March 2024

Commercial Real Estate Attorney | Bukowski Law Firm | Austin, TX

NAR Settlement Could Substantially Change Real Estate

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  • The National Association of Realtors settled its lawsuit that it had previous lost as a result of its alleged collusion.
  • After this settlement, it is likely that buyers and sellers will be much more likely to negotiate broker’s rates going forward.
  • And while this has a huge effect in residential real estate, it should also impact commercial.

A while back, I wrote a blog article about some big news in the real estate world – specifically that some plaintiffs had secured a massive judgment against the National Association of Realtors and some brokerages for collusion on brokerage fees. If you recall, according to the judgment, the Court found that real estate brokers colluded to make it standard that they charge a 6% fee that is paid by the sellers. And at the time, we knew the defendants would appeal the verdict. But we did not know how it would be resolved.

Well now we do – the parties have settled the lawsuit. And with that settlement will come some pretty significant changes in the real estate industry.

Collusion and Commission Concerns

To recap, last fall, a jury in Burnett v. National Association of Realtors et al. found that the NAR and some major brokerages guilty of collusion. Basically they were all working together to keep fees high. The jury initially slapped the NAR with a whopping $1.78 billion fine. It was at that point, of course, that the Defendants filed an appeal of the verdict. And that likely set the settlement discussions in motion.

Parties Settle the Lawsuit

Two weeks ago, then, it was announced that the parties had reached an agreement and settled the lawsuit for $418 million. But even though the amount has been reduced, the lawsuit is very likely to change the landscape of the real estate industry – especially the residential real estate industry.

The big change? Say goodbye to the good ol’ days of the “standard” 6% commission. Under the settlement, those rates become a thing of the past. Instead, buckle up for a new era of negotiation. Sellers and buyers will have the freedom to wrangle with their agents over fees. And not only what that fee will be – but who should pay them. I reckon it won’t just be automatically assumed that the seller is going to pay for both the seller’s and buyer’s commission. This could lead to lower commissions for some, but remember, negotiation is a two-way street. 

Impact on Real Estate Prices: A Cloudy Crystal Ball

So what will all of this do to real estate prices going forward? I have heard some folks try to argue that lower commissions could lead to higher home prices. Their logic? With potentially less income, agents might pressure sellers to inflate asking prices.  Now, that’s a possibility, but I do not think that is what will happen. Here’s why: Competition is a powerful force. With agents needing to hustle for business, they will likely lower commission rates to attract clients. This could, in turn, lead to more buyers in the market, potentially driving down prices. And if buyers are paying for their own broker fees, then they are more likely to offer a lower purchase price to make up for that amount. Plus, if you have read Freakonomics, you know that an increase in the sale price of real estate often makes a negligible difference in a broker’s commission. Its more important for them, therefore, that the deal closes. 

What This Means for Real Estate Investors

So, what does this settlement mean for you, my Texas real estate partners?

  • Sellers:  Get ready to negotiate.  Educate yourself on commission rates in your area and be prepared to discuss your expectations with potential agents. Don’t be afraid to shop around for the best deal. 
  • Buyers:  This might be your chance to snag a lower commission rate. Having said that, it is likely that buyers will have to pay for their own brokers going forward. Which, again, could affect sale prices. 

Having said all of this, remember, a good agent with a proven track record can be worth their weight in gold. It may not be worth prioritizing saving a few bucks over getting the best representation. Ultimately what you will likely see is a lot of brokers exiting the industry. With lower commission rates, it may not make sense for them to continue.

Conclusion

The NAR settlement is a big change for Texas real estate. It’s a chance for a more open broker market. But it also comes with new challenges – and likely fewer brokers.  

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Contract and partner dispute image

Its Getting Contentious Out There 

Leave a Comment / Legal Awareness, Texas Commercial Markets / By
  • In this commercial real estate environment, its natural for disputes to frequently arise. 
  • The best way to avoid these disputes is to have good documents to rely on. 
  • And when you are in a dispute, bringing on an experienced litigator who can help you strategize is a must. 

In the last few months, because of the current commercial real estate environment, I have written a few times about litigation. Things are a little dicey out there. I know I don’t have to tell you that. Well today we are going to dive in some more. And while we are already seeing a lot of disputes – much more than we did a few years ago – I reckon those numbers are going to continue to increase. 

The bottom line is that, while deals are getting signed up, a lot of them are not closing. Much more than just a couple of years ago. And, sadly, with the increased interest rates and flat rents, investments are starting to fail. And will likely continue to do so.  

As a result, there is no doubt that litigation has increased and will continue to do so. What to do, therefore, when faced with that unfortunate situation? Lets talk about it. 

Ounce of Prevention is Worth a Pound of Cure 

 

First, a good litigation defense starts with hiring a good lawyer early in the deal process – before litigation is even contemplated.  

I know folks often will try to save money by using form purchase agreements with no review or drafting operating agreements themselves. This is a bad idea. Doing so sets you up to having a messy divorce when things go wrong.  

To be clear, I’m not saying that the TAR or TREC forms are bad. They aren’t. But they are a lot better when your lawyer reviews them, makes sure the right boxes are checked, and adds some additional clauses to the agreement for your protection.  

And I know this sounds self-serving. I am a lawyer telling you to hire a lawyer early in the process. But the reality is its good advice. And it will protect you in the long run. Because when things go sour, you want – you need – to have good documents to fall back on. Ones that will be clear in dictating the rights and responsibilities of all the parties. So please take my advice and hire a good lawyer when setting up your partnerships or purchasing a property. 

Also Need a Lawyer When Things Go Wrong  

Despite the best intentions and having good documents, sometimes things just break bad. Especially in the current commercial real estate environment. So what should you do then? 

Once again, get a lawyer involved. There are many reasons that you want to get a good litigator involved early in the process. First, we have expertise in litigation. We have been through it a lot. We are not intimidated by the process. And we know what steps you should take to put yourself in the best position.  

Also, a good litigator understands how expensive litigation is. And we will do all we can to avoid it. So sometimes bringing in a lawyer who can look at things differently can help the parties resolve their issues prior to litigation. We can do this through demand letters, discussions with the parties, potentially pre-litigation mediation. All of these are possibilities for keeping costs down and yet coming to a resolution.  

But if we cannot resolve the issues without resorting to filing suit, its important to get started quickly. The first step is to make sure you document everything. The more you have written down in any form – the better your records are – the better off your position will be in the litigation. A good litigator will also review your entire dispute and – with your input – form a litigation strategy that will put you in the best position for a recovery. Again, the sooner you do that and have a plan going forward, the better off you will be. 

These are tough times in real estate. And tough times usually means there are going to be disputes between parties. When you are facing a dispute like this, please do not hesitate to reach out to a commercial litigator. Because we can help guide you through this difficult process to finding the best potential outcome. 

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