Blog

Check out market updates

RECENT COURT DECISIONS BRING MAJOR CHANGES TO DUAL AGENCY

There is increasing urgency to change the way dual agency works. The March 2024 antitrust settlement in Moehrl v. National Association of Realtors (“NAR Settlement”) has had a major impact on the real estate industry and how agents structure their business.1 The National Association of Realtors (“NAR”) has agreed to a $ 418 million dollar settlement. A game changer for the industry.2 The NAR has begun implementing changes as a result of the antitrust lawsuit. They are making changes to broker compensation requirements, mandated a buyer’s agreement, and changed rules related to the Multi Listing Service (MLS), which is the main database for listing homes for sale. The landmark decision by the U.S. District Court for the Northern District of Illinois has led to major changes in the way broker commissions work nationwide. These recent changes to broker commissions may lead to changes in dual agency roles in the State of New York.3

What is Dual Agency?

Dual agency is where an agent/broker works for both the buyer and the seller, or the tenant and the landlord in a real estate transaction.4 Dual agency is legal in New York State. However, New York requires “Advanced Consent to Dual Agency”5 where a written consent is signed by both the buyer/seller or the landlord/tenant agreeing to have an agent or broker represent both the buyer/seller or the landlord/tenant for a listed property.6 The main issue with the dual agency role is that it creates split loyalty for a role that requires undivided loyalty to the client.

Real Estate Agents/brokers have a fiduciary relationship with their clients. A fiduciary relationship defines the qualities and responsibilities of the agent/broker. A fiduciary owes a duty of loyalty to their client. This duty of loyalty requires the agents to put their clients’ interests above their own in the relationship. As such, they have a duty to act in their client’s best interest in getting the best price and terms in the transaction. However, this duty is compromised when dual agency is involved.7

While there are some benefits to dual agency, there are many drawbacks that negatively impact clients. The dual agent will have a conflict of interest if disputes arise between clients on opposite sides of a dispute, dual agents will have limited negotiating power because they will not be able to fully fight for one side of the transaction, confidentiality concerns will arise because the agent will know the secret strategies and information from both sides of a transaction.

How the NAR settlements affects broker commissions and transparency in New York

The NAR settlement has led to a need for changes in buyer broker commissions and increased transparency across the nation. The Real Estate Board of New York (“REBNY) is the equivalent of NAR in New York. At the start of 2024, REBNY made significant changes to its policies. These changes were implemented through the Universal Co-Brokerage Agreement (“UCBA”), which is the agreement that governs how members of REBNY and the Residential Listing Service (RLS) handle commissions.8 The REBNY’s Residential Listing Service (“RLS”) is the New York equivalent of the MLS. REBNY has made regulations aimed at enhancing transparency, and in particular, to separate buyer-side and seller-side commissions.9 The REBNY instituted its changes at the beginning of 2024 likely anticipating the changes from the NAR Settlement.10 In effect, changing listing requirements to avoid requiring buyer-broker compensation for listing a property. At present, compensation to the buyer-broker must come directly from the seller and/or owner. The listing brokers do not offer compensation to the buyer-broker. Any offer of compensation must be negotiated and in writing. These changes are meant to increase transparency and add more protection for consumers and brokers.

There was legislation, Senate Bill S9686, that proposed to end single-agent dual agency.11 These Bills were opposed by the New York State Association of Realtors (“NYSAR”) and are now dead. They may be revived in the future, but as of now dual agency in New York will continue to exist in its current form.

What’s Next?

Dual agents will have to comply with the increased transparency requirements. Sellers and buyers need to be aware of the limitations in representation that will occur from agreeing to dual agent representation.12 More agents may choose to play a dual agent role now that the buyer-broker compensation is not longer a fixed part of real estate transactions.

1 Moehrl v. Nat'l Ass'n of Realtors,No. 1:19-cv-01610 (N.D. Ill. 2023) (This class action suit settled for $418, alleging that NAR rules inflated buyer brokers’ commissions.);Burnett et al. v. Nat'l Ass'n of Realtors et al.,No. 19-cv-332 (W.D. Mo. filed Jan. 8, 2019) (This class action involves allegations that Defendant National Association of Realtors have anticompetitive rules that require home sellers to pay commission to the home buyer’s broker);

2 Mike Scarcella, "U.S. Realtor Groups' $418 Million Antitrust Settlement Wins Tentative Approval,"Reuters,April 23, 2024, accessed November 18, 2024, https://www.reuters.com/legal/litigation/us-realtor-groups-418-million-antitrust-settlement-wins-tentative-approval-2024-04-23/.

3 Marc Horowitz, " Landmark Real Estate Settlement Spurs Uncertainty Among Home Buyers, Sellers and Listing Agents," The Hedges Magazine, Aug. 21, 2023, https://behindthehedges.com/nar-landmark-real-estate-settlement-hamptons/; (Gassett, 2023).

4 New York Real Property Law § 443(i) (2023), accessed November 18, 2024. https://www.nysenate.gov/legislation/laws/RPP/443.

5 New York Real Property Law § 443(p) (2023), accessed November 18, 2024. https://www.nysenate.gov/legislation/laws/RPP/443.

6 N.Y. Real Prop. Law § 443 (McKinney 2024); "What Real Estate Broker 'Dual Agency' Means in a Real Estate Transaction," New York Real Estate Lawyer, accessed November 15, 2024, https://www.newyorkrealestatelawyerblog.com/real-estate-broker-dual-agency-means-real-estate-transaction/.

7 Bill Gasset, “Dual Agency Doesn’t Benefit Consumers”, National Association of Realtors, March 25, 2019, https://www.nar.realtor/magazine/real-estate-news/commentary/dual-agency-doesn-t-benefit-consumers.

8 Real Estate Board of New York (REBNY), Universal Co-Brokerage Agreement (UCBA) [2024] [Section if applicable, e.g., § 2.1], https://www.rebny.com/.

9 "How Will the NAR Settlement Impact the New York Market?," Brown Harris Stevens, accessed November 15, 2024, https://www.bhsusa.com/blog/post/how-will-the-nar-settlement-impact-the-new-york-market.

10 C.J. Hughes, "How NYC Sticks Out in the Battle Over Broker Commissions," The Real Deal, April 17, 2024, accessed November 18, 2024, https://therealdeal.com/new-york/2024/04/17/how-nyc-sticks-out-in-the-battle-over-broker-commissions/.

11 New York State Senate Bill S9686, 2023-2024 Regular Session, accessed November 18, 2024, https://www.nysenate.gov/legislation/bills/2023/S9686.

12 Id.

Tags: Agent, Broker, Buyer, Conflicts, Conflicts of Interest, Dual Agency, Land Sale Agreement, Landlord, Listing Agreement, real estate, Realtors, Rental Agreement, Seller, Tenant