No Local Changes Yet as National Lawsuits Rattle Real Estate Industry

Two of the nation’s largest real estate brokerage franchisors say they won’t require their corporate-owned brokerages to be members of the National Association of Realtors. That change is part of the multimillion-dollar settlements in two federal lawsuits challenging the traditional model for paying agents who represent homebuyers.

Anywhere settled for $83.5 million and RE/MAX says it will pay $55 million into a settlement fund. Some have speculated that the proposed settlements could be catalysts for real estate firms to leave the NAR and to change half of real estate’s traditional compensation model.

In that model, people pay real estate agents a commission to sell their homes – that part of the compensation model is not in jeopardy. What is in contention is the traditional practice of sharing that commission with buyers’ agents.

Anywhere’s brands include Better Homes and Gardens Real Estate, Century 21, Coldwell Banker, Corcoran, and Sotheby’s International Realty, which combined have a significant market share in Hawaiʻi.

But some local Realtors say their firms are unlikely to see much change in the near term and point out that the proposed settlements require court approval that would likely not be granted until early next year, if it’s granted at all.

“We don’t expect it’s going to change anything soon,” says Kalama Kim, 2023 president of the Hawaiʻi Realtors statewide organization and president of Berkshire Hathaway HomeServices Hawaiʻi. “And we’re not sure it’s going to change anything significantly in the future.

Contrary to some headlines, the Anywhere and RE/MAX settlements don’t say their brokerages and affiliates cannot be members of the NAR. Instead, it says the companies won’t require their company-owned brokerages, franchisees or affiliated agents to be members of NAR, nor will they be required to follow the NAR’s Code of Ethics or its MLS Handbook.

“All U.S. RE/MAX brokerages will be free to determine whether NAR membership works best for them and their agents – and we’ll support the choice either way,” RE/MAX President and CEO Nick Bailey told affiliates in a statement.

Redfin Leaves National Association

Only one nationwide firm, Redfin, has said it’s leaving the NAR over the commissions issue, and that was after a report in The New York Times detailed allegations of sexual harassment within the national trade association, specifically by Kenny Parcell, the NAR president who resigned two days after the Times published its story.

Membership isn’t mandatory but most brokerages and agents in Hawaiʻi are members of NAR, as well as the statewide Hawaiʻi Realtors organization, and local groups such as the Honolulu Board of Realtors, Realtors Association of Maui, Kauaʻi Board of Realtors and Hawaiʻi Island Realtors. In return, the groups provide continuing education to members and lobby on issues that affect the real estate industry.

“Brokerage firms always had an option: It was their choice if they’re going to be NAR members,” says Kim, who also says there are already some firms and agents who choose not to pay dues to belong to the Realtor organizations. “The other part is compensation between sellers and brokers, and buyers and brokers. That’s always been negotiable.”

Not all defendants settled in the two lawsuits. NAR, HomeServices of America and Keller Williams Realty were set to present opening arguments this week in a federal court in Kansas City, Missouri, in one of the cases, known as Sitzer/Burnett.

“NAR fundamentally disagrees with how class-action attorneys are characterizing our rules,” says Katie Johnson, the association’s chief legal officer and chief member experience officer. “NAR’s rules and local MLS broker marketplaces very much benefit consumers and allow business competition to thrive.”

Commissions for Buyers’ Agents

At the heart of the lawsuits is the way agents representing homebuyers are paid. Commissions are usually paid by sellers to their listing agents as a percentage of the sales price, typically 5% or 6%, at closing. The seller’s agent then shares a portion of that commission, typically half, with the buyer’s agent. The plaintiffs in the lawsuits allege sellers shouldn’t be the ones to pay the buyers’ agents.

Chuck Garrett, president and principal broker of Corcoran Pacific Properties, which has offices on Kaua‘i, O‘ahu, Maui and Hawai‘i Island, notes that some of the points pertaining to buyer-agent commissions in the settlements were addressed by the NAR in actions taken nearly two years ago. Anywhere CEO and President Sue Yannaccone noted the same in a statement.

In November 2021, NAR issued a news release that, in part, reinforces the idea that brokerage services are not free and that local marketplace participants should not give the impression that they are, particularly in regard to buyer agents.

The Anywhere settlement goes a step further to prohibit its company-owned brokerages, such as Coldwell Banker Realty in Honolulu, from making claims that buyer-agent services are free. Anywhere says it will “recommend and encourage” the changes for franchisees. RE/MAX says it encourages its agents to “be honest and upfront about how much your services cost – and how much you expect to be paid.”

How their agents are paid is not always spelled out to homebuyers, and although HawaiʻiRealtors has a buyer’s agreement form for agents, few use it.

“We sit down with the seller and we call it a listing presentation, and we cover everything with them, especially the value of what we bring,” Garrett says. “Whereas historically with the buyers, it’s a relationship.”

Here’s What’s Ahead for Buyers’ Agents

Both settlements make it clear that Anywhere and RE/MAX franchisees are encouraged to include commissions for buyers’ agents in listings and to make it clear that the commissions are negotiable.

Ryan MacLaughlin, owner and principal broker of Island Sotheby’s International Realty on Maui, an Anywhere franchisee, says that could be interpreted to mean that the company has no rule requiring an offer of compensation.

Ryan MacLaughlin, Owner & Principal Broker, Island Sotheby’s International Realty – Maui

“A savvy seller is going to incentivize all walks of life out there in the real estate industry to come and show their property and I’m going to offer a compensation for that,” MacLaughlin says. “It’s not saying it’s getting rid of that. It’s just saying that we cannot say that it’s required by a seller to pay a commission.

Sellers have the option not to pay a buyer’s agent, but sometimes sellers choose to pay a higher commission to attract the kind of agents who will bring qualified buyers, says Scott Carvill, owner and principal broker of Carvill Sotheby’s International Realty in Kailua.

Scott Carvill, Owner & Principal Broker, Carvill Sotheby’s International Realty – Kailua

His firm’s practice is to always offer a commission to outside buyers’ agents, but that policy is not practiced by all sellers, he says.

The settlements also note that the companies’ technology prevents agents from sorting listings by commission amount, to discourage agents from only showing properties that pay the highest commissions to buyers’ agents. Garrett, who is the 2023 president of the Honolulu Board of Realtors’ HICentral Multiple Listing Service, says that kind of searching isn’t possible on the MLS.

One thing Garrett sees as an outgrowth of the lawsuits is a greater attention to the relationship between buyers and their agents, which right now can be based on just a handshake.

“I think we see that the buyer presentation will be enriched and much more important and a much bigger part of the process,” Garrett says. “Those seem inevitable.”

Kevin Inn, President, Better Homes and Gardens Real Estate Advantage Realty – Honolulu

Kevin Inn, president of Better Homes and Gardens Real Estate Advantage Realty in Honolulu, says that means “we just beef up and be even better at being able to explain to buyers what the process (is) that we’re about to take them through and why it’s important to have that representation.”

Written Agreements Are Encouraged

Kim says he thinks it’s important to have written agreements between buyers and their real estate agents, such as the agreements that firms have with sellers.

“That spells out the obligations of the brokerage firm and their fiduciary responsibilities to clients and the buyer knows exactly what should be done,” Kim says. “It raises the level of expectations of professionalism from their Realtor.”

Kim says 11 states have laws requiring representation agreements with buyers and notes that Washington state recently passed its law, which takes effect Jan. 1. Hawaiʻi Realtors may look at supporting passage of such a law here, if its membership supports it, Kim says.

Consumers may also benefit from the changes.

“I look at this settlement as a good thing for the public,” MacLaughlin says. “With technology, real estate has become so available to the public that I just feel like everything should be as transparent as possible.”

Kim will travel to Chicago this week for meetings at NAR, which include the first meeting of the organization’s Culture Transformation Commission. Kim will serve on the 75-member commission, which was formed in the wake of the Times report.