Coming Soon To A REALTOR® Near You – Commission Transparency

The National Association of REALTORS® (NAR) has come under attack over the past few months as a defendant in two class-action lawsuits, Christopher Moehrl v The National Association of REALTORS® and Joshua A. Sitzer and Amy Winger v The National Association of REALTORS® filed in March and April of 2019 respectively, and, most recently, a complaint brought by the Department of Justice, United States v National Association of REALTORS® filed this month.  The latter came with a pre-arranged proposed settlement with NAR.  I should also mention the two class-action lawsuits have as additional defendants Realogy Holdings Corp (the own and operate several franchises, some of the local ones include Coldwell Banker-Gundaker, Better Homes & Gardens, ERA, Sotheby’s, and Century-21), HomeServices of America, Inc. (owner of Berkshire Hathway Home Services), Re/Max and Keller Williams.

While there are additional issues raised in the lawsuits and DOJ complaint, central to them are buyer’s agents’ commissions.  Issues raised include:

  • From the DOJ complaint:
    • Allowing buyer brokers to misrepresent to buyers that a buyer broker’s services are free;
    • Enabling buyer brokers to filter MLS listings based on the level of buyer broker commissions offered and to exclude homes with lower commissions from consideration by potential home buyers;
  • From the lawsuits:
    • Sellers of residential property have been forced to pay inflated costs to sell their homes through forced payments of commissions to buyer brokers;
    • Home sellers have been forced to set buyer broker commissions to induce buyer brokers to show the sellers’ homes to prospective buyers;
    • Price competition has been restrained among brokers seeking to be retained by home buyers, and by brokers seeking to represent home sellers; and
    • Defendant Franchisors and their franchisees have inflated their profits by a significant margin by the increased total commissions and increased buyer broker commissions.

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This is a topic I’ve actually written about for several years now.  Below are some of my articles from the past addressing some of the issues raised:

While I’m not going to specifically address the merit of all of the allegations in the lawsuits and DOJ complaint, I will say I think they are correct with regard to many of the claims made with regard to buyer’s agent commissions.  Some of my thoughts (many think “rants” would be more appropriate) include:

  • I don’t think most buyers are aware that they are paying their buyer’s agents commission even if it is being done so indirectly through the purchase price.
  • Even if buyers are aware that they are paying their agents commission through the purchase price they likely don’t know the rate of commission being paid and don’t realize it is negotiable.
  • Actually, under the present MLS rules (which come from NAR) the buyer’s agent’s commission being paid by the seller really isn’t negotiable by the buyer as it would be very hard for the buyer’s agent to pull this off and stay in compliance with the rules.
  • Many agents tell buyers that representation by them is “free” and I’ve always felt that was misleading even if not intentional on the agents part and if the agent was just repeating the industry mantra.
  • On the topic of the rate of commission offered to a buyer’s agent being “expected” to be in the “normal” range uh, well…yep, that’s pretty much how it is.  I know that statement will upset some of my fellow REALTORS® but I would say to them, just try putting a listing in the MLS and offer a buyer’s agent commission of just 1% or 1.5% and see how much love you feel.

Here’s the silver lining….

Since I’m on a roll with the bullet points, I’ll continue with them highlighting what I think are the positive things that are going to come as a result of all of this:

  • Much more transparency to home buyers including public disclosure of the commission rate being paid to their buyers’ agent.  In fact, this is already in the process of being added to
  • A better understanding of the commission structure and “offers of compensation” structure between agents by their seller clients and buyer clients.
  • More opportunities for buyers to understand their value to a buyer’s agent and negotiate the commission to the buyer’s agent accordingly.
  • For REALTORS® I think it’s positive because I believe most of us want more transparency and, in fact, I know many agents in our firm already disclose the rate of commission they will receive as a buyer’s agent as well as explain the process.
  • Also for REALTORS® a benefit will be once buyers understand THEY are paying the commission, they are likely to be more picky about choosing an agent to represent them which is a win for the dedicated professionals in this industry.

There are many moving parts and pieces to the commission issues addressed here so it’s impossible to say exactly what will happen as a result of the lawsuits and attention the industry is getting but one thing is for certain, change is coming.  More to come…

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