It’s been over two weeks since the verdict was announced on the commission lawsuit, and the response from the realtor community has been tepid, to say the least.
Agents are waiting to see a strong example of how to convince buyers to sign a buyer-broker agreement. It’s easy for management to just say, “Have your buyers pay you directly”. But will you furnish us with anything besides the cheesy 179-point list?
The annual Compass convention starts today in San Diego, and we’ll see what management has to say.
Meanwhile, CoStar senses an opportunity, and have ramped up their advertising of homes.com to agents. They say their search portal had 100 million unique visitors last month, passing realtor.dud and pulling into the #2 slot behind Zillow.
Their pitch? They send buyers to the listing agent directly.
When Zillow visitors inquire about getting more information or seeing a home, they get sent to the call center where Zillow employees scrub the leads, and send them out to agents who have agreed to pay 30% to 40% of their total commission to Zillow.
Homes.com will send those leads directly to the listing agent, no charge.
How long will it be before agents migrate their advertising budgets to homes.com? The buyer-broker agreement should be a complete failure by next summer, and instead the march towards single agency will be well underway by then.
The conversion to single agency will look like an obvious solution to the casual observers like judges, juries, and the DOJ because it will give the illusion that fees are coming down. But it will just add to the trouncing of buyers that has been going on for years.
Just when quality buyer representation will really be needed, the trend will be in the other direction.
First, let’s identify how realtors get their business.
Either they earn the business (#1&2 above), or they buy the business (#3 above).
They earn it by creating relationships with friends and family that turn into sales. Those results create word-of-mouth endorsements that will hopefully be the foundation of the realtor’s business.
Or agents can buy the business through advertising.
There are several realtors in our area who spend $25,000 to $50,000 per month on advertising, which means they need to charge the higher commission rates – and that probably won’t change.
Billboards, bus benches, trailers in movie theaters, grocery store carts, etc. all lathered with realtor advertising that supplement their online ads, social media, and mailers to the neighborhood. These realtors hope to subconsciously create a positive image in the homeowners’ minds, which causes them to reach out to the ‘local expert’ when the time comes.
Which realtor will help you the most, and be deserving of their pay?
The best part of the realtor lawsuits is that they might cause consumers to investigate the choices more thoroughly. It is a daunting task because of the number of realtors out there, and the lack of hiring knowledge available. It’s why 80% of consumers hire the first agent they meet – they haven’t moved in a while, and in the microwave society they just want to grab an agent and go. Plus, the realtor industry provides virtually no guidance on the selection process, so you’re on your own.
My General Tips:
Those who spend the big money are vunerable to investigations – they hope that you grab and go instead. Once a team gets to 10 people or more, you have to wonder who is doing the heavy lifting. There are many top producers now in North County who have retired – but you wouldn’t know it because they leave everything in place, and just let the assistants run the machine. See if you can get the team leader on the phone, and check their reviews on Google and Zillow to see which agent is being acknowledged for the work. It’s not a bad thing to work with the assistants, but you’d like to know that up front.
The bigger the team, the less personal attention you will get. Their expertise will hopefully make up for it, but you should know that if your sale doesn’t work out, it’s not going to change their lifestyle.
Realtor websites look the same – brags about their sales, a button to search for your ‘dream’ home, and another for a computerized value of your home. With both buttons, you give up your contact information so they can pester you. Do they provide any helpful content on their website or social media? Their published content is a direct reflection of their expertise, and awareness of current market conditions.
Are they too busy for you? Simple way to find out. Call their phone number, and see what happens.
Every agent has their sales history on Zillow (whether they like it or not, because Zillow auto-loads them). If you are looking to conduct a full analysis, you’ll have fun with this data. One sale per month is a good sign, and check their mix of buyers and sellers, mix of price points, the SP:LP ratio on their sold listings, their listing presentations (quantity/quality of photos) and days on market. It’s takes work, but time well spent.
Do you want to hire the local expert? Rarely do they go into detail on what that means for you, and besides, every agent calls themselves the local expert.
Do you want to hire a long-time veteran? Only if they are still on their game (minimum one sale per month, etc.). More than half of all realtors are 60+ years old, and you don’t want to be their last sale.
Are they available? Deals are being done 24/7, so how the agent handles that is important.
Can they put a few sentences together to describe the current market conditions? It means you have to talk to them live, but it’s a terrific way to judge a realtor’s competency.
My big hope is that the realtor lawsuits give consumers the idea that they should shop around more, and they search for the best combination of quality realtor and commission rate. My guess is that the commission rates won’t change much, and they sure won’t be advertised. It should mean more scrutiny on what a realtor does for you – which is a great thing, and how the decision should be made!
A simple analogy for realtor commissions is a long-distance flight abroad.
Someone who was booking a flight from San Diego to Phoenix probably wouldn’t be too concerned about the quality. Because the flight only takes an hour, most can endure the inconveniences…..mostly due to the generally lousy service we get in every industry. We’ve become accustomed to not expecting much.
But when it comes to a long-distance flight, we might look harder at the differences.
Buying or selling a higher-end home is like flying to Australia.
A non-stop flight from LAX to Sydney, Australia is 15.5 hours, which should make people think harder about the choices. Not only does the airline, the staff, the type of airplane, the quality of the food, reviews, etc. get more scrutiny, but so does the seating chart.
Sitting in the economy section can be endured for an hour on a flight to Phoenix, but will you put up with screaming kids, the barking dog, and the guy who fills up more of his share of the seat for 15.5 hours?
Or do you deserve first class?
The problem with realtor commissions is that the agents all get paid the same, regardless of the quality of service provided. It’s as if everybuyer and seller pays for a first-class seat, but then only 10% to 20% of them get that level of service. It’s why there are so many complaints about realtors not being worth it – most don’t live up to the expectations, or their fee.
The commission lawsuits intend to change that, and they think they will cause the rates to go down.
But realtors intend to convince you that they are worth the usual fee by improving their presentations. The consumers who are willing to investigate will probably find something like this:
The exceptional realtors probably aren’t too interested in lowering their fee, so let’s examine the hiring of a realtor in the post-lawsuit era. Note that after years of using a pixel phone, I have finally switched to the iphone15promax – my first video with the new phone will start the inquiry:
The copycat lawsuits are pouring in now, with attorneys from across the country looking to get their piece. The latest, called Batton 2 (other versions were filed previously), is for buyers from the last 27 years:
“All persons who, since December 1, 1996 through the present, purchased in the Indirect Purchaser States residential real estate that was listed on an NAR MLS.” For this class, the plaintiffs are asking for damages under “antitrust, unfair competition, consumer protection, and unjust enrichment laws.”
The class will include millions of people! If NAR goes out of business (which is likely), it won’t change much because we’ll still have state and local associations. We’ll have less lobbying, but lower dues!
All plaintiffs have momentum now, and the lead attorney from the first lawsuit doesn’t just want money. “One of our goals in filing the case is to make sure any changes are brought nationwide,” said Ketchmark. “We’re extremely focused on making sure any change that comes from this is real change.”
But the NAR is taking it lightly, just like they have from the beginning:
“We are currently reviewing the new filing, and it appears to be a copycat lawsuit,” Mantill Williams, NAR’s vice president of communications. “We continue to assert that the practice of listing brokers making offers of compensation to buyer brokers is best for consumers. It gives the greatest number of buyers a chance to afford a home and professional representation, while also giving sellers access to the greatest number of buyers.”
Here’s our corporate viewpoint:
Compass spokesperson Devin Daly Huerta said the company doesn’t comment on pending litigation, but provided comments from the company’s earnings call on Monday, saying the company “will respond accordingly to the complaints filed against us at the appropriate time” and that the company feels “confident that Compass is well-positioned.”
Compass pointed to rule changes at Northwest MLS that made listing broker compensation to buyer brokers optional and didn’t result in any decrease of offers of compensation or the amounts offered. “So we have evidence in a major U.S. market of what this change might look like that gives us confidence,” the company said.
“Secondly, we believe we are positioned well because we have the combination of some of the most productive agents and the only end to end technology platform in our industry. Third, we currently have agents that successfully ask their buyers to sign buyer broker agreements in order to work with them. We are in the process of launching trainings to all of our agents to empower them to successfully get buyer broker agreements signed with their buyers.
“Lastly, we operate largely in the luxury segment, where we think buyers will always want the help of an advisor through their home-buying journey.”
Similar statements from other brokerages are downplaying the impact. Yes, we will probably have better presentations of what realtors do and why we are worth the money, but anyone who thinks that will fix everything will be sorely disappointed. Consumers will be empowered to consider other options.
The only people who think that buyer-agents are needed are the agents. Buyers find homes for sale online, and they are proud about finding them before their agent does. They wonder why they need their own agent, when they can just contact the listing agent. The listing agents will be enouraging those thoughts!
Here’s a paragraph from the red team – the first to publicly mimic my prediction:
But if buyers’ agents become less common, Redfin will prosper in that world too. We run the largest brokerage website in America. We’ve built self-service technology for buyers to set up their own tours and to make offers. We’ll use that technology to market the properties listed by our agents directly to consumers, taking market share from other brokerages. We may open that platform to other listing agents who work with us as partners.
This is an opportunity for major changes to be implemented on how homes are sold, and these lawsuits are the disruption device. Realtors will roll out fancier graphics that tout the status quo, leaving it wide open for new ideas. Zillow and Homes.com have surged ahead of what should have been the dominant search portal, realtor.com, which NAR also screwed up when they sold it to an outside company.
Zillow has been amassing the pieces to build a super app, and create one-stop shopping for homes. If they add an auction component, it will be O-V-E-R for realtors.
Did you know that none of the jurors had sold a house before?
It was part of the screening too, and the defense attorneys were so cocky that they didn’t think it would matter. Their witnesses were a smart-aleck NAR CEO on his way out the door, and an elderly gazillionaire. Is anyone surprised we lost?
This is the American legal system, so there will be talk of settlement. Two brokerages already settled before the trial, and the other two would be smart to settle now – and leave the NAR to pay the bill. If NAR has to pay the entire amount, there will be trouble. They only have half of the money.
Given how quick the plaintiffs settled with ReMax and Anywhere (for only $130 million), a settlement could come flying down the pike any minute. Who knows? Are the NAR attorneys seeing the big picture, and crafting a settlement agreement that solves all the problems?
Probably not.
Can we package up all the things that can be manipulated into class-action lawsuits while we are at it?
Dual agency ensures that every buyer and seller in a transaction gets represented by an agent. But just the sound of ‘dual agency’ is nebuous – it sounds like realtors are up to something. There isn’t anything wrong with dual agency – in California, it is legit, legal, and practiced regularly by me and others. We like it!
But as we enter the single-agency era, only one agency/brokerage will be handling the sale. There will be two agents, but they are both employed by the same brokerage.
Today it’s called dual agency – because the broker represents both parties. The agents can give sound advice separately to their clients which qualifies as legitimiate represention, but lawyers could make it sound shady in front of inexperienced jurors.
If there will eventually be the Big Settlement, let’s find a way to include dual agency in it too so we can get on with the future of selling homes.
Going forward? After a settlement that absolves all previous dual agency, we should better describe the choices. In Colorado, there are transaction agents who don’t represent either side, but that sounds like it could cause a smaller commissions. Can we find the in-betweener that makes everyone happy?
As more buyers go direct to the listing agent to avoid paying a buyer-broker fee, they will be assigned a junior agent for assistance. A box needs to be checked here. Currently, you have to call it either single agency where that buyer is officially unrepresented, or call it dual agency.
While the listing agent is fully representing the seller and their best interests, the buyer only gets enough help from the junior-agent to make it to the finish line. Instead of dual agency, it’s more like single+ agency. Call it Agency 1.5.
Later a buyer could claim dual agency was the cause of all his troubles in the world, and sue realtors to get even. Did he get full representaion from his junior-agent that was comparable to the representation provided to the seller by the agent’s boss? It would sound unlikely and beg of another class-action suit.
Are agents going to call it single agency (only one side represented) and hope for the best?
Because it’s more than single agency, but not strong enough to be called dual agency.
Let’s add a third box for when the buyer gets the in-house junior agent: dingle agency.
If we don’t, we’ll be facing more class-action lawsuits shortly.
The first week after the realtor-lawsuit verdict went as expected – chaos, doom, and no sexy alternatives. It will take years to appeal, but it won’t matter how it turns out. Buyers are going to be paying their agents.
If sellers aren’t obligated to pay any commission to the buyer-agents, will they appreciate the benefit of incentivizing buyer-agents with a bounty, or reward? Probably not, unless their listing agent makes it very clear, and insists on it.
It is more likely that listing agents won’t push it, and because sellers naturally will want to pay less commission and not more, they will list for 2.5% or 3% and hope for the best. Both will shrug it off, and joke about how it’s about time commissions came down!
It will be a grave mistake.
Why? Because the buyer-broker agreement is a disaster:
Buyers won’t like it.
Agents won’t like it.
The market won’t like it.
Today’s buyers are picky, and you can’t blame them. They’ve had to endure +40% on prices, +200% on interest rates, and -50% on inventory…..talk about challenging!
The buyer-broker agreement will be a disaster because both agents and buyers will sign a short-term arrangement and hope the seller might kick in some of the commission. But then everyone will go back to doing it the same way we always have – refreshing your feed every hour and praying!
The real opportunity will be for buyers to hire an aggressive buyer-agent who does more than just watch the MLS. When a seller hires a listing agent, they get a thorough marketing campaign to source every potential buyer in the market. Buyer-agents can do the same, in reverse!
The buyer-agents who offer a rifle-shot soliciting of specific homes that fit the needs perfectly of their buyers will eventually find one. If an aggressive buyer-agent brings the complete package to the seller’s table without having to mess with a full listing, they will likely get an audience. It could even take the place of listing agents!
Because auctions aren’t close yet, this could be what changes the world of residential resales!
It will mean more off-market sales, which means more fuzzy comps because not much if anything is known about the home’s condition. But if it catches fire and the MLS or a rogue search portal insists on buyer-agents reporting everything about their sales including photos, we could still have a database full of accurate market data. But if we don’t, we don’t – good luck everybody!
Commissions aren’t all the same, just like agents aren’t all the same. Different agents charge different rates because they do different things for the consumer. Commissions/fees range from $100 to 7%. Nice range!
So if all that matters is paying less for your agent, then shop around – there are plenty of discount agents. You might consider hiring the very best agent you can find – one who pays for themselves, and more.
This is the question that has never been answered by the industry:
“If agents employ different skill sets and services, why do they all get paid the same?
It was mentioned in the recent lawsuit, and they presented it as part of their case:
72. Additionally, because the Rule requires a blanket offer, the Rule compels home sellers to make this financial offer without regard to the experience of the buyer-broker or the services or value they are providing — in other words, the Rule treats all buying brokers and their services the same. The seller is required to offer the same fee to a buyer-broker with little or no experience as that offered to a buyer-broker with twenty years of valuable experience. Accordingly, there is a significant level of uniformity in the payments that sellers must pay to buyer-brokers.
73. As a result, there is little relationship between the commission and quality of the service. “Skilled, experienced agents and brokers charge about the same price as agents with little experience and limited knowledge of how to best serve the consumer clients.” In a price-competitive market, less experienced and less skilled brokers and salespersons would be offering consumers lower commission rates, but they have no incentive to do so because of the Rule.
74. The Rule creates tremendous pressure on sellers to offer the “standard” supra-competitive commission that has long been maintained in this industry. Seller-brokers know that if the published, blanket offer is less than the “standard” commission, many buyer-brokers will “steer” home buyers to the residential properties that provide the higher standard commission.
The changes or fines from the lawsuit(s) probably won’t matter much today. Offering no commissions to buyer-agents is a nice idea, and you’d think it would cause agents to publicize the full set of productive services they offer to their buyers to convince them to pay the fee. Don’t get your hopes up.
Ideally, the consumer would research the detailed resumes and work histories of each prospective agent and make an informed decision. The agent pages on Zillow do provide the basics, but based on results, consumers aren’t using them much.
It’s why realtors have a lousy reputation – consumers keep hiring the inexperienced/bad agents, and the industry doesn’t mind because they make more profit off them.
The National Association of Realtors clearly underestimated the chances of losing this case – and the others to come. They must have thought that touting their 100-year old Code of Ethics was all that was needed to impress people, and instead they found out that it doesn’t.
What doesn’t get addressed is the common belief that realtors are overpaid.
It is a wide-spread belief. Even Joe Kernen, a guy who works 15 hours per week and gets paid between $3,000,000 and $22,000,000 per year (depending on the website), has to open his CNBC show today with the declaration that 6% commissions are too much, and 1% would be more like it.
This is what needs to be addressed. Can agents explain their value?
Listing agents are used to making a presentation to homeowners, but 80% of the time, the sellers have already decided on who they will hire so the presentation doesn’t have to be great. Buyer-agents rarely discuss what they do – they just have people jump in their car and go look at houses.
The judge and/or the Department of Justice will rule on future sellers paying the buyer-agent commission. If sellers are allowed to pay a commission to the buyer-agents, then their listing agent can counsel them properly on what rate to offer, and the status quo will endure. But it will be a game-changer if the sellers are no longer able to offer ANY commission to buyer-agents.
With the former, the listing agents will have to discuss the pros and cons in detail to the sellers, and agree to a comfortable amount. With the latter, the buyer-agents will have to create a presentation to convince their buyers to pay them directly. This will be a new practice, and they won’t be very good at it.
By the end of the day yesterday, I had already been notified of three different seminars being offered about using the Buyer-Broker Agreement. It sounds simple enough to the ivory-tower types – just get your buyers to pay you the commission! But they underestimate both sides.
Agents aren’t jumping at the chance to work with buyers in the current market.
It takes months or years for buyers to finally win the right home at the right price, and the abuse from the listing agents is mean and nasty along the way. Nobody plays by the same rules, and multiple offers are mishandled regularly, which delays the buyer finally getting a house.
The 2024 Selling Season will begin with buyer-agents pleading with their prospects to sign a contract to pay them a commission. It will only take a few months for this practice to get exposed. The buyers will be reluctant to sign, and those that do sign a contract will find out that it won’t change the outcome. It is still going to take months to find the right house, at the right price. There will still be the typical aggravations and shenanigans with the listing agents – most of whom now insist on buyers providing a bank statement and lender pre-approval letter just to see a house.
Because the local inventory is will be ultra-low, the desperation will cause buyers to blame their agent. It is a fact of life with both sellers and buyers – if they don’t get the outcome they want, it’s too easy to blame their agent (especially when it is true most of the time).
Will sellers and buyers be more diligent about who they hire?
They never have been – they just grab an agent and hope for the best. They don’t know the right questions to ask; they don’t want to waste time investigating thoroughly; and besides, the buyers just want a house, and the sellers just want their money.
This is where each agent and the industry at large could go a long way towards providing a solution.
If there was an outpouring of explanations on how the business works, what to expect, and why a consumer should pay the fee, it would help. Maybe write a blog or something!
Without a delberate attempt to educate everyone, the business will gravitate to the lowest common denominator – single agency, where buyers go direct to the listing agent, and the benefits of buyer-agency are slowly forgotten. Next year will be the phase-out stage.
It will be the next step towards auctions becoming the way to sell houses!
A federal jury today agreed with the plaintiffs that organizations such as Keller Williams, Berkshire Hathaway HomeServices of America, and the National Association of Realtors had violated the law by conspiring to inflate commission rates.
Their attorney then filed an additional lawsuit against the other large brokerages, including Compass.
There’s enough for several blog posts here! Let’s begin with the first problem:
In this trial, the defense was pathetic, and the realtors will likely lose in appeals court too.
The defense attorneys rode in cocky and notched it up on the first day when they said the plaintiffs have the burden of proving their case…..and the defense may not even call a witness! Then when they did call a witness, it just had to be the CEO of NAR, Bob Goldberg, whose arrogance may be unrivaled.
He offered the following:
The CEO returned to the stand on Tuesday to face cross-examination from plaintiff party’s attorney Michael Ketchmark. During the cross, Ketchmark tried making an analogy — not for the first time — between the allegations facing NAR and the hypothetical of chicken producers inflating prices.
Goldberg argued the analogy was “apples and oranges” because real estate agents offer a service, not a product. When Ketchmark continued his analogy and pressed Goldberg on whether he needs an explanation of antitrust law, the CEO responded, “No. I need you to explain to me the chicken law.”
What the defense never considered was that the jury came into the courthouse with the same biases/prejudices that every American has considered – realtors are overpaid, and it’s a racket. The industry never bothers to educate the public, so you can’t blame the jurors or anyone else for thinking that we need to be taken down a notch…or two.
When Bob made his crack about chicken law it had to make every juror hate him even more. Sure, it was kinda funny but this is no time for wisecracks when billions of your members’ money is on the line!
Gary Keller is a nice guy but his soft-spoken testimony didn’t sway the jury – and you can blame his defense attorneys for asking questions that were too lame and indifferent:
Keller’s was the final testimony in the defense’s bid to argue that broker commissions vary and are not set by real estate companies.
Keller denied in his testimony that a “standard commission” existed, saying agents are responsible for setting their own commissions. He said the company had no say in the commissions charged by agents.
While it is true that realtors are independent contractors and each sets their own commission rates, having a gazillionaire state it towards the end of the trial isn’t going to persuade anyone.
The two most important facts of the case were never brought up:
The sellers should have the right to pay a reward, or bounty, to persuade agents to sell their house.
Every seller pays the listing brokerage the full commission, and it’s the LISTING AGENT who decides how much commission the buyer-agent gets.
For the defense to not bring up these points just shows how arrogant and unprepared they were for this trial. The NAR president didn’t exactly give us a reason to think it might be different next time:
This matter is not close to being final. We will appeal the liability finding because we stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition. We remain optimistic we will ultimately prevail. In the interim, we will ask the court to reduce the damages awarded by the jury.
In court, NAR presented evidence that consumers are better off and business competition is able to thrive because of our rules and how well local MLS broker marketplaces function. In fact, the NAR cooperative compensation rule for local MLS broker marketplaces ensures efficient, transparent and equitable marketplaces where sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation. NAR also presented that REALTORS® are everyday working Americans who are experts at helping consumers navigate the complexities of home purchases and advocates for fair housing and wealth building for all.
Is that all you got? With leaders like this, any future trials will be decided in the same 2.5 hours that it took the jury to decide this one. The only hope is that Compass will hire our own attorneys, and they call on a part-time blogger from San Diego to testify!
People are asking about the NAR lawsuits – hat tip to Susie, Gerry, and Carl!
The lawsuit that began this week contends that realtors force sellers to pay a commission to the buyer’s agent. Two defendants, ReMax and Anywhere (Coldwell Banker, Sotheby’s, etc.) have already come to settlement agreements, though they haven’t been approved by the judge yet. The other two brokerages, Keller Williams and Berkshire Hathaway, plus the National Association of Realtors are the remaining defendants. Their attorney started the proceedings by declaring that the plaintiffs have the burden of proof, and the defense may not call a witness. It is that type of arrogance that got them into this mess!
A summary:
In their trial brief, the plaintiffs in the suit allege that NAR’s Participation Rule, which they refer to as the Mandatory Offer of Compensation Rule, is “a market-shaping and distorting rule” that stifles innovation and competition.
“The Rule requires every home seller to offer payment to the broker representing their adversary, the buyer, even though the buyer’s broker is retained by and owes a fiduciary obligation to the buyer (who may be told, falsely, that the services of the buyer broker are “free”),” the brief said.
They argue that the current practice of the seller’s agent splitting their commission with the buyer’s agent, who typically negotiates for a lower selling price for their client, works against the seller’s interest and only exists due to the alleged anticompetitive rules. The plaintiffs also note that the NAR rule in question requires a blanket offer of compensation for the buyer’s broker regardless of their experience or the level of service they provide the buyers with, and that the compensation offer was only visible to the buyer’s agent and not their clients, until very recently.
“This artificial and severed market structure created by Defendants’ conduct deters price-cutting competition and innovation, resulting in inflated commissions,” the brief states. “The Mandatory NAR Rules impede the ability of a free market to function in the residential real estate industry, and the plain purpose and/or effect of the Rules is to raise, inflate, or stabilize commission rates.”
In the brief, the plaintiffs claim that the other defendants in the suit colluded with NAR to enforce this and other NAR and MLS policies.
“The Corporate Defendants compel compliance in multiple ways, including by requiring their franchisees, subsidiaries, brokers, and agents become members of NAR; writing the NAR Rules into their own corporate documents; and requiring that their franchisees, subsidiaries, brokers, and agents become members of and participants in the Subject MLSs — entities that compel NAR membership and adopt the mandatory NAR Rules,” the brief reads.
The brief notes that Craig Schulman, the director of Berkeley Research Group and professor of economic data analytics at Texas A&M University, will be an expert witness for the plaintiffs at trial. In studying transaction data from NAR and other parties, the brief states the Schulman has concluded that “(a) the NAR Rules have anticompetitive effects; (b) the NAR Rules caused a seller to pay his adversary (buyer broker) and that, but for the conspiracy, a seller would not pay the buyer broker; and (c) all class members were impacted.”
The brief also notes that Schulman will testify that NAR’s rules have stabilized commission rates at an “anticompetitive level,” noting that commissions have remained at 6% for several years.
Unfortunately, none of the reality of what happens on the street will get introduced during the trial. Instead, it will be ivory-tower guys hoping to persuade the judge and jury (one of which has to breast-feed her infant every 1.5 hours) that the whole commission thing is out of control and someone is to blame.
But the defendants have a good point:
NAR also argued that the plaintiffs do not have the ability to sue for damages —which some believe could reach as much as $4 billion in this case — because under federal and Missouri antitrust law, only “direct purchasers” can be allowed to sue and the plaintiffs have not bought anything directly from NAR or the other defendants.
“And, according to those same Model Rules and listing agreements, Plaintiffs did not directly pay cooperating agents, NAR, or the other Defendants; sellers only directly pay their listing agents and only directly receive services from their own agents,” the brief states. “Therefore, at best, Plaintiffs might claim that they paid their listing agents (who are not parties to this case) who, only then, paid Defendants. But such an indirect claim is prohibited by Supreme Court case law.”
Home sellers pay the full commission to the listing brokerage. It is the listing agent who declares in the original listing agreement of how much of the full commission they are willing to pay the buyer’s agent. None of this will be discussed during this trial, but it’s the most important part!
The plaintiffs should be suing the individual listing agents – good luck with that!
In the end, the defendants might be found guilty, and they will appeal for years – the American way! Or it’s more likely that they will settle in the next couple of weeks because the ReMax and Anywhere settlements were only $55 million and $85 million, which is pennies.
Part of the settlement package will be that the MLS will no longer be obligated to display ANY commission to be paid to the buyer’s agent. It will cause two things to happen:
MORE steering by the buyer-agents to the homes that are paying a healthy commission (bounty).
Buyer-agents trying to convince their buyers to pay them the buyer-side commission.
Kayla is faced with this dilemma in New York City. Did you know that 2/3’s of the population in Manhattan are renters? It’s a big business! But the listing agents don’t offer a tenant-agent commission, which means Kayla has to get paid by her tenants upon finding them new home to rent.
The results:
She has had the landlord’s listing agent pull aside her potential tenant and tell her to ditch Kayla and save the money, and go through him directly. Apparently they aren’t concerned with their reputations!
She has also had her potential tenants be reluctant to sign an tenant-agent agreement because they see apartments being advertised by the listing agents. They want to reserve the right to go direct to the listing agent, and usually they do. As a result, Kayla only works with those who appreciate her advice.
The idea that home buyers will hire and pay their own buyer-agents is a great idea…..in theory.
The reality is that buyers will go direct to the listing agents when they see an interesting new home for sale. Those listing agents will be advertising to those buyers directly, and flat-out encourage them to get a better deal by going through them.
