Interpreting and Implementing the Proposed NAR Settlement

Apr 8, 2024 Michael Wurzer

On March 15, 2024, the NAR reached a settlement of two of the commission-related antitrust class actions. The Settlement Agreement, which remains to be approved by the Court, specifies several “Practice Changes” for MLSs and I wanted to write this post (and likely a few others) to discuss how MLSs might think about, interpret, and implement the required Practice Changes, which the NAR says will need to go into effect in mid-July of this year.

CMLS held an excellent webinar on the Settlement Agreement with Mitch Skinner (counsel to CMLS) and Ed Zorn (General Counsel to California Regional MLS) as panelists. I was fortunate to be able to a ask a question (thanks, Denee!) to Mitch and Ed specifically about Paragraph 58.v(b), which expressly allows brokers to display (presumably on their own web site) “(1) data or data feeds from a REALTOR MLS and (2) offers of compensation to buyer brokers or other buyer representatives but only on listings from their own brokerage” (emphasis added).

When I read this provision, the idea occurred to me that software like our Flexmls system could help brokers implement 58.v(b) by creating private fields (not shared or aggregated in any way with other brokers) for those brokers, and then include those private fields in the data data feeds for their own listings only. My reading was that making the fields private also would satisfy the requirement for MLSs to remove the fields from the MLS. By making the fields private to each broker, they could manage the fields using software they already use and know and data feeds they’re already processing, which benefits the broker, the MLS, and FBS. My question for the CMLS panel was whether they agreed with this interpretation.

Mitch and Ed both responded to my question that they were definitely against MLSs facilitating this option for brokers. Mitch said the language in the settlement requiring MLSs to remove all compensation fields precluded this and, even if “on the MLS” wasn’t crystal clear, the value of such a service by the MLS to brokers wasn’t enough to justify the risk to MLSs of future legal or regulatory claims. Ed agreed with Mitch that it wasn’t worth the risk for an MLS and said that CRMLS would not allow this because making offers of compensation simply was the old way of doing things and brokers need to embrace the new way, which is a combination of seller concessions, buyer representation agreements, and buyer’s making purchase offers contingent on the seller paying the buyer agent’s commission.

To be clear, I find this analysis by both Mitch and Ed to be well-reasoned and pragmatic, and I expect most MLSs will and should follow it. That being said, I wanted to write this post to explain why I asked the question in the first place and to try to further the conversation overall. So, let’s dive in to the language of the Settlement Agreement, shall we?

Let’s start with the language in Paragraph 58.ii., which prohibits “(a) making offers of compensation on the MLS to buyer brokers or other buyer representatives or (b) disclosing on the MLS listing broker compensation or total broker compensation (i.e., the combined compensation to both listing brokers and cooperating brokers).” (Emphasis added.) Related, Paragraph 58.iii. requires MLSs to “eliminate all broker compensation fields on the MLS“. As indicated by the highlighted language, key to understanding the scope of these prohibitions is knowing what the phrase “on the MLS” means.

Unfortunately, the Settlement Agreement does not define “on the MLS” (or “off the MLS”), even though these phrases are central to the practice changes specified. Fortunately, Paragraph 58.v. of the Settlement Agreement is instructive as to what “on the MLS” means, because it extends the general prohibition against offers of compensation beyond the MLS by prohibiting “any non-MLS mechanism . . . to establish or maintain a platform for offers of compensation from multiple brokers”. Based on this language, “on the MLS” means a “platform for offers of compensation from multiple brokers.”

This interpretation is hardly controversial, because the MLS is a cooperative platform for sharing listing information among many brokers. As noted above, this interpretation also is confirmed by subpart (b) of Paragraph 58.v., which expressly allows brokers to display (presumably on their own web site) “(1) data or data feeds from a REALTOR MLS and (2) offers of compensation to buyer brokers or other buyer representatives but only on listings from their own brokerage” (emphasis added). In other words, if the offers are not aggregated, they are not “on the MLS”.

This interpretation also makes sense because the claims at stake in the Settlement Agreement are antitrust claims against the cooperation among many brokers. The fact that the claims being settled are antitrust claims targeting cooperation is why Paragraph 58.xiii, which is the last section in the Practice Changes section, specifies that:

[T]he Practice Changes in Paragraph 58 of this Settlement Agreement shall not (a) prevent offers of compensation to buyer brokers or other buyer representatives off of the multiple listing service; or (b) sellers from offering buyer concessions on a REALTOR® MLS (e.g., for buyer closing costs), so long as such concessions are not limited to or conditioned on the retention of or payment to a cooperating broker, buyer broker, or other buyer representative.

(Emphasis added.) Important to note, this provision applies to all “the Practice Changes in Paragraph 58” and, therefore, inform what the provisions requiring MLSs to remove commission fields “from the MLS” mean.

Along these same lines, as CMLS itself has argued, offers of compensation by individual sellers or brokers are not illegal and prohibiting them itself likely wouldn’t pass antitrust scrutiny. Put another way, even if MLSs cannot aggregate offers of compensation from many brokers, an MLS also likely cannot prohibit individual sellers and brokers from making offers on their own web site, which is exactly the reason for the exception Paragraphs 58.v(b) and 58.xiii.

Of course, the point Mitch and Ed made on the webinar is that the even if this interpretation is technically correct, it’s not advisable for MLSs to provide this service, because even minimal risk of litigation is not justified by the value being provided. As noted above, after the last several years of living under the clouds of so much litigation and regulatory review in the MLS industry, this advice is well-reasoned and pragmatic. If I was a lawyer for MLSs, I’d likely give the same advice.

But I’m not a lawyer advising MLSs. Rather, I’m the CEO of a company building software and I want to look ahead to days where FBS and our customers can think broadly again about how to make the market work better for everyone. Despite all the claims that MLSs are per se anti-competitive, FBS continues to be a Champion of MLS that believes  MLSs are pro-competitive and that competition requires brokers, agents, and consumers to have options and choices. Is this particular issue the right time or circumstance to push for such options or choices? Let us know in the comments!