This report is available exclusively to subscribers of Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.
As the National Association of Realtors prepares to fight battles on multiple fronts, the most immediate of which begins on Monday in a courtroom in Missouri, let’s consider two ancient battles: Thermopylae and Agincourt.
The first occurred in 480 BC when a coalition of Greeks fought against a Persian invasion. The Battle of Thermopylae is now famous because the Spartan King Leonidas I and a few hundred defenders fought against the larger Persian army as it flanked them from behind and overran their position. Leonidas and his warriors are now legends. But, significantly, they lost the battle that day.
Now recall the Battle of Agincourt, which began in 1415 with the English army under Henry V facing off against a larger French force. The odds weren’t great. But thanks in part to powerful longbows, Henry’s forces prevailed. The victory helped give the English the upper hand in their conflict with the French, and a few centuries later, Shakespeare would immortalize the victory in Henry V.
So why bring up these two old war stories now?
As it turns out, the real estate industry faces a similar existential moment right now as high mortgage rates and home prices conspire to chip away at the earnings of an ever-growing army of real estate agents, whose numbers shot up during the pandemic as a low-barrier option for newly unemployed workers. And that agita is especially true for the industry’s keystone organization, NAR.
The most immediate threat — the French or Persian armies in this metaphor — are the commission trials, the first of which, Sitzer/Burnett, is set to begin this Monday after years of sparking anxiety among real estate’s rank and file.
The commission suits have consumed much of the legal attention on NAR this year, but they aren’t the only threat. NAR is also facing a protracted legal battle with the U.S. Department of Justice, and, as of this summer, it has been embroiled in a harassment and misconduct scandal that has led many in the industry — including some inside NAR — to call for the removal of its leaders.
Which is to say, all eyes are on NAR as the first of those trials begins on Monday. The question is whether the organization is facing a heroic-but-deadly last stand like Leonidas or a world-changing victory like Henry V. Time will tell. But what is clear from Intel’s conversations with industry leaders for this story is that, however the real estate industry and NAR emerge from these battles, things will never be the same. Change is certain and, now, just barely over the horizon.
The bombshell lawsuits
The two commission suits are known as Moehrl and Sitzer/Burnett, after their respective plaintiffs. Moehrl is the bigger of the two, but Sitzer/Burnett is the one scheduled to go to trial next week. Both raise antitrust issues and were filed against NAR and major franchisors including Anywhere and Keller Williams.
There are other antitrust cases out there, such as one from private listing service Top Agent Network against NAR. But far and away, Moehrl and Sitzer/Burnett have consumed the most attention within the industry and have been seen as the most likely to give real estate a Thermopylae or Agincourt-type moment.
At issue in the cases is the way agents get paid. Plaintiffs in both Moehrl and Sitzer/Burnett believe industry rules requiring sellers to pay the commissions of buyers’ agents are unfair and amount to a conspiracy within real estate’s establishment. NAR and the franchisors have spent the past several years fighting that position in court, but have failed to stop the cases from proceeding.
It remains to be seen how disruptive the cases might be, or how they’ll end, but industry experts believe they have the potential to significantly upend the housing industry.
James Dwiggins, co-founder and CEO of franchisor NextHome, told Intel he believes the remaining defendants in the case will realize they can’t win at trial and ultimately settle. He also speculated that NAR could structure a settlement so that it covers all of its members, but not agents who aren’t a part of the trade organization. NAR might have to levy a fee against its members in order to cover the settlement, but in doing so could effectively act like an insurance policy so those members are protected from copycat cases.
“If people don’t want to be in NAR then you’re not part of the assessment.”
His point was that NAR’s size and ability to settle the cases on behalf of members might actually, in a post-bombshell world, give people a reason to remain members of the trade organization. And that could mean that these cases don’t fundamentally break up real estate’s status quo.
“These lawsuits, even when they play out, it’s not an apocalypse,” Dwiggins said. “It just isn’t.”
But Russ Cofano, CEO of Collabra Technology, imagines a slightly different scenario. Speaking with Intel, he described a similar outcome in which NAR loses, then has to collect a fee from members in order to cover a big payout.
But Cofano said such an outcome could drive agents to abandon NAR — something that they mostly can’t do today because NAR membership is closely tied to agents’ ability to access local multiple listing services.
“We’re going to see a fundamental change where, over time, association membership and MLS membership will no longer be tied across the country to NAR membership,” Cofano speculated, adding that there will also be pressure on big brokerages to loosen their connection to NAR.
Cofano pointed out that there are already some markets where agents can use the MLS without being NAR members, and that in such places “you basically see about a 50/50 percent distribution between those agents who choose NAR membership and those who do not.” Ergo, Cofano believes that the bombshell commission lawsuits could lead to a domino effect in which NAR levies fees, agents revolt, NAR’s industry relationships become weaker, and, ultimately, as many as 50 percent of the trade organization’s membership leaves.
“It’s a restructuring of NAR’s presence in the industry,” Cofano said.
Dwiggins agreed “attrition will go up when cases settle,” adding that between 20 percent and 40 percent of NAR’s membership could bow out. But he argued that those who leave NAR will tend to be the agents who “don’t do this full time.”
“Really good agents will be just fine,” he added.
Dwiggins and Cofano were speculating about future outcomes, of course, and something entirely different could certainly happen. But it was notable that even though they imagined different final outcomes, they both basically agreed that the bombshell cases are likely to lead to falling membership numbers for NAR. It is a big moment for real estate, whether NAR emerges victorious or not.
Aside from that possibility, industry leaders believe the cases are likely to lead to other changes. Cofano, for instance, suggested that the suits will provide “the impetus to create a changed relationship with buyers and buyer agents where compensation is going to be distinctly part of that relationship.”
Meanwhile, Dwiggins envisions a future in which buyers can finance their agents’ commissions as part of their mortgage, adding that conversations with regulators about such a possibility are already underway.
Marci James, founder of real estate marketing firm Be Inspired Digital, agreed that “buyer’s agent commissions will be paid by the buyer and likely added to the mortgage,” and she added that many first-time homebuyers may ultimately end up lacking the help they need as a result.
“Those that need guidance and help the most are the ones who can least afford it,” she told Intel. “Buyer’s agent commissions will likely be reduced. Regardless, many buyers will think they can do it on their own and choose not to pay a commission.”
Key moments to know:
- March 6, 2019: Lawyers file the Moehrl case in Illinois
- April 29, 2019: Lawyers file the Sitzer/Burnett case in Missouri.
- April 22, 2022: A judge grants class-action status to the Sitzer/Burnett case.
- March 29, 2023: A judge grants class-action status in the Moehrl case.
- May 24, 2023: A judge denies the defendants’ request to overturn class action certification in the Moehrl case.
- Sept. 5, 2023: Anywhere settles both the Moehrl and Sitzer/Burnett cases.
- Sept. 13, 2023: RE/MAX also settles both cases.
The pocket listing grenade
While the commission lawsuits have been heating up this year, another potential threat to real estate’s status quo — and to NAR specifically — has been simmering in the background: A battle with the U.S. Department of Justice.
The battle dates back to late 2020 when the DOJ filed an antitrust lawsuit — and a proposed settlement — against NAR over what it characterized as anti-competitive rules. The DOJ also said at the time that it had closed an investigation into NAR’s commission and pocket listing policies.
At the time, it appeared to have been an open and shut case. However, in 2021 the DOJ withdrew from the settlement with NAR and has argued that its investigation into NAR’s policies should resume. The two entities have since been battling in court over whether the probe should be allowed to continue.
OJO President Chris Heller said the DOJ case is separate and not technically linked to the bombshell cases. But he speculated that, in general, one could feed into the other.
“If the lawsuits all get settled, there’s less that the DOJ’s probably going to be concerned about,” he suggested.
There’s more legal wrangling in store for the DOJ case, but for now, it represents another front on which NAR is forced to fight — like Leonidas of old, contending with enemies to his front and his rear. And while the outcome remains murky, experts think the potential for disruption exists.
“People don’t understand that this is not just a one-trick pony scenario,” Cofano said when asked about the bombshell lawsuits. “It’s the lawsuits plus it’s the DOJ. That’s going to create significant change. The lawsuits are step one and the DOJ and the government is going to be step two.”
Key moments to know:
- Nov. 19, 2020: The DOJ files a lawsuit against, and a proposed settlement with, NAR.
- July 1, 2021: The DOJ pulls out of the settlement.
- Jan. 25, 2023: A federal district court in Washington, D.C., sets aside the DOJ’s request for information from NAR on commission and pocket listing rules.
- June 2, 2023: The DOJ argues that its investigation should be allowed to resume.
- July 21, 2023: In a legal filing, NAR slams the DOJ’s effort to resume its investigation.
- Aug. 11, 2023: The DOJ asked an appeals court to overrule the January 2023 ruling.
The scandal landmine
The fuse on the legal cases above has been burning for years, but against that backdrop NAR stepped into an unexpectedly explosive scandal this summer.
The scandal began in late June when a former NAR employee, Janelle Brevard, filed a lawsuit against the trade organization for sexual and racial discrimination. The suit singled out the behavior of then-President Kenny Parcell. NAR strongly denied the allegations, and Brevard withdrew her case nine days after it began.
Over the ensuing weeks, leaked documents indicated NAR was investigating misconduct allegations as far back as 2022. At the same time, a growing movement of members and industry watchdogs called for leadership changes and has gradually evolved to include a mutiny among NAR’s own staff.
In addition, major brokerage companies are changing their relationships with NAR, in some cases citing the sexual harassment scandal while in other cases doing so as part of their settlement agreements in the commission lawsuits.
Redfin announced on Oct. 2, that it had resigned from NAR’s board and would no longer be affiliated with the trade group. The company called on its agents and brokers to cancel their memberships immediately if they were in markets where they did not need NAR membership to do business.
That same week, it emerged that as part of its settlements, Anywhere and RE/MAX had stipulated that they would no longer require agents, brokers or franchisors to belong to NAR, meaning hundreds of thousands of real estate professionals could potentially resign memberships or fail to renew them.
As of Oct. 11, calls for radical change in NAR’s executive suite remained unresolved while NAR’s new president, Tracy Kasper, has promised to rebuild.
The issues at play in the harassment scandal are not directly linked to the antitrust cases. But they put NAR on uncertain footing as it goes into some of the most serious courtroom battles in its history. Heller, for instance, said NAR “has a PR problem right now,” and that the scandal means there’s “more at stake for NAR.” He also said that “if you were to ask 100 agents if they have a favorable or negative view of NAR, there might be more that have a negative view.”
That reality has consequences.
“I think one of the bigger changes is NAR may have to be more effective at earning its membership,” Heller said, “rather than being bequeathed the membership.”
It’s more or less impossible to quantify the impact of a PR crisis on a legal battle, and most of the experts who spoke to Intel noted that industry members are surely still rooting for NAR to win in court; scandal or not, a loss by the real estate establishment would surely throw a wrench into many agents’ lives.
Still, it’s notable that all of these challenges are happening at once.
“The timing of the harassment allegations is definitely unfortunate,” James told Intel. “I believe it does impact how people […] are feeling about NAR.”
Even with mounting pressure, experts voiced some optimism — a sense that NAR may ultimately end up more like the English than the Spartans. Heller, for example, said settlements from Anywhere and RE/MAX have helped reassure investors from outside real estate who were waiting to see if the sky was falling.
“The general consensus is more optimistic,” Heller said. “Certainly from people outside our industry, that’s what’s going on.”
And all of NAR’s many current battles notwithstanding, James argued that NAR’s underlying mission still matters.
“The vast majority of NAR is made up of amazing employees and industry volunteers who are brilliant, honest and ethical, and work hard to protect both the industry and the consumer,” she concluded. “I believe in them.”
Key moments to know:
- June 27: Former NAR employee Janelle Brevard sues NAR and accuses then-President Kenny Parcel of racial and sexual harassment.
- July 6: Brevard withdraws her harassment lawsuit.
- Aug. 29: Kenny Parcell resigns. Tracy Kasper emerges as Parcell’s successor.
- Aug. 31: NAR opts to support CEO Bob Goldberg.
- Sept. 8: Inman publishes a leaked document showing NAR knew about and investigated credible misconduct allegations last year.
- Sept. 18: NAR employees call for the resignations of the organization’s CEO, president, chief attorney and head of human resources.
- Sept. 27: Inman publishes another leaked document showing NAR was aware of a “hostile, toxic work environment” as early as March 2022.
- Oct. 2: Redfin announces it has cut ties with NAR and calls on agents and brokers who can follow suit to do so.