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[NOTE: This is a VIP post, for subscribers only. However, given the importance of the topic, I\u2019m going to make it open to all for a couple of weeks. Dumbass comments will be deleted since that\u2019s one major benefit of VIP.]<\/em><\/p>\n As promised, I thought I would recap and summarize my thoughts on what the impact of the various lawsuits against NAR, brokerages, Zillow, and MLSs likely would be. These date back as far as March of 2019, when I wrote the first post<\/a> about the first class action lawsuit, Moehrl v. NAR, which has now been certified as a class action. Over the years, I\u2019ve written about Moehrl, Burnett, PLS v. NAR, Rex v. Zillow, and other lawsuits confronting the industry.<\/p>\n Things have evolved since then, of course, but on the whole, most of my thinking about the impact remains more or less the same. I\u2019m going to limit my thinking to the two big commission lawsuits: Burnett and Moehrl. The others are important as well, but less impactful and dramatic than these two.<\/p>\n What is honestly puzzling is why the industry and its leadership has seemingly been on vacation for the last four years while all of these issues were developing. With the idea that it isn\u2019t too late, let me lay out as briefly as possible what comes next. I will structure this in terms of Most Likely to Least Likely outcomes.<\/p>\n The most likely outcomes from these various lawsuits and related developments are as follows:<\/p>\n Fundamentally, I believe NAR and the Corporate Defendants will lose at trial on all of the cases known today. You can go back and re-read all of my posts on legal topics for my reasoning, but at base, I believe that the elite opinion in the U.S. and the policymakers who follow it have turned against the fundamental structure of how the real estate industry works. Most important of those is the fact that transaction costs in the U.S. are far higher than in other developed nations, which leads our Elites to want to reduce those.<\/p>\n But losing at trial does not mean the end. As I have written and spoken about repeatedly, whoever wins at trial, the decision will be appealed by the loser. There is simply too much money at stake and too much how-business-is-done at risk for anything other than an appeal. And whoever loses on appeal will appeal again to the highest court in the land. So this fight will not end for years<\/em>. I have long estimated seven years from the start, but COVID intervened, which means we likely have some five or six years from today for resolution through the courts.<\/p>\n That gives us the extended period of chaos. Despite results from the trial courts, NAR and the MLSs are unlikely to immediately give in and change course. They will get a stay on enforcement against cooperation and compensation, get a stay on paying damages, and pursue appeals. Brokers and agents will be left in a bit of a limbo, doing what they\u2019ve always done but with an eye towards a massive change right around the corner.<\/p>\n At the same time, copycat lawsuits are all but inevitable. I wrote at length about that here<\/a>. The Moehrl lawsuit names twenty MLSs as \u201cCovered MLSs\u201d and any result from the trial will be limited to those markets. Which means there is a giant hole outside of those twenty that lawyers will rush to fill if not today then after the verdict in Moehrl and Burnett:<\/p>\n Step two would be to look for states and areas not named in the Moehrl list. California really stands out. Almost the entire Northeast is absent from the Moehrl list, so look at NY\/NJ\/CT. Look at New England. Metropolitan areas not named above \u2014 think Chicago, Atlanta, Miami \u2014 look like fertile ground for plowing. (If suing in states\/areas that Moehrl does not cover, the lawyers might be able to sue the same defendants, since people in those markets would not be covered by the Moehrl ruling. It is also possible that the court would just throw it out as a copycat lawsuit and tell the lawyers to wait for a decision from Moehrl before wasting the court\u2019s time, or just expand the Moehrl lawsuit with additional plaintiffs in additional areas.)<\/p>\n<\/blockquote>\n Which means that every local REALTOR Association and every local\/regional MLS has to up their legal budgets for 2024. And anyone who has served on a REALTOR Association or MLS Board of Directors since 2015 should free up his or her calendar for depositions and save all of his or her correspondences from 2015 on.<\/p>\n I cannot stress this enough: if you are a small local MLS or a small REALTOR Association, seriously consider joining forces with other small organizations or merging into a larger one<\/strong>. You will need to hire lawyers, and NAR\u2019s legal budget will be stretched thin with its own problems.<\/p>\n The other likely outcome is regulation, particularly by the FTC but could also come from state regulators. I think new regulations are entirely likely, and possibly increased regulation on agent and broker duties as well. That the DOJ and the FTC would like to eliminate the power of NAR over commissions is hardly a secret. That they\u2019ve been wanting to do so since the 1940s is public fact. With trial court decisions providing backup for the idea that the MLS violates antitrust law, and issuing injunctions against cooperation and compensation, the FTC is really freed up to impose new regulations.<\/p>\n Now\u2026 because of the extended chaos, there won\u2019t be real changes on the ground for agents and brokers\u2026 yet<\/em>. There will be an increase in brokers and agents doing things like Exclusive Buyer Agency agreements, but that should be happening today anyhow. More and more consumers will start to realize that they have to pay their buyer agents \u2014 and in fact, that they\u2019re the ones paying their buyer agents already since they are the only ones bringing any money to the closing table. But over the next couple of years, I don\u2019t see a huge<\/em> disruption in how agents get paid, absent new regulations from the FTC or others.<\/p>\n Less likely yet entirely possible outcomes from what transpired these past four years are as follows:<\/p>\n The initial step of joining forces to fight copycat lawsuits should<\/em> evolve into actual real consolidation of MLSs. I say \u201cshould\u201d because that should have been happening the last ten years, but hasn\u2019t for a variety of reasons. So I\u2019m not entirely certain that this crisis will change things.<\/p>\n Perhaps instead of voluntary consolidation, we\u2019ll see involuntary consolidation<\/em>: that\u2019s where a local MLS and REALTOR Association goes bankrupt from legal fees and judgments, and all of their agents join a nearby well-funded MLS. Either way, I think we see rapid decline in the number of MLSs from roughly 550 today to perhaps closer to 10 in three to five years. I don\u2019t think the MLSs who survive will be MLSs as we know them today; I think they will be private companies with significantly<\/em> more funding. Think CoStar or Zillow or something like that. Because the war chest required to deal with all of the copycat litigation and any damages will not be small, which means even the largest of today\u2019s MLS (CRMLS, Bright MLS, etc.) might actually be bankrupt and force agents to find someone else who is not being sued.<\/p>\n Given that the source of the liability for the MLS is the REALTOR Association which enforces NAR\u2019s rules on the MLS, I think it highly possible that we see widespread divorce of the MLS from the REALTOR Association. What I don\u2019t know at this point is the liability that broker-owned non-NAR MLSs such as Northwest MLS will face from copycat lawsuits, so it\u2019s unclear whether divorcing the Association is any kind of protection against liability for commission compensation. Of course, this assumes that local REALTOR Associations survive somehow, because there is little doubt that they are going to get sued into oblivion.<\/p>\n [Disclosure: I want this analysis to be as neutral as possible, but I do have a conflict of interest. I\u2019ve been working on a new project that is directly related to real estate auctions for the past year or so, and obviously did not see this court\u2019s decision coming. Given events, I will put up a full post about that project later to avoid distractions on this post. I\u2019m still offering my straight opinion, and you decide what you think of that opinion on your own.]<\/p>\n Real estate auctions are quite likely to take off, because the order from Judge Woods specifically exempts<\/em> consumers who used a real estate auction to sell their homes. The rationale is simple: in an auction, the whole cooperation and compensation thing is far less of an issue. Very often, the auction seller doesn\u2019t pay a commission, and the buyer doesn\u2019t either; the buyer might pay a fee to the auction house, but the whole \u201cNAR Rules and Conspiracy\u201d thing is entirely missing. So in copycat lawsuits, other judges are likely to follow suit. Not only will auction consumers be left out of any class action, they likely don\u2019t have much of a claim.<\/p>\n Going forward, if you are a brokerage that hasn\u2019t been sued out of existence as Realogy (now Anywhere), HomeServices of America, RE\/MAX and Keller Williams are about to be, you are going to want to think real hard about moving transactions to auctions just in case.<\/p>\n Speaking of brokerages, a final less-likely-yet-possible outcome is the elimination of 1099 independent contractor agents. The reason is broker liability. This lawsuit is quite likely to bankrupt four of the biggest real estate brokerages\/franchises in the industry. Some of it is from their own doing: participating in NAR rulemaking, creating and promulgating training materials talking about compensation, etc. But some of it is from agents not following directives, because they\u2019re independent contractors and you can\u2019t tell them what to do and how to do it.<\/p>\n Even if regulations do not eliminate the 1099 exemption for real estate agents, quite a few brokerages might look at future liability exposure and decide they can\u2019t take the chance of having agents who won\u2019t follow company policy or orders from the manager. Respondeat superior<\/em> (where employers are liable for actions of employees) is settled law, but at least the superior can manage the worker to do what he or she is supposed to do. If you\u2019re going to be liable for actions of your non-employee contractors, might as well make them employees and get the power to actually manage them.<\/p>\n The least likely outcomes, as of today, are as follows:<\/p>\n It is possible, though I think highly unlikely, that NAR will simply win all of the lawsuits. Nothing in the trial record so far, nothing in the courts\u2019 decisions on motions, and nothing about the plaintiffs lawyers makes me think that NAR will win\u2026 but you never know. As the saying goes, \u201cThat\u2019s why you play on Sunday.\u201d Plus, I believe all of the major cases are jury trials, and juries are unpredictable. So NAR could win every case.<\/p>\n Another possibility is that NAR leverages its lobbying prowess and successfully gets Congress to pass legislation protecting NAR and the MLSs and various brokerages from liability. I think this is highly unlikely for a three main reasons. One, the Federal Government does not like NAR right now. It is, in fact, in the middles of a lawsuit with NAR. Congress is different from DOJ and FTC and the Executive Branch, but\u2026 I dislike NAR\u2019s chances given the past couple of years. Two, we in the industry recognize NAR as important and powerful\u2026 but NAR is not the NFL or the MLB. It is not \u201corganized labor\u201d under the Clayton Act. Third, the primary way to get an antitrust exemption is to become a \u201cregulated industry\u201d such as banking or transportation; would NAR want real estate to become a regulated industry under HUD? Doesn\u2019t that kind of defeat the whole purpose of fighting DOJ and FTC and all that?<\/p>\n Finally, I can\u2019t overlook the fact that maybe NAR loses all of the cases, the FTC promulgates regulations, etc. etc. and all of the bad things come to pass\u2026 but nothing changes. It seems really quite unlikely, but who knows? Maybe sellers just voluntarily start paying buyer agents because they want the buyer agents to bring them buyers. Maybe buyers just pay their own agents a commission because they value what the agents do for them. Maybe the MLS doesn\u2019t do cooperation and compensation, but brokers and agents still think of it as a necessary utility and nothing changes.<\/p>\n Unlikely\u2026 highly unlikely\u2026 but hey, it\u2019s possible.<\/p>\n Let me end with what you should be doing today, as a result of this latest ruling and more generally, as a result of you waking up to this problem. Consider this free consulting that is worth exactly what you paid for it. Also, I am not your lawyer; make sure you speak to your actual attorney about everything.<\/p>\n First, let me address NAR\u2019s leadership. I heard from some of you (most informed readership in real estate) who are in leadership positions in local Associations and local MLSs. The word is that the communication from NAR has been the standard cheerleading we\u2019ve been hearing for four years \u2014 you know, the \u201cwe\u2019re disappointed in the court\u2019s decision, this is merely a procedural setback, but we\u2019re right on the facts, right on the law, and we will ultimately prevail, blah blah blah, rah rah GOOOOO TEAM!\u201d<\/p>\n Look, that\u2019s completely understandable in terms of communication with the general membership<\/em>. You don\u2019t want the average REALTOR to panic and get distracted from their day to day struggle, which is hard enough. You don\u2019t want the membership to start freaking out that \u201cOMFG! SKY IS FALLING!\u201d However, you do need the leadership<\/strong><\/em> of the local Associations and MLSs to wake the hell up.<\/p>\n It is entirely incomprehensible to me why NAR has not called a special meeting, a special webinar, something<\/em> that is restricted\/limited to CEO\u2019s and Board Presidents, to lay out what the real risks are, what the likelihood of success is at the trial level when the judges are completely hostile, and DOJ has its thumb on the scale; what the legal risks of copycat lawsuits are, what the leadership needs to do in terms of contingency planning, in terms of joint legal defense, in terms of preserving communications, etc. etc. Presumably the CEO and the President of the local Associations are in those positions precisely to do the kind of work you don\u2019t want the membership to be doing.<\/p>\n I would extend this advice to other industry organizations like CMLS, RESO, State REALTOR Associations, Realty Alliance, and so on. There is zero downside to making sure that the leadership of companies and organizations are eyes wide open on what\u2019s happening, what the risks are, and what options there are for the future.<\/p>\n Second, it goes without saying that if you are a local leader, even in the absence of national or state guidance, you need to be doing exactly that kind of thinking and planning. Look at your policies, your legal budget, your possible exposure.<\/p>\n Third, brokerage leaders need to do the same as local Association leaders. NAR was not the only entity sued. Four large brokerages and franchise companies were also sued. You need to be aware that you are quite likely to be sued by local\/regional plaintiff\u2019s class action lawyers in copycat lawsuits. At a minimum, you need to look at your training materials and coaching to ensure that the whole \u201cif you don\u2019t offer compensation, buyer agents won\u2019t show you house\u201d thing is nowhere to be found. That was what got the four Corporate Defendants on the hook.<\/p>\n Let\u2019s leave things there. I\u2019m sure you have questions. You know where to find me, or just post in the comments.<\/p>\n -rsh<\/p>\n \u201cReady or Not\u201d by Fugees Listen to Fugees: https:\/\/Fugees.lnk.to\/listenYD Subscribe to the official Fugees YouTube Channel: https:\/\/Fugees.lnk.to\/subscribeYD Watch more videos by Fugees: https:\/\/fugees.lnk.to\/listenYD\/youtube Follow the Fugees: Facebook: https:\/\/Fugees.lnk.to\/followFI Spotify: https:\/\/Fugees.lnk.to\/followSI Website: https:\/\/Fugees.lnk.to\/follow_YD YouTube: https:\/\/Fugees.lnk.to\/subscribeYD Lyrics: Ready or not, here I come, you can\u2019t hide Gonna find you and take it slowly Ready or not, here I come, you can\u2019t hide Gonna find you and make you want me #Fugees #ReadyorNot #OfficialVideo #HD #Remastered<\/p>\n<\/blockquote>\n \u00a0<\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":" [NOTE: This is a VIP post, for subscribers only. However, given the importance of the topic, I\u2019m going to make it open to all for a couple of weeks. Dumbass comments will be deleted since that\u2019s one major benefit of VIP.] As promised, I thought I would recap and summarize my thoughts on what the […]<\/p>\n","protected":false},"author":1,"featured_media":57092,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[99],"tags":[10904,4197,25801,23780],"dealstore":[],"offerexpiration":[],"class_list":["post-57091","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate","tag-commission","tag-impact","tag-lawsuits","tag-notoriousrob"],"yoast_head":"\nMost Likely Outcomes<\/h2>\n
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Less Likely Outcomes<\/h2>\n
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Least Likely Outcomes<\/h2>\n
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What YOU Should Be Doing<\/h2>\n
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Fugees \u2013 Ready or Not (Official Video)<\/a><\/h4>\n