Class-action plaintiffs in the $418 million landmark settlement with the National Association of REALTORS® (NAR) over real estate commissions finally spelled out specific prohibited real estate practices after a law professor’s latest objection to the settlement forced them to clarify their position.
Tanya Monestier, a law professor at the University of Buffalo, doesn’t technically have a dog in the fight nor a business interest in the litigation between the seller plaintiffs and NAR and real estate brokerages that’s playing out in the U.S. District Court Western District of Missouri.
The self-described consumer advocate recently filed a lengthy objection to the NAR settlement, arguing that the practice changes contain significant loopholes and lack meaningful enforcement mechanisms.
The plaintiffs responded Thursday, largely dismissing her numerous objections and disputing their validity as they seek final approval of the settlement in front of U.S. District Court Judge Stephen R. Bough on Tuesday.
However, the plaintiffs’ response addresses specific prohibited industry practices regarding agent compensation and client agreements. The bad news, Monestier said, is they’re exactly the same workarounds she claims the industry has been using for months, meaning many REALTORS® are not complying with the settlement terms.
These include:
- Modifying a buyer agency agreement to receive additional compensation.
- Collecting seller- or builder-paid bonuses.
- Touring agreements supplemented with brokerage agreements.
- Ranges of compensation (minimum up to a maximum).
- Property-specific compensation agreements created after compensation is known.
“Finally, after six months, they went on the record, and they expressly said that every single workaround that I had been identifying and talking about in my reports for months and months, they said on the record are not allowed,” Monestier told RISMedia Friday. “I think continuing to turn a blind eye and pretending like these practices are okay when you know the parties have basically gone on record and said they’re not okay. You’re really setting yourself up for a lawsuit.”
She continued, “People realize how significant this is; the fact that the people who drafted this agreement are now saying you cannot modify your agreement upwards, you can’t get a builder bonus, you can’t have a touring agreement and then enter into a subsequent agreement. They’ve said that now in this filing, and they’re stuck with that. That’s the interpretation of the settlement. That’s what NAR is going to have to follow, and that’s what every single REALTORS® is going to have to follow.”
Monestier’s initial objection argued that the NAR settlement is not “fair, adequate and reasonable,” mostly due to ambiguity in the practices and the exorbitant legal fees being racked up by the plaintiffs’ attorneys, she said.
Monestier also challenged plaintiffs’ claims about the settlement’s early impact, pointing out that studies cited by plaintiffs were released after her objection was filed. She referenced an AccountTECH study examining 17,358 transactions that found “no change in average buyer agent commissions since the settlement took effect.”
Monestier takes issue, ethically and legally, with the attorney fees the plaintiffs’ counsel is charging, including the $855 average hourly rate. Monestier said the steep hourly rate already includes premiums for complexity and risk before applying a 3.63 multiplier, which would bring the hourly rate to $3,100. She argued this approach artificially inflates the legal fees.
“The 33% in attorneys fees is a very big appellate issue, because that would be an almost unprecedented award,” Monestier pointed out.
Additionally, her objection took particular issue with enforcement mechanisms, stating that oversight has been “outsourced to a Defendant that is disincentivized to actively police the settlement.” While plaintiffs defend their enforcement provisions, they haven’t pointed to any specific examples of active enforcement since the settlement was announced, Monestier said.
The court will have a chance to consider these objections as part of its review of the settlement’s final approval on Tuesday in Kansas City, Missouri.
