Photo by AJ Canaria
WASHINGTON, D.C.—Katie Johnson has undoubtedly had one of the toughest jobs in real estate over the past year.
As chief legal counsel and chief member experience officer for the National Association of REALTORS® (NAR), Johnson has sat in countless court hearings defending the trade group and its 1.5 million members against allegations of collusion and antitrust harm.
Johnson has also stood before NAR members and brokerage leaders to face tough questions over NAR’s decision to settle the bombshell agent commission lawsuit for $418 million back in March—a move that has garnered its fair share of criticism and praise alike. NAR’s rule changes, in particular, have been top of mind for many brokerage leaders as they steer their respective companies through sea changes in the real estate industry.
Like she’s done many times before, Johnson explained the latest developments in the settlement—and, more importantly, what comes next—to hundreds of real estate leaders at RISMedia’s CEO and Leadership Exchange on Sept. 5.
Johnson first relayed some regret that not all NAR member brokerages were covered in the settlement agreement despite the trade group’s best efforts. She noted that the settlement still has to undergo final judicial approval on Nov. 26 at a hearing in Kansas City, Missouri.
While NAR anticipates the judge will provide final approval, Johnson said the group is cognizant that some brokerage leaders are concerned it won’t be and that further policy changes could come down the pike in the future, causing them to pivot again.
“The major changes here about taking compensation off of the MLS and requiring written buyer agreements are intended to position the buyer and the seller in opportunities to have more knowing and intentional discussions with their professional, and so I think we can expect that those changes would continue regardless,” Johnson said.
Two of the key conditions of the NAR settlement have been controversial among some in the real estate industry. The first was removing all offers of agent compensation from listings on the MLS. This was a specific pain point for plaintiffs in various commission lawsuits who successfully argued that NAR’s Participation Rule (requiring unilateral offers of compensation to buyer agents) led to sellers paying more than their fair share for agent commissions.
The second condition is that buyer’s agents now must have a signed buyer’s representation agreement in place with clients before touring homes with them. The agreement must now spell out how much the buyer’s agent will be paid for their services and by whom. Both changes went into effect for NAR members on Aug. 17.
NAR tackles other key legal battles
The NAR settlement is just one of numerous issues the association is tackling in the courtroom.
Department of Justice litigation
Johnson said that NAR is engaged with the Department of Justice (DOJ) on several issues as “they continue to have areas of concern about our industry or our practices.” NAR has been in prolonged litigation with the DOJ after the government withdrew from a 2020 agreement regarding its investigation into several NAR rules and policies, including the Participation Rule and Clear Cooperation.
However, when the Biden administration came into power, DOJ officials withdrew from the deal. NAR sued the government and prevailed in court, but the decision was recently overturned. Now, NAR says it is taking the issue to the Supreme Court to reevaluate the appellate court’s decision and make the DOJ abide by the initial agreement.
No-commingling rule lawsuit
Additionally, NAR defended a lawsuit from Rex Realty, a brokerage that sued NAR and Zillow over NAR’s optional no-commingling rule. Rex alleged that when Zillow joined the MLSs, they had to reconfigure their website to comply with the (optional) no-commingling rule, which prohibits MLS participants from combining MLS listings with non-MLS listings in their search results on third-party sites.
Johnson said that Rex Realty argued that the policy disadvantaged them, preventing them from competing in the market. NAR prevailed in that case, Johnson said, with the court affirming there was no antitrust harm. However, the broker has appealed the ruling and the case is going through the appeals process, Johnson noted.
How brokers can mitigate risk, prevent becoming a legal target
As NAR, its members and the industry move ahead in a reshaped landscape, Johnson said there are several items brokers should be vigilant about in the future.
“There’s always going to be risk regarding past conduct; it’s a legal truism,” Johnson told brokerage leaders. “Even if the rules change or agent behaviors change, prospectively going forward, the risk is real. What’s done is done.”
To reduce your risk, Johnson recommended taking the following measures:
- Learn new (and unlearn old) ways of doing business, specifically, how to be compliant in this new paradigm. Provide comprehensive training and education to help agents understand new changes.
- Encourage agents to talk to consumers clearly and transparently about their value, how they get paid and how the transaction works.
- Use buyer representation agreements. “It’s the best tool to force the conversation, and avoid becoming a target,” Johnson pointed out.
- Offer your agents choices. In other words, ensure agents can set up the relationship they want with their clients, whether it’s exclusive, nonexclusive, transaction, designated, etc. Be sure to spell out who the customer is, the length of the agreement, terms, services, price and how it’s paid.
“Whatever choice you can give to the professional to craft the outcome that works best for the professional and the consumer is going to be a win for everybody, and it’s going to be a critical risk-reduction method,” Johnson said.
Other legal risks to watch out for as the industry forges ahead
Questions over agent compensation and buyer representation aren’t the only topics that can create friction in your business, Johnson said.
For starters, Johnson urged agents and brokers to check who owns the legal copyright over listing photos. Copyright infringement is a real risk, and photographers who take listing photos might retain ownership rights. Brokers should invest the time now to figure out who owns listing photos and how they can be used to avoid potential copyright infringement litigation, Johnson recommended.
Additionally, another issue brokers need to train around and guard against is compliance with fair housing laws. “Specifically, how can we help avoid any potential negative impact that these practice changes could have on minority, veteran, low-income or first-time homebuyers,” Johnson said, noting that offers of compensation from the seller’s listing agent to the buyer’s broker is “good” and encourages market participation.
“The hallmark of fair housing compliance is consistency,” Johnson said. “Think about putting guardrails to ensure that while you’re negotiating with each of these consumers or agents, you’re not treating them differently because of their race or sex or national origin, or other protected class.”
Looking ahead, Johnson pointed out that cooperation is a cornerstone of the real estate industry, but cooperation is not the same thing as collusion or shared compensation.
While the debate over what the future of cooperation looks like will rage on, Johnson acknowledged that the industry has to change its practices and adapt.
But if anyone is up to meeting the challenges ahead with gusto and resilience, it’s REALTORS®. Johnson pointed out that these criticisms have been leveled against the industry for half a century at least.
“Every time our critics say that real estate brokers are unnecessary and overpaid—they have been saying that for generations,” Johnson said. “But they’re wrong…because consumers are continuing to hire you and seek your expert counsel and your trusted advice in their transactions. As we look forward, let’s remember that we have precedence for getting through hard times and for succeeding on the other end.”
