Trust This: NAR’s Legal Labyrinth Unraveled

1 big thing: NAR's Legal Labyrinth

The Department of Justice (DOJ) has re-opened its antitrust probe into the National Association of Realtors (NAR). This comes on the heels of NAR’s $418 settlement agreement in several antitrust lawsuits alleging a conspiracy in how buyer and seller agents’ fees are disclosed and paid.

At issue for the DOJ: Whether NAR’s rules for agent commissions violate antitrust laws and trigger inflated home prices.

Why it matters: Uncoupling buyer’s and seller’s agent commissions could lower the cost of selling — and therefore buying — homes by a lot. Such an outcome would also affect how agents are paid for their work.

  • The DOJ wants to make it illegal for a buyer’s and seller’s broker to discuss commission splitting at all.

  • Under the proposed NAR settlement, while they wouldn’t be allowed to disclose the commission splits up front on the MLS, they could still put them on their websites and business cards and at least tell each other what they would pay in a commission split.

DOJ concern over NAR practices has trod a long and winding road in the last two decades.

  • 2005: DOJ sues NAR, claiming anticompetitive practices

  • 2008-2018: NAR agrees to change some of its listings practices

  • 2019-2020: DOJ re-opens the investigation but soon settles, requiring only that NAR disclose more information about broker fees in sales listings

  • 2021-2024: DOJ re-reopens the investigation, requesting more information about broker commissions and real estate listing practices; NAR wins a federal court ruling to shut it down; DOJ appeals

  • April 5, 2024: The US Court of Appeals in DC overturns the lower court’s decision.

The result: The DOJ should soon receive previously undisclosed NAR documents, which could provoke further legal action or even new regulations.

DOJ’s international perspective: One factor that seems to have piqued DOJ’s interest in NAR is the fact that real estate commissions in the U.S. are higher than in other countries.

What’s next: The DOJ hopes its renewed investigative efforts will reduce the expenses associated with real estate transactions for homeowners and buyers.

Tough times for NAR: In addition to the March settlement and the re-opening of the DOJ inquiry, the powerful group has had a spate of recent harassment allegations and resignations to deal with.

  • Its reputation is fraying (to say the least), and the organization is on the ropes.

  • The fact that NAR failed to run the commission settlement by the DOJ first to ensure it would also satisfy the Department indicates that the Association is playing checkers in a Mahjong tournament.

The bottom line: The entire real estate industry needs to be poised to manage a potential paradigm shift. Whether NAR will lead in this brave new world remains to be seen.

2. Commercial Real Estate in Decline Is Bad News for Cities

Florida Land Trusts

Commercial property values are undergoing a sharp decline nationwide. For many cities, that’s forcing stressful cutbacks.

What’s happening: In cities like San Francisco and Chicago, commercial properties are sold for a fraction of their original purchase price.

  • This is because of lower property valuations, which, in turn, can lead to diminished tax collections and strained municipal budgets.

Why this matters: Reduced commercial tax revenue means cities can no longer afford to cover essential services (think transportation, education, healthcare) and infrastructure maintenance.

The “doom loop”: There are no easy answers here.

  • With property values and tax revenue falling, cities may need to increase taxes.

  • With increased taxes, more businesses and residents could decide to relocate — or fewer decide to move in.

  • With fewer resources, cities face tough choices about which essential services to continue offering.

  • More people will consider leaving when a city no longer offers nice parks, high-quality healthcare, or transportation.

The disinvestment trend: Federal aid and fiscal cushions municipalities have relied on in recent years are less available.

  • Some cities are trying to be proactive by postponing maintenance and public projects, but that’s just kicking the can down the road.

The long-term implications: Many cities could opt for significant urban restructuring to move forward. For their part, developers are rethinking their approach:

  • They’re considering new uses for vacant spaces and finding ways to boost value, converting under-used office buildings to residential or mixed-used units, for example.

  • They prioritize green building standards, which could attract new investors and tenants.

  • They’re thinking past commercial properties to alternative sectors like industrial real estate.

The bottom line: If commercial property values continue to sink, cities will face increasingly difficult choices. They’ll need creative solutions to thwart the downward spiral.

This week, I sat down with CPA Asad Ahmad to discuss tax tactics and strategies for real estate professionals to save money. Be sure to catch it to hear Asad’s great advice.

Listen in or watch on your favorite channel.

3. Catch up fast

Florida Land Trusts
  1. The American Land Title Association, representing hundreds of thousands of title insurance agencies and insurers, has sent a letter to FinCEN recommending changes to FinCEN’s proposed rule to require all entities and trusts to disclose their ultimate beneficial owners when they purchase U.S. real estate. ALTA

  2. Three strategies to mitigate risks in real estate investing. MPAMag

  3. FinCEN renewed the Geographic Targeting Order. If an LLC, corporation, partnership or other legal entity (not a trust) uses cash to purchase a residential property for $300,000.00 or more in Miami-Dade, Broward, Palm Beach, Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee, or Collier Counties, then the closing agent is required to discover and disclose the names of the beneficial owners of the buyer to FinCEN. FinCEN

  4. Inflation is coming down in every sector except housing, and rents are the driving factor as those in the northeast and midwest refuse to come down. Bloomberg (gift link good for 7 days only)

  5. Seven reasons why the housing market hasn’t recovered from the pandemic. Bigger Pockets

4. Closing Thought

Florida Land Trusts
I've lost count of how many times this white orchid has bloomed since I shoved it into a ligustrum bush on the back patio. Photo: Joe Seagle

Rocks aren’t obstacles in the river of life. They’re rugged materials used to build a life.

Why it matters: Visualizing rocks in this way helps us get through the days and build our year.

In the Entrepreneurial Operating System’s lexicon, “rocks” are what most businesses would call “projects” or “quarterly goals.”

  • At each weekly, quarterly, and annual meeting, we come together as company leaders to identify, discuss, and solve issues.

  • Issues aren’t always bad. They’re just issues we’re facing that, if solved, would help the company achieve its mission and the owner’s vision.

  • The solution to many issues requires uncovering a rock or two that must be chipped away weekly over the next quarter.

I like to think that it also comes from the old story about the professor lecturing his students with a big jar of rocks, pebbles, sand, and water.

  • The rocks are the big things that matter in your business.

  • If you spend too much time on the sand and pebbles, you won’t have time for the rocks.

  • So we keep our rocks front and center before us, discussing them weekly at our meetings and holding each other accountable to ensure the person in charge of each rock will chip away at the stone until it’s completed.

When building a business, remember that the foundation must be durable. Rocks are a strong part of that foundation.

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