NAR vs Compensation Policy - The Trial Started This Week

The National Association of Realtors (NAR) Compensation Cooperation Policy, enacted in 2020, has been a topic of considerable debate. While its proponents argue that it promotes transparency and standardization in the real estate industry, some critics have claimed that the policy is part of a conspiracy to fix prices. In this article, we will delve into the NAR Compensation Cooperation Policy and explore whether it is genuinely an attempt to manipulate prices or a sincere effort to bring fairness and clarity to the industry.

The NAR Compensation Cooperation Policy, also known as the "MLS Policy Statement 8.0," mandates that real estate brokers participating in a Multiple Listing Service (MLS) must enter into a written agreement with their clients that specifies the amount of compensation offered to cooperating brokers. In simpler terms, it requires listing brokers to make their compensation terms transparent and standardized when listing properties on the MLS.

Critics who contend that the NAR Compensation Cooperation Policy is part of a conspiracy to fix prices argue that it restricts the flexibility of compensation negotiations between listing brokers and sellers. This limitation, they claim, could result in uniform, potentially inflated commissions and undermine the market's competitive dynamics. In this view, the policy might lead to price fixing by establishing an industry-wide standard for commission rates.

Additionally, critics also point out that in the past, compensation agreements between the seller and buyer agents have been abused.?? In 2020 through 2022, some buyers agents were telling buyers that unless they came to the forefront with a questionable amount of money, and offering well above the listing price of a particular piece of property, that they would not get it.?? The buyers who did go in with this practice could possibly be upside down in their mortgage, or in a worse case, are driven near bankruptcy, as they can not afford the payments even with the buy down in points and low interest rates.

Supporters of the NAR Compensation Cooperation Policy assert that it is a significant step towards transparency and fairness in the real estate market. By requiring brokers to clearly state the compensation offered to cooperating brokers, the policy ensures that all parties involved in a real estate transaction are fully informed about the financial aspects of the deal.

This transparency can be seen as beneficial for both sellers and buyers. Sellers can better understand the costs involved in their transaction and make more informed decisions, while buyers can be confident that their interests are being properly represented. The policy aims to create a level playing field and reduce the likelihood of any hidden agendas or biased behavior.

However, some sellers, finding that they were paying for the employment of the buyers agent objected, were allegedly forced into the higher commission structure from listing agents through objection handling and high pressure tactics. One seller who is part of a class action lawsuit said on the stand “I still don’t see the fairness in paying for somebody you’re never going to meet and never works for you in any way. I don’t think it’s fair.”

While some critics argue that the NAR Compensation Cooperation Policy is part of a conspiracy to fix prices in the real estate industry, it is crucial to evaluate it within the context of its core objective: enhancing transparency and fairness in real estate transactions. The policy's intention is to ensure that compensation terms are clear and standardized for all parties involved, reducing the risk of misunderstandings and hidden costs.

It is important to monitor industry policies and regulations to guarantee that they serve the best interests of both buyers and sellers. Any concerns related to price fixing or other unethical practices should be addressed by appropriate regulatory bodies.? However, the regulatory bodies have taken a hands off approach, and have in the past chastised brokers for offering smaller percentages of compensation, as the seller wanted, and in some cases stated a minimum commission amount, or any changes from the “standard 6%” as the case has documented, needed to be approved by the owner or broker in charge.

The NAR Compensation Cooperation Policy's ultimate goal is to promote transparency and fairness in the real estate market. Because the transparency went against the ethics of disclosing money between the listing and byers agent, and the rule of requiring the split, the conspiracy charges were levied against the NAR, in which the mandatory practice was adopted by brokerages across the US, and in turn, became a national Sherman Anti-Trust Act concern.??? Additionally because the employment of the seller agent and the buyer agent was brought up, the Internal Revenue Service rose an eyebrow.

It is likely that the nations independent contractor real estate brokers, following the regulations, were misclassified employees. This is something the DOJ was also looking at when they backed away from the 2019 settlement with the NAR. If the IRS rules against the brokerages, the impact of back payroll taxes, insurance, as well as social security and healthcare will fall on them, and the employees.

The practice of the independent contractor not charging for their services at an acceptable market price without interference may require ongoing scrutiny and discussion to evaluate its effectiveness, it is vital to consider its intended purpose and avoid simplifying it as a conspiracy to manipulate prices.

Ed Zorn, the vice president and general counsel of the nation’s largest multiple listing service said “a win would be hard for NAR, but not impossible.”