By now, surely every licensee in Wisconsin has heard about the class-action lawsuits involving the National Association of REALTORS® (NAR) and various other defendants. The plaintiffs in these lawsuits are basically asserting that NAR’s “participation rule” has led to artificially fixed and inflated commissions. The “participation rule” is NAR Policy Statement 7.23, which requires listing firms to offer compensation to cooperating firms as a condition of participation in the MLS.
The defendants lost in one lawsuit that was decided on October 31, 2023, and the jury awarded the plaintiffs $1.78 billion in damages, which is tripled in this type of litigation, making the award $5.4 billion in damages. The judge in this case is expected to issue a final order in March 2024. NAR and the various other defendants have indicated they intend to appeal the verdict, so it may be years before we know the final outcome of this case or any of the other class-action lawsuits involving NAR. Other lawsuits continue to move forward, and additional lawsuits have been filed, including state REALTOR® associations as defendants.
Transparency in Wisconsin state-approved forms
Wisconsin has long been a leader in consumer protection when it comes to protecting buyers and sellers in real estate transactions. Fundamentally, Wisconsin licensing law creates clear duties that a licensee owes to all parties in a transaction and additional duties owed to clients. Beyond that, Wisconsin licensees must inspect properties prior to listing them, disclose licensed status when acting as a principal in a transaction and comply with formal disclosure and consent requirements when working with family members or other parties where the licensee might have some concurrent interest in the transaction.
The mandatory state-approved forms that all Wisconsin licensees must use boost consumer protection by making it clear that commissions are negotiable. Both the listing contracts and buyer agency agreements have blank lines for writing in the commission to which the firm and the client agree. Moreover, the listing contracts have blank lines for the seller and the listing firm to negotiate the amount of compensation the listing firm will offer to cooperating firms. There is language in the buyer agency agreements authorizing a buyer’s firm to seek compensation from the seller and/or the listing firm, and the language further clarifies that any amount received by the buyer’s firm from the seller or listing firm reduces what the buyer owes. All the agency agreements contain language informing a consumer that there is no standard market commission rate and that commissions vary by firm and are negotiable. Not all states have forms with such strong consumer protections.
Beyond just the language in Wisconsin’s state-approved forms, the entire process of creating state-approved forms puts the consumer first. The forms are first developed by the Real Estate Contractual Forms Advisory Council (the Council). Once developed, they are sent to the Real Estate Examining Board (REEB) for consideration and approval. Both the Council and the REEB are comprised of volunteers from not only the real estate profession but also members of the public and are housed within the executive branch in the Department of Safety and Professional Services (DSPS), a consumer protection agency.
Value forward interactions
Antitrust lawsuits aside, a licensee should always be willing and able to explain their value to a consumer in a real estate transaction. Working with a seller-client is so much more than just listing a house. A licensee can market the property, seek out buyers, and advise and educate the seller on what to expect in terms of timelines, offer presentation and market conditions. A licensee working with a buyer does so much more than just locate a property and draft an offer. There are deadlines to be managed, inspections to be scheduled and coordination with the lender. For many consumers, once there is an accepted offer, the transaction is a “done deal” in their minds. Any licensee would quickly refute this assumption and be able to educate the consumers on all the steps necessary to get from accepted offer to closing. It is not simply working through contingencies by scheduling the appropriate professionals or making sure a buyer is communicating with a lender to secure a loan commitment in a timely manner. Think about how many transactions involve post-acceptance negotiations to address the results of various inspection and testing contingencies as well as unexpected scenarios that arise in the timeline between acceptance and closing.
Having a trusted real estate licensee by one’s side is usually going to make the entire process less intimidating and smoother for the consumers involved. For these reasons, licensees should be ready to articulate their value to consumers. Consumers are paying for a service when hiring a real estate firm as either a listing firm or a buyer’s firm. A licensee should make sure the consumer understands the services they are receiving and the value of those services. Explaining commissions to consumers as a fee-for-service arrangement and being completely transparent about the fees charged and services offered will help licensees steer clear of potential antitrust violations.
What’s next?
It is impossible to say for sure what the final result of any of these lawsuits will be, but the WRA will keep our members updated with any news as it arises. In the meantime, check in with your supervising broker to review company policies regarding commissions charged to clients and compensation offered to others.
You can always find the WRA’s Antitrust FAQ memo and the latest antitrust resources at www.wra.org/antitrust.