New objection to NAR settlement targets business practice changes, plaintiffs’ attorneys fees

After previously taking issue with some of the forms generated as a result of the terms of the National Association of Realtors’ (NAR) nationwide commission lawsuit settlement agreement, University of Buffalo law professor Tanya Monestier is now objecting to NAR’s settlement.

In a document filed on Monday in U.S. District Court in Kansas City — less than a month before the NAR settlement is slated for its final approval hearing — Monestier took issue with the business practice changes, saying they don’t do enough to protect consumers. She also objected to the fees that are expected to be paid out to the plaintiffs’ attorneys.

The objection is 132 pages in length. Monestier claims she filed an objection this long because she believes no one else will.

“This settlement is sorely lacking outside, neutral analysis. I wish there were more voices closely scrutinizing whether this settlement provides the value it claims to aggrieved class members and whether the attorneys have provided a third of a billion dollars in value to the class,” she wrote. “As far as I know, those voices are nowhere to be heard.”

In her objection, Monestier claims that the settlement “is the worst of all possible worlds,” and that the implementation of the settlement has been a “disaster.”

“The goal of the settlement was laudable,” Monestier writes. “It was based on the premise that buyer brokers were using commission rates posted on the [multiple listing service] to steer buyers to properties that provided higher levels of compensation.  … The settlement makes sense — but only on paper. It is an example of something concocted by lawyers without a full appreciation of how this would play out in the real world.”

While Monestier, who reportedly sold her Rhode Island home in 2022 and is part of the affected class, believes sellers were paying “inflated commissions,” she feels that prior to the settlement changes going into effect, the rules governing the industry were “clear and confusion did not reign supreme.”

Following the Aug. 17 implementation date, Monestier now believes the industry has the “pre-NAR settlement system in place with a whole lot more paperwork, headaches, lies, chaos, and frustration. The settlement, as applied in the real world, is an abject failure.”

In her objection, Monestier claims there is “ample evidence” of agents asking buyers to sign modified buyer representation agreements, which allow the buyer’s broker to increase their agreed-upon compensation to whatever the seller is offering.

“In my view, modifying a representation agreement to increase the level of compensation for a buyer broker violates the NAR settlement agreement. In this respect, I don’t think this is a ‘workaround’ so much as a flat-out breach of the agreement,” Monestier wrote. “Practices like this where realtors scoop up ‘excess’ funds result in the maintenance of the commission structure that the NAR settlement was intended to dismantle.”

Monestier claims that the ambiguity around this practice in NAR communications, and the settlement itself, have allowed for this practice to occur. Additionally, Monestier claims that some buyers are being asked to sign documents that allow for “seller paid bonuses,” if the seller is offering more compensation than the buyer and their broker agreed to. In other cases, some buyers and their agents are signing agreements for certain properties that tailor the buyer broker compensation to whatever the seller is offering.

The filing also takes aim at the touring and showing agreements some brokers and agents are initially using with buyers before they enter into a more formal contract.

“The written agreement that governs their relationship for that toured property is the one they executed prior to the tour, even if the scope of services was limited,“ Monestier wrote. “The realtor will not be able to collect any fees in excess of what was agreed to in that initial agreement. In other words, a realtor is limited to the amount set out in the agreement that was signed prior to the showing — not an amount reflected in a new buyer representation agreement entered at the time the buyer decides to submit an offer.”

Additionally, Monestier’s objection also claims that agents are still engaging in steering. She wrote in her filing that she believes “many listing agents are telling their sellers that if they don’t offer compensation in advance, then they will not get offers. This, in turn, scares sellers into offering buy-side compensation.”

Monestier also claims that buyers are being told they should skip seeing houses if the seller is not offering buyer broker compensation. According to Monestier, this practice would “blackball” sellers who don’t offer compensation, which she said would lead the industry “back to square one.”

Monestier’s objection also looks at the required buyer representation agreements. She claims that some agents, especially on the listing side, are refusing to show an unrepresented buyer one of their listings or allow them into their open house without first signing an agreement with that agent.

This is not the first time Monestier has voiced concerns about buyer representation agreements. In a report published in August, Monestier examined the agreements promulgated by 19 state and local Realtor associations, concluding that “by and large, they are all very complicated and will not be understood by the average buyer and seller.”

She expanded on this in her legal objection. “If there is anything that anyone agrees upon, it is that this settlement has caused mass confusion for both buyers and sellers,” she wrote.

“Plaintiffs and Defendants may believe that this confusion will be worked out in time, that these are just ‘growing pains.’ I disagree. I think if this settlement is given final approval, home selling and buying will be forever changed — for the worse,” she wrote.

“I have spent about six months trying to understand the settlement, the industry, real estate practices, forms, etc. And I am confused. What hope is there for the average everyday consumer? Adding to the confusion is the fact that a large number of realtors do not themselves fully understand the settlement. How can they then be entrusted to put it into practice?”

Other issues Monestier has with the settlement are that cooperative compensation remains permissible, and that there remains a lack of enforcement mechanisms to ensure agents and brokers are following the rules.

In addition to examining the business practice changes, Monestier also looked at the fees that plaintiffs’ attorneys are asking for as part of the settlement.

In total, the settlement amount for NAR and the settling brokerage firms in the Sitzer/Burnett suit comes in at nearly $1 billion. Of that amount, more than $300 million is expected to be paid out to the plaintiffs’ attorneys, leaving less than $600 million, after fees and expenses, for the plaintiffs.

According to Monestier, this would be a “negligible recovery” for individual class members, of which there are estimated to be tens of millions.

“It’s simple math. The larger the denominator, the less valuable the recovery is. Not one expert or economist in this litigation has estimated what the actual monetary value of this settlement is for an individual class member,” she wrote. “This is because Plaintiffs want to obfuscate the fact that the monetary recovery is next-to-nothing for an individual home seller in Kansas City, Missouri. Meanwhile, attorneys will pocket a third of a billion dollars.”

Judge Stephen R. Bough is scheduled to hold the final approval hearing for the settlements reached by NAR and HomeServices of America on Nov. 26, 2024.