The Consumer-Centric Future of Real Estate
In the wake of industry-changing class action lawsuits, Iowa REALTORS®, along with the National Association of REALTORS®, have worked tirelessly to reach consumer-centric solutions.
Responding to the needs of consumers has been a tenet of the real estate industry since its inception. Whether that involves supply and demand or, more recently, tangible practice changes, real estate professionals have always adapted in order to serve their clients and communities across Iowa.
This has never been more true than in the wake of industry-changing class action lawsuits. Iowa REALTORS®, along with the National Association of REALTORS®, have worked tirelessly to reach consumer-centric solutions focused on transparency and education that move the industry forward in a positive and sustainable direction.
The Case
The National Association of REALTORS® and several real estate brokerages were defendants in a class action lawsuit filed by home sellers in the state of Missouri. The Sitzer-Burnett case alleged the defendants of committing antitrust violations, including collusion and price fixing.
At trial in the fall of 2023, NAR and the defendants made strong arguments in court on the merits of how real estate compensation is paid, including the benefits to first time homebuyers, low-to-moderate income families, and first generation buyers. In the end, a jury of consumers found in favor of the plaintiffs to the tune of $1.78 billion. As the case involved antitrust issues, this verdict could have been tripled to a total of over $5 billion. Following the verdict, over 25 additional lawsuits were filed across the country alleging the same antitrust infractions.
Though NAR was confident their arguments would prevail in an appeal, that outcome would only have applied to the Sitzer-Burnett case, not the copycat suits. After examining all legal options, NAR announced a proposed settlement on March 15, ending the litigation brought by home sellers.
The Settlement
Under the proposed settlement, more than one million REALTOR® members are covered including all local and state REALTOR® associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below. The entities not covered under the proposed settlement were provided the option to opt-in to the terms.
Under the proposed settlement, the National Association of REALTORS® will pay $418 million in damages, and implement changes to the real estate transaction process.
Policy changes include the removal of all offers of compensation from the multiple listing service (MLS) and the required use of buyer agreements prior to the showing of a property.
Although NAR entered into this settlement agreement, it is in no way an admission of wrongdoing, but rather was determined to be the most beneficial and timely way to resolve the litigation.
Buyer Agreements in Iowa
Iowa REALTORS® (IAR) closely followed the litigation process and was proactive in preparing agents and brokers for the future. During the 2024 Iowa Legislative session, IAR introduced and passed, on a unanimous bipartisan basis, The Real Estate Transparency Act.
The Real Estate Transparency Act, which took effect July 1, creates more clarity in real estate transactions for consumers. This legislation requires the use of signed buyer agreements prior to showing a property. Showing includes both in person and virtual showings. Knowing there are cases in which a buyer may want to purchase a property sight unseen, under the law in that instance, the agreement must be signed prior to making an offer.
Wanting to preserve consumer choice in the process, this new law does not apply to open houses. The law also requires all buyer agreements and listing agreements to contain a section addressing compensation and a disclosure that compensation is negotiable and not set by law.
The Benefits of Buyer Agreements
A buyer agreement provides clarity for the consumer by laying out the responsibilities of a real estate agent to their client and the client to their agent. Utilizing a buyer agreement will ensure consumers understand how much they are paying for real estate brokerage services and how that professional service fee will be paid.
All real estate agents in using a brokerage agreement will be required to discuss their compensation with the consumer, explain their duties to the consumer and the services rendered. The consumer can ask questions, get to know their agent, and negotiate terms that work for all parties involved. By having clear expectations on both sides of the contract, each party can confidently move forward throughout the real estate transaction process.
The terms of a buyer agreement are negotiable and can be customized for each transaction, meaning the agreement could be drafted to cover a geographic region, a neighborhood, or even a single property, whatever best fits the needs of the consumer. The consumer and agent can also work together and determine the time frame of the contract whether that be for a weekend, month, or up to one year. Buyer agreements promote consumer choice and enhance transparency as they provide flexibility for buyers to sign an agreement which best fits their wants and needs.
Compensation in Iowa
Removing compensation information from the MLS required changes in navigating compensation discussions in the future. To better facilitate these conversations going forward, IAR worked closely with the Iowa Real Estate Commission to update administrative rules to allow for other methods and avenues of compensation including utilizing the purchase agreement to negotiate compensation, seller concessions, proceeds from sale, and extending the timeline for compensation negotiation discussions up until time of closing. These rule changes went into effect in mid-August of 2024.
Embarking on a 17-stop tour across the state to educate REALTORS® on the settlement and practice changes, IAR has placed an emphasis on ensuring members are equipped with the tools and resources necessary to be successful with these changes. From hosting monthly webinars with agents and brokers to creating a task force with relevant stakeholders, IAR has received ample feedback from across the state to influence these new changes.
Best Practices for the Future
Although the real estate industry is undergoing significant transformation, these changes are ultimately in the best interest of the consumer. New laws and regulations will provide more robust and transparent conversations between real estate stakeholders and consumers, ensuring fairness and clarity in transactions. REALTORS® across the state are prepared to adapt to these changes and continue to provide the best knowledge and service for their clients and communities.
The best practice for the future can be summed up in one word: communication. Communication between REALTORS®, clients, lenders, builders, appraisers, attorneys, and other relevant stakeholders will provide a future for the industry that benefits consumers and practitioners alike, creating a vibrant real estate market for all.
The Iowa Association of Realtors® is the state’s largest real estate professional organization representing over 8,000 members and affiliates. The IAR releases a Housing Trends Report each month.