Legal Update: Burnett v. National Association of Realtors
By following these tips, Florida real estate agents can position themselves for success.
Our Firm routinely advises real estate licenses (brokers and sales associates) on Title, Entity Formation, Contract Matters, and Ongoing Fractional Counsel services. One of the hot topics agents and brokers are concerned about right now is the infamous case of Burnett v. NAR et al. This article will provide a brief overview of the latest developments, and some opinions on what this ruling means for agents and brokers.
Status of the Case
On October 31, 2023, a jury in Kansas City, Missouri found the National Association of Realtors (NAR) and other corporate defendants liable in the case of Burnett v. NAR et al. The jury found that the defendants had violated antitrust laws by conspiring to fix real estate commission rates. The jury awarded the plaintiffs $1.78 billion in damages.
This means that, in the jury’s opinion, home buyers and sellers have been overpaying for real estate services for years. The plaintiffs in the case were awarded $1.78 billion in damages, but NAR is appealing the verdict. This means that it could be several years before anything is finalized in this case.
Analysis
While the Burnett ruling is still under appeal, it has the potential to have a significant impact on Florida real estate agents right now. Here are some of the general takeaways we have on the case and how the ruling might affect you:
- Real estate Commissions May Become More Negotiable.
NAR's Clear Cooperation Policy (CCP) requires participating listing brokers in most sale scenarios to place listings marketed to the public into the Multiple Listing Service (MLS) within one (1) business day of accepting the listing. By placing a listing into MLS, and as part of the CCP, the listing agent under an exclusive right-to-sell arrangement must generally offer reasonable compensation of some sort to Buyer’s agents. NAR’s model rule, which was promulgated based upon the CCP, stands for the “proposition that buyer brokers, like everyone else, have the right to know how much they will be paid prior to commencing work”.
If the Burnett ruling is upheld, it seems likely that the CCP would have to be reinterpreted in such a way that a Buyer’s agent is not necessarily entitled to be compensated on a listing.
In the Burnett case, NAR argued that “buyer brokers, like everyone else, have the right to know how much they will be paid prior to commencing work”, and “those costs are spelled out to buyers and sellers” via the offer of compensation in an MLS listing.
As for the alleged harm to the public and consumers, NAR has stated that “NAR doesn’t tell people what to charge or to receive a commission”, and “Agent compensation is set between brokers and their clients and has always been negotiable at any point in the transaction”.
Despite this, the holding in Burnett, if upheld, may have the effect of making real estate commissions (for both listing and buyer’s agents) more negotiable. This is because the general public may have the impression that they no longer need to offer the traditional 6% or 5% to a listing agent – since the listing agent would typically only get half of that amount if a cooperating broker brings a Buyer. Listing agents should be prepared for this.
- More Competition Amongst Real Estate Agents.
If commissions become more negotiable, it could lead to more competition among real estate agents to offer lower commissions in order to attract clients. This could put pressure on agents to reduce their fees.
Agents must therefore be intentionally examining their value proposition – how they articulate the actual value of the services they are providing in exchange for their stated commission – in order to make sure they are standing out and ready to win business.
- More Alternative Business Models Could Emerge.
The Burnett ruling could also lead to the emergence of more alternative commission business models in the real estate industry. For example, some agents may start charging a flat fee instead of a commission percentage. Others may start offering different levels of service at different price points.
This is not uncharted territory, however, as low-cost brokers in the market have been offering flat fee and reduced commissions for many years. All the same, the prevalence of these ‘alternative’ commission structures may become more popular if the holding in Burnett is not overturned.
Overall, the Burnett ruling is a significant development for the real estate industry. It is too early to say exactly how the ruling will impact Florida real estate agents, but it is important to be aware of the potential changes that may come.
Steps You Can Take to Be Prepared
In general, here are some specific things that Florida real estate agents can do to prepare for the potential impact of the Burnett ruling:
- Become More Knowledgeable About Real Estate Commissions.
The Burnett ruling could lead to a number of changes in the way that real estate commissions are set and paid. For example, if some or all of the NAR's Clear Cooperation Policy is held to be unlawful, buyers and sellers may be able to negotiate commissions directly with their agents. This could mean that agents need to be more flexible with their pricing and be prepared to negotiate with clients.
Agents should also be aware of the latest trends in real estate commissions. For example, some agents are starting to charge a flat fee instead of a commission percentage. Others are offering different levels of service at different price points. Agents should be prepared to adapt their pricing and business models to meet the needs of their clients in the changing market.
Example:
A Florida real estate agent named John is currently charging a commission of 6% on all sales. He knows that the Burnett ruling could lead to changes in the way that commissions are set, so he decides to do some research on the latest trends in real estate commissions. He learns that some agents are starting to charge a flat fee instead of a commission percentage. He also learns that other agents are offering different levels of service at different price points.
John decides to start offering his clients a choice of pricing options. He offers a flat fee of $5,000 for a basic level of service. He also offers a commission rate of 5% for a more comprehensive level of service. This allows his clients to choose the pricing option that best meets their needs.
- Be Prepared to Negotiate on Commission with Clients More Frequently.
The Burnett ruling could give buyers and sellers more flexibility to negotiate commissions. This means that agents need to be prepared to discuss commissions with clients and explain why they charge a certain rate. This goes back to being able to articulate your value proposition well, as mentioned above. Agents should be confident in their value and be able to comfortably discuss the benefits that they provide to their clients.
Example:
A Florida real estate agent named Mary is working with a buyer named Sarah. Sarah is concerned about the cost of real estate commissions and asks Mary if she is willing to negotiate her commission. Mary is prepared for this conversation and is able to explain to Sarah the value of her services. She tells Sarah that she has a deep knowledge of the local real estate market and that she is committed to helping her find the perfect home at the best possible price. She also tells Sarah that she offers a variety of services, such as negotiating on her behalf and helping her through the closing process.
Sarah is impressed with Mary's knowledge and experience and agrees to pay her a commission of 5%, which is slightly lower than Mary's standard commission rate.
- Be open to New Business Models.
The Burnett ruling could lead to the emergence of new business models in the real estate industry. Agents should be willing to consider new ways of doing business, such as charging a flat fee or offering different levels of service at different price points.
Example:
A Florida real estate agent named David is concerned about the potential impact of the Burnett ruling on his business. He decides to start offering a flat fee option to his clients. He charges a flat fee of $10,000 for a full range of services, from listing the home to closing the sale.
David's flat fee option is well-received by his clients, and he is able to attract new clients who are looking for a more affordable alternative to traditional commission-based real estate services.
- Stay Informed About the Burnett Case.
The Burnett case is still under appeal, so it is important for Florida real estate agents to stay informed about the latest developments. Agents can do this by following the case in the news and by reading industry publications. You should also check with your Broker to see if they have a real estate attorney on retainer who can provide specific guidance to the brokerage.
By following these tips, Florida real estate agents can position themselves to succeed in the changing real estate landscape.
NOTE: This article provides general opinion on a developing legal matter. This articles does not constitute legal advice, nor is it intended to be a substitute for engaging independent legal counsel on behalf of you or your broker.
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