policy and advocacy updates.

However, anyone who tuned into Saturday’s episode of Today with Jared James Podcast did get some more information. In Jared James’s interview with Kevin Sears—the NAR President spoke on:

  • Why NAR would decide to settle when they publicly declared they would continue to fight
  • Changes that real estate agents need to make
  • Why NAR hasn’t debunked false narratives spread by mainstream media
  • Whether or not the DOJ played a role in NAR’s decision to settle
  • Why NAR couldn’t protect brokerages with over $2 billion in sales in 2022
  • Seller concessions and VA buyers
  • NAR dues
  • …and more

If you haven’t watched the episode yet, you can tune in to the full conversation here, and keep reading for Q&A between James and Sears. 

Why did NAR Agree to a Settlement?

JAMES: As you know, I think you’ve heard it, you’ve seen it…a lot of members are disappointed, they’re frustrated, some of them are downright angry, and they feel that this whole thing is just a big money grab. You hear about the average seller could potentially collect between $21 and $24, and yet the attorneys could collect upwards of over a hundred million dollars. 

NAR publicly stated to their membership for a while now that they were going to appeal, that they were going to fight, and many members felt that NAR was in the right. So with that being said, why did NAR feel that a settlement was the right thing to do when what they were publicly saying was, we’re going to keep fighting? 

SEARS: “Yeah, it’s a great question. The reality is exactly what you said. We believe we would’ve won on appeal, but the issue is twofold. The first is if we went on appeal, we’re remanded back to the lower court and we have to have another jury trial. And during that appeal period, which could be 18 to 24 months, all of the other copycat suits are going on. All the defendants in those suits are having legal expenses that they have to incur in order to do that…so there’s liability for everyone in all the copycat suits. The second thing is we would’ve had to post up to a $5.4 billion bond. Now, the judge could have said, you can post a lower bond, but even if it was 20% of the 5.4 billion, we would not have had the financial wherewithal to post that bond. 

“So in order for us to appeal, we would’ve had to file Chapter 11 bankruptcy. So that would stay all other cases for the National Association of Realtors only across the country. And so when we looked at it, the appeal—what I just said, bankruptcy for us, that was just untenable. Because what would happen with the bankruptcy is the judge would then say, ‘okay, we’re going to start peeling stuff off of the association to start preparing to pay the debt.’ 

“And then the second thing is, what damage would that have done to the association, our reputation on Capitol Hill, on the state houses across the country and city hall? And so we need to be able to continue to operate the way that we have providing the tools, resources, benefits, and advocacy that the members have come to expect. 

“And what we feel with this settlement, well, it’s a tough pill to swallow, this is the best way for us to be able to move forward. What I said earlier this week to about a thousand members when we met on some political and government affairs meetings was our future started last Friday.”

JAMES: So what I’m hearing is it’s almost like it’s the best of bad options, meaning they litigated to the point where they made it financially unfeasible to do what would’ve been better options. And while to the membership it looks like…you sold us out, you really didn’t have options other than bankruptcy or whatever because they were litigating you to that. Is that correct? 

SEARS: And here’s the thing, Jared… we’re negotiators. We’re all negotiators for a living. That’s what we do. And it’s always best to negotiate from a position of strength, right? Well, October 31st, the plaintiffs and their attorney got a $5.4 billion verdict against us. That’s a very strong position they have. They’re on a fortified hill shooting down at us on the beach, and we’re not in regular sand. We’re in quicksand. 

“And so yeah, that’s unfortunately the best deal we were able to get. And at the end of the day, we were able to, in this settlement, protect well over a million of our members with the other settlements that happened. It’s well over 1.4 million members. There is a carve out for some co-defendants and Berkshire Hathaway who are not part of the settlement, but we also are able to protect all of our local state territory associations, association known MLSs, and any brokerage that had a realtor member as a principal that had less than$ 2 billion in sales production in 2022.”

Timing of Proposed Rule Changes

JAMES: Do you anticipate it being approved and is there enough time, because all we heard was that these are probably going to affect mid-July, and yet when you look at the complexity, I’ve read the settlement, and you get attorneys involved, I see that going back and forth, back and forth, back and forth, months and months, which doesn’t leave a lot of time to make any proposed changes. If it is approved, do you see it getting approved and when do you see it getting approved?

SEARS: “We expect that…the settlement will be filed with the judge and we’ll get preliminary approval within the next week or two once it’s filed with the court. We have 120 days to implement our rules. 

“The rule changes, and there are two of them. One is that we will be prohibiting the offers of compensation on the multiple listening service, the MLS. And the second is any subscriber of a Realtor MLS must use a written agreement when representing a buyer. 

“Now, the wording was very specific because there’s some states where it’s transactional brokerage, and so we were able to use the word very carefully thinking about different state laws across the country. But those rules will go into effect. But the thing is that we’ll be implementing the rules before we have final approval from the court. We expect that it’s going to take probably at least six months to get final approval from the court.”

Changes Agents Need to Make

JAMES: Are we anticipating new forms, new buyer agreements, new listing forms?

SEARS: “Luckily, I know a lot of local and state associations already offer forms for their members. So there might have to be an update to the forms. Our legal council, National Association Realtors, they’re there for the states and the locals if there’s assistance that’s needed. 

“But really it’s all predicated on state laws as to what needs to be in there. And so, how will this impact some forms? There might be some changes that are coming down, but it’s going to be the state council for the association that really knows the law. And if there’s any changes that need to be made, then that’s what will happen. 

“But listening agreements…at least for me in Massachusetts, it clearly states on there what the full commission is that we’re going to charge and if we’re going to offer cooperating compensation. So that can remain the same.”

JAMES: That seems to be a point of contention here where when you looked at this suit and you went, ‘Okay, the seller can’t pay the buyer? The seller never paid the buyer. The seller paid the listing agent, and there was a sub agreement there that said that they had the ability to pay a cooperating broker.’ That’s why so many agents and brokers were upset with this because they’re going, we never had it going the other way. That can still be allowed?

SEARS: Don’t let the truth get in the way of a good story. So yes, it can….despite what others said, we met with the plaintiff’s attorneys before the trial, during the trial, and obviously after the trial. We were open to settling the claims. 

“But what the plaintiffs and their attorneys had said originally, it was very much like what the DOJ said in the Nosalek case in Massachusetts, they wanted to completely decouple the offers of compensation. So we fought for our membership and the consumer saying—let the consumer decide how they want compensation to happen. 

“So yes, in your listing agreement, you get to sit down with Mr. And Mrs. Seller and say, here’s the listing agreement. These are the services I’m going to provide, and if you want to offer compensation to a buyer’s broker, then this is what it’s going to be. And at the end of the day, I would much rather have a buyer broker on the other side of a transaction than an unrepresented buyer.”

JAMES: But you’re saying the way that listing agreements are currently formatted, they can still do it that way because honestly, that’s been a big crux for everybody. You’re saying that can still be allowed? 

SEARS: “So I’m not an attorney. I only know the Massachusetts form…but so long as it’s clearly spelled out in there what compensation is going to be paid and who it’s going to be paid to, then yeah.” 

JAMES: So under the new rules, under the new settlement, it says that obviously a buyer agency now has to be signed in order to show a home, and that it needs to be very clear on what that compensation’s going to be under the new rules.

 If I’ve read it correctly, you cannot—whatever that compensation is that’s being offered by the buyer, even if it’s paid by the seller—if the seller is offering out compensation through co-op through the listing agent, if that percentage they’re offering is more than what you signed in a buyer agreement under the new settlement, you cannot collect the additional amount. Is that correct? 

SEARS: “Correct.”

JAMES: Now, contracts are made to be amended. Is there any reason you can’t go to your buyer agent when you make the offer, amend your buyer agreement and say, we are now going from 2.5% to 3%…any reason you can’t do that? 

SEARS: “I’m not an attorney. I’m not going to get anywhere near that one, Jared.”

MAINSTREAM MEDIA REPORTING AND NAR’s RESPONSE

JAMES: The number one thing I keep hearing from people right now is they are upset that the media broke the news to them before NAR did. And they are irate over the idea of how the media has been reporting on this settlement, which has nothing to do with what the settlement’s actually about. 

And then their second level of irritation comes from the fact they feel like NAR is not getting out in front and doing interviews and talking to people and telling the truth and saying, ‘that’s not what this is about.’ 

Does NAR have any plan of doing that—of getting out in front and speaking for the membership and stopping…this false narrative, this fake news to be spread to consumers because it’s making their lives more difficult to have to overcome this false narrative? Is there any plan by NAR to get ahead of that or to get out in front or to just combat it? 

SEARS: “So Jared, all I can say is we play by the rules. The settlement agreement was embargoed until 10:00 AM on Friday, March 15th. Obviously, somebody broke that and gave the story to the New York Times. The New York Times decided to, I don’t know if it was just lazy journalism or joyful indifference, wrote the piece with so many inaccuracies. And then it was very, very disappointing the way that other media outlets said, well, if the New York Times printed it, it’s got to be true. And they just ran with that story. 

“And so what we’ve been doing is playing catch up, and some media outlets have been good in saying, ‘Okay, well then what is the truth behind this settlement? Where are the inaccuracies and how can we report it?’ But we’re playing catch up there, and it is really tough because we had an entire plan of cascaded out for how we were going to let the membership know, let the media know…”

“…And to the members. All I can do is say, I’m sorry, but we’re playing by the rules and we’re honoring the agreement as best we can. One of the other things, and I hope that the members have been tuning in, I’ve been doing some on-the-road videos, just trying to give updates as we go. I did one earlier in the week that was released I think on Thursday, and I talked about the settlement and some political advocacy that we’re doing. So I’m trying to communicate better.”

JAMES: Any plan to get someone into the media to go and start doing interviews and saying, ‘that’s not what this is about’? 

SEARS: “Jared, if you’re willing to do it, I’ll let our team know. We’ve got surrogates, ambassadors all around the country, and so we’re asking them to contact their local media. Because Realtors have contacts in all the local communities and to contact the media that they know to try and get our story out. So the answer is yes.”

Did the DOJ Play a Role?

JAMES: What role did the DOJ play in this settlement?

SEARS: “So what I’ll tell you is—and I got in a little trouble for something I said in January about the Department of Justice—but they for years have been telling us verbally they want commissions completely decoupled. It wasn’t until the Nosalek case in Massachusetts, the MLS PIN case that they finally put in writing exactly what they wanted. And once we had something in writing from the DOJ, then we knew where we were at. 

“So the fact that the Department of Justice wanted the commissions completely decoupled and we were able to still save, through our settlement, that offers a compensation can be made just not on the MLS…. as sour as that win is, it is a win for us.” 

JAMES: On that same note, the other thing (the DOJ) wanted…they want it to go to an hourly wage. Is that potentially coming because the DOJ wants that?

SEARS: “No. So here’s the thing, the Department of Justice, they’ll certainly be able to weigh in on our settlement agreement with the plaintiffs in the Missouri case. And this is a nationwide settlement. And so all the copycat cases, if this is approved by the court in the eighth district, the copycat suits go away. So the Department of Justice will weigh in, and then it’ll be up to the judge to either accept what they say or reject it. But the judge is under no legal obligation to accept what the Department of Justice says.” 

JAMES: And then what happens with those copycat suits? There has to be a point of why there was a settlement. Do those copycat suits prolong? Do they go away? What happens with all of those copycat suits? I think that’s a lot of people’s fear.

SEARS: “So the copycat suits, there’s different plaintiff groups. So the plaintiffs on the sell side would all be put into the national settlement. Their attorneys, they might object, they might say, ‘Hey, we’ve got a good case.’ They could object to the court, but at the end of the day, they and their clients will be able to get some have access to the money that’s being collected in this…

“And this is supposed to resolve not only the federal cases, but there’s some state antitrust cases that were filed, Florida in particular is one of them….in theory this will take resolve all of them.”

MONEY GRAB

JAMES: If this is a simple answer, meaning it’s just a money grab, why were brokerages over $2 billion in sales volume excluded? Are you allowed to say? 

SEARS: “You said it. I mean the plaintiff’s attorney looked and said, ‘Where else is there money for us to get?’ And just yesterday, the announcement about Compass settling, and so that’s another $57 million added to the pool of funds for the plaintiffs. And the plaintiff’s attorney will be getting more than you said at the opening of this.”

JAMES: And so it’s a money grab.

SEARS: “It’s a money grab…And that’s the thing…one of the things that the plaintiff’s attorney didn’t want to hear during the settlement is how razor-thin the margins are for brokerages.”

JAMES: Then people go, well, why didn’t NAR protect them?…But then the flip side is, well then they’re not going to settle. They’re not going to agree to a settlement and now you guys have to file bankruptcy.

SEARS: “So the good news on the settlement for those brokerages is their agents, if they’re members of the National Association of Realtors, they are protected. 

“And here’s the thing, we were able to negotiate in two different pieces. One is strictly a formula, a mass formula that a brokerage can say, ‘Okay, we accept that, or non-binding mediation.’ And what we’re finding is that the plaintiffs and their attorneys are settling for a fraction of what the formula was just to be able to get whatever money they can. 

“But here’s the other thing is the brokerages don’t need to pay the formula. They don’t need to mediate. They can say, we’ll settle outside that, or if we’re not sued, maybe we won’t do anything. So there are options. Again, not great options, but there are options.”

Seller Concessions and VA Buyers

JAMES: Obviously compensation is not allowed to be listed on the MLS, but it does talk about the idea that concessions can be listed such as closing costs, concessions, those kinds of things. Is there some kind of loophole where you can list concessions for compensation?

SEARS: So listen, what people need to be very careful about is not listing concessions that equal a percentage that a buyer broker might expect to receive. But concessions can be made for closing costs for repairs, for whatever it is, and then the buyer can decide what they want to do with it.

“…But it cannot be reflected in any way that it is compensation be used for a buyer broker.”

JAMES: Do you anticipate places like Fannie Mae, Freddie Mac, other governing agencies making some kind of quick changes to their rules around the percentages that are allowed to be conceded? Now that we know that buyer agency compensation may become more of a thing than it used to be and we know that there’s limits on what they allow, 3%, whatever. Do you see that potentially happening or no? 

SEARS: “So luckily Fannie and Freddie already allow for independent party contributions, right? So that’s already, there is a percentage. I think a lot of us know what that percentage is, so that is okay. 

“The big one that we’re working on is VA, and unfortunately…these rules, they took years and years and years to be implemented, we’re having the conversations, but if there’s any changes that are going to be made—the way government works, it’s not going to be tomorrow.

“…But what I will tell you is that where buyer rep agreements are mandated, and I think there’s 18 states across the country, VA buyers are still buying properties. 

“…If you have a VA buyer, what I’m being told consultant attorney…is that then any offer that is made, the VA buyer is asking in the offer, we’re allowed by law for their broker to be compensated. Write it in the offer.”

NAR Member Dues

JAMES:  NAR came out and they said that they’re paying, what is it, $418 million…over four years, and they’ve said there will be no price (member) increases in 2024. So this is paid over four years. Are we anticipating price (increases)?

SEARS: “What I’ll tell you is, so within 30 days of preliminary approval, NAR will pay $5 million into the pool. From that, those postcards that we’ve all seen are going to be sent out to the class members. Within 90 days of final approval, NAR will have to pay an additional $197 million, so that’ll be $202 (million) upfront. And then on the anniversary of the payment of the $197, for three years after that, we’ll be paying $72 million. 

“And what I’ll tell you is 2024, there’s no dues increase. 2025, there’s no dues increase. 

“So the leadership team is meeting with the finance committee, we’ve got some outside consultants we’re going to go through, figure out how we’ll be able to not only meet that financial obligation, but be able to continue to provide the tools, products, services, and advocacy that the members have come to expect. We might have to streamline some things, that is the thing, but at the end of the day, if this settlement is approved, we’ll be a little leaner, probably a little meaner, but we’ll still be there. We’ll come out of this, and I think down the road we will be stronger for it.”

Watch the full episode for more.