As we approach the August 17th deadline for compliance with the NAR settlement, it's no wonder that practice changes have become the most common topic at the brokerage water cooler. The Settlement Agreement is 109 pages long, so it shouldn't surprise anyone that there is still confusion around the new requirements. But what surprises me is how little discussion there's been about one little clause in the Agreement that makes all the difference and the question that nobody seems to be asking: How am I released from liability in this settlement?
Even though agents and most brokers were not parties to the commission lawsuits, the impact of the Practice Changes will reach across the entire industry, impacting all of us. Even if we're not directly bound to them, the Practice Changes are incorporated into the NAR rules, MLS agreements, the Code of Ethics, and franchise and brokerage policies. So if we're going to have to make these changes, we should make sure that we're individually getting some benefit from the settlement. That's where the Release comes in.
The NAR Settlement releases the Released Parties from further litigation related to the allegations in the lawsuit from all class members. A release saves you the time, resources, and money to defend yourself from a new lawsuit.
You're also shielded from being held financially liable for any damages or injuries claimed by the plaintiffs in the class action. This is a significant benefit multiplied by every transaction you've had over the past 5 to 10 years, depending on which Settlement Class your clients fall into.
Being a released party does not necessarily mean admitting guilt or liability for wrongdoing. It simply means being released from any potential liability in exchange for agreeing to the terms of the settlement.
Paragraph 18 of the Agreement defines who is entitled to a release of all claims. Paragraph 18(b) explains how REALTORS are released:
"Any REALTORS® (members of the National Association of REALTORS®), REALTOR-Associate® Members, and REALTOR® Member Boards that do not operate an unincorporated multiple listing service, … that (i) is a member of the National Association of REALTORS® on the date of Class Notice; and (ii) complies with the practice changes reflected in Paragraphs 58(vi)-(x) of this Settlement Agreement and agrees to provide proof of such compliance if requested by Co-Lead Counsel…"
So, the criteria for a REALTOR to be released is:
So long as you are an NAR member when the Class Notice is published, you're presumed to be released. However, any Class Member or Class Counsel can challenge the Release by requiring you to prove that you've complied with the Practice Changes. If that happens and you can't provide proof, you'd better prepare for litigation.
Note: These same criteria apply to brokerages with $2 billion or less transaction volume in 2022.
While Paragraph 58 only applies to the NAR, if you want to be a Released Party, you must comply with the Practice Changes in Paragraphs 58(vi) to (x). While there are many ways to demonstrate compliance, some best practices you can learn from your mortgage partners will make audits from class members, attorneys, or regulators much easier to pass.
Paragraph 58(vi) requires you to enter into a written agreement with buyers before touring homes. The Agreement must specify and conspicuously disclose the compensation paid to the REALTOR. The commission amount must be ascertainable and not open-ended, and a REALTOR may not receive more than the amount agreed to in the Agreement with the buyer.
The best way to demonstrate compliance with the buyer agreement terms is in your CRM:
Paragraph 58(vii) prohibits REALTORS from representing to a client that their brokerage services are free or at no cost to their clients unless they will not receive financial compensation from any source for those services. So, how do you prove a negative? With extra disclosure:
Paragraph 58(viii) requires that REALTORS acting for sellers disclose to sellers and obtain seller approval for any payment or offer of payment that the listing broker or seller will make to another broker or agent acting for buyers.
Paragraph 58(ix) requires REALTORS to disclose to all prospective sellers and buyers that commissions are not set by law and are fully negotiable. Even though this disclosure will likely exist in the new forms your franchise, brokerage, regional association, or MLS are creating, there's no harm in including it in your disclosure. Include it in your buyer or seller disclosure from the sections above.
Technically, Paragraph 58(x) prohibits filtering out or restricting MLS listings communicated to your clients based on offers of buyer agency compensation. The intent, however, is to eliminate steering in general. While it's not specified in the settlement agreement, the Complaint has a lot to say about steering—so much so that we believe this is the most likely area of future litigation related to real estate commissions.
We can get some clues from the Practice Changes that larger brokerages agree to in the "Opt-In" Agreement (the "Opt-In" Agreement can be found in Appendix C of the NAR Settlement Agreement). Paragraphs 35(iv) to (vi) give us a set of practices to follow and document:
"iv. require that company owned brokerages and their agents disclose at the earliest moment possible any offer of compensation made in connection with each active listing shared with prospective buyers in any format;
v. prohibit company owned brokerages and their agents (and recommend and encourage that any franchisees and their agents refrain) from utilizing any technology or taking manual actions to filter out or restrict listings that are searchable by and displayed to consumers based on the level of compensation offered to any cooperating broker unless directed to do so by the client (and eliminate any internal systems or technological processes that may currently facilitate such practices);
vi. advise and periodically remind company owned brokerages and their agents of their obligation to (and recommend and encourage that any franchisees and their agents) show properties regardless of the existence or amount of compensation offered to buyer brokers or other buyer representatives provided that each such property meets the buyer's articulated purchasing priorities"
To ensure that you're not steering, you'll want to follow these guidelines:
As we sprint towards the August 17th deadline, it's clear that the NAR settlement is reshaping our industry. But while we're all focused on adapting to the Practice Changes, we can't afford to overlook the critical question of our own liability protection. Remember, your release isn't automatic – it's contingent on your compliance and your ability to prove it.
The real estate landscape is shifting beneath our feet, but by taking these steps, you're not just complying with the settlement – you're fortifying your business against future legal storms. Don't wait for someone to challenge your release. Act now, document thoroughly, and secure your peace of mind in this new era of real estate.