b"When Divorce NARs $418M Settlement:Law Does Not Apply: The End of Real Estate Commissions as We Know It? Unjust Enrichment Claims for Unmarried PartiesAaron D. Quinby April L. Will612-877-5395|Aaron.Quinby@lawmoss.com At a minimum, the settlement creates a path for increased612-877-5329|April.Will@lawmoss.com on his unjust enrichment claim because the claim involved LawMoss.com/people-aaron-d-quinby flexibility and lower commission rates. LawMoss.com/people-april-l-will investments in real estate. The Court held that Herlache Aaron practices in the areas of Real Estate Finance, Real Estate,April is a member of Moss & Barnett's Family Law team. She assistsneeded to prove his financial contributions resulted in the increase and Business Law. He has experience with general real estate andIndustry Reactions clients in all family law matters, including divorce and custodyin value to the Sunfish Lake home. commercial real estate finance transactions. proceedings, and preparation of cohabitation agreements.Industry response to the NAR settlement has been mixed. SomeHerlache appealed the decision to the Minnesota Supreme Court.The National Association of Realtors (NAR) recently reachedview it as a necessary evolution and the end of what manyFamily structures continue to evolve. It is now common for a settlement that has the potential to transform the real estateperceive as NARs excessive control over the industry. When theunmarried couples to cohabit and join their finances. TheseThe Minnesota Supreme Courts Decisionindustry and its traditional commission structure. U.S. is compared to similarly situated countries, the 6% standardrelationships often resemble a traditional marital partnership.The Minnesota Supreme Court began its analysis by distinguishing commission rate is relatively high:However, when these relationships end, the same legalthe facts of Herlache from the case law relied upon by the Court Background protections afforded to divorcing married couples are not afforded NAR agreed to a $418 million settlement in response to antitrust In the United Kingdom, Ireland, and Australia consumers typicallyto unmarried couples wishing to separate.of Appealsspecifically, Marking v. Marking, 366 N.W.2d 386 pay about 2%. (Minn. Appl. 1985). In Marking, the plaintiffs made improvements lawsuits. The allegations centered around NARs commissionFamily law attorneys must find creative legal theories to achieve adirectly to the property, and the defendants received no direct structure, which has been uniformly set across the industry Germany averages 4.5%. payments of cash. The plaintiffs failed to show that their physical at 6% commission, divided between the sellers agent and thefair financial separation for unmarried but financially intertwinedFrances average commission is around 5%. couples. As discussed below, the Minnesota Supreme Courtlabor and improvements increased the value of the real property. buyers agent.recently addressed this issue in Herlache v. Rucks, 990 N.W.2dAs a result, their unjust enrichment claim failed. However, others have expressed concern about what the Impact on Commission Rates settlement means for first-time homebuyers and the overall443 (Minn. 2023).The Minnesota Supreme Court concluded that the facts of One of the most significant changes resulting from the settlementhousing market. For instance, if a seller is no longer required toFacts Marking were materially different from the facts of Herlache. is the removal of compensation offers via the Multiple Listingpay a buyers agent, a buyer with little to no experience in the realUnlike the plaintiffs in Marking, Herlache made direct cash Service (MLS). Brokers advertising on the MLS are no longerestate industry may decide to forgo representation altogether.Herlache and Rucks met in February 2012 and began datingpayments to and on behalf of Rucks. Every dollar Herlache required to offer upfront compensation to a buyers agent. InSelf-represented buyers may lack knowledge about the intricaciessoon after. At the time, Rusk owned a home in Sunfish Lake.contributed to the renovations was a dollar that Rucks did not addition, agents cannot be required to join the MLS to transactof purchase agreement negotiations and struggle to navigate theShe purchased the home in February 2010 with the intention ofhave to contribute. or receive payment.buying process.renovating it. According to the Court, the direct cash payments to and onPre-Settlement: NAR rules required sellers agents, who listedNotably, the NAR settlement primarily focused on residentialHerlache moved into the Sunfish Lake home in October 2012behalf of Rucks resembled a classic unjust enrichment case. While a home on the MLS, to make a blanket unilateral offer ofreal estate transactions. It does not directly apply to commercialand began paying Rucks $1,000 per month for rent. Over themeasuring the increase in value of the Sunfish Lake home was compensation to the buyers agentmeaning the compensationproperties. However, the residential and commercial real estatecourse of their relationship, Herlache made $282,736.02 in cashone way of measuring the benefit Rucks received, the Court held terms must be the same for all buyer agents regardless ofindustries are interconnected, and changes in regulations orpayments directly to or on behalf of Rucks to renovate the home.that the district court was within its broad discretion to measure experience level, services provided, and negotiations between thepractices in one area may have indirect effects across variousHowever, when the pair ended their relationship in Decemberthe benefit by the actual cash payments Rucks received.buyer and agent. The rules left essentially no room for flexibility. property types. 2018, Rucks sold the home for $1.2 million. She did not share theConclusion Post-Settlement: Offers of compensation can no longer beConclusion proceeds with Herlache, who then sued Rucks for the money heThe Herlache case underscores the importance of having an listed through the MLS, which means buyer agents will needcontributed to renovate the home. to negotiate compensation outside of the MLS system. Types ofThe NAR settlement is a significant development that couldattorney evaluate the unique facts of your case for potential lead to the end of the standard 6% commission rate in the U.S.Procedural History claims. For unmarried couples who fall outside of the divorce legal compensation may include: a fixed-fee commission paidThe settlement encourages more transparent and competitiveframework, there may be alternate equitable theories to pursue directly by the client, seller concessions, or a portion of thecommission practices, which could benefit both buyers and sellersThe district court concluded that Rucks would be unjustly enricheda claim or preventive measures to take to protect ones financial listing brokers compensation.long-term. With the new rules taking effect in July 2024, the fullif she retained the benefit of Herlaches financial contributionsinterests. For instance, had the parties in Herlache entered into and awarded Herlache $282,736.02 in damagesthe exact As many across the industry have speculated, the NAR settlementimpact of the settlement will likely take some time to unfold.amount he financially contributed.a cohabitation agreement prior to moving in together, they could signal the end of the standard 6% commission rate.may have avoided litigation at the time of their separation. For In a split decision, the Minnesota Court of Appeals reversed theadditional information on cohabitation agreements and related # district court. The Court held that Herlache could not recoverissues, please contact your Moss & Barnett family law attorney. 32"