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!
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.
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.
Check out our new listing of a roomy 1,906sf one-story home right on the Lake San Marcos Executive Golf Course – now called the Exec at Lakehouse! Hardwood floors, vaulted ceilings with several skylights, refreshed white kitchen with quartz counters & eat-in breakfast nook, fantastic great room, extra-large primary suite with ample walk-in closet, and a courtyard that some homeowners have converted into additional living area. The location might be the best on the street, for two reasons: the longer driveway is one of the few where you can park cars on it, and the property is around the bend and rarely gets hit by golf balls – wow!
Pickleball courts need to be tactfully disclosed by home sellers nearby.
Jaye Gleyzal moved to the Sea Cliff gated community in Carlsbad six years ago. She enjoyed exploring its many walking paths and listening to the gentle buzz of busy hummingbirds on her patio.
But that idyllic tranquility didn’t last.
“Two years ago, they started pickleball,” she said with an exhausted laugh. “Oh my God, it changed my life overnight.”
Even if you haven’t played pickleball, you’ve probably heard about it from a fanatical uncle or roommate who says you’ve just got to try it. The game is similar to tennis, but it’s played with paddles and a hard plastic ball.
The Sea Cliff Homeowners Association painted pickleball lines on one of the community tennis courts, which is about 60 feet from Gleyzal’s bedroom window.
The sound — “POP, POP, POP,” as she describes it — is a nuisance that’s frayed her last nerve. Unlike tennis, where players rally a fuzzy ball across an 80-foot court, pickleball involves rapid-fire points exchanged at the net.
“It can be up to eight hours a day, seven days a week,” she said.
Because there are pending class-action lawsuits that intend to “decouple” the commissions, home buyers will soon be paying their buyer-agent directly for their services. Here are questions to ask to make sure you Get Good Help:
How many homes have you sold in the last 12 months, and what is the mix between buyers and sellers?
What is your specialty?
How much do you charge?
Will I be working with you, or your assistants?
When representing a buyer, how would you describe a successful sale?
What is your strategy for winning a bidding war?
How can I avoid a bidding war?
What do you offer your buyer clients who are out-of-state?
What are your tips on financing?
What makes you better than your competitors?
What do you do to make sure I don’t buy a lemon?
Can you get me an off-market deal?
Will you sell me your hot new listings before putting them on the open market?
What do realtors do?
Do we have a written contract between us?
How long will it take to find a home to buy?
Do you utilize video?
How much of a discount can I expect off the list price?
The main cause of the ultra-low inventory is from homebuyers purchasing their forever home – whether they knew it at the time, or not. Between today’s higher rates and the difficulty of buying a better home, just about everybody is stuck in their current house.
How can today’s buyers get a leg up?
Just about everyone wants a newer house vs. older house.
But look at the data.
La Costa Valley, a 25-year old master-planned community of 1,073 houses has ZERO homes for sale today. La Costa Oaks South? That’s right – another zero!
More empty-nesters are staying put, and as a result, the market for newer homes will likely be frozen up for decades due to the lack of inventory.
Predictably, the percentage of older-home sales is on the rise:
The number of estate sales should stay fairly constant, and probably increase in the coming years – and they tend to be the older homes. I know you want to buy a newer home……but those who can get comfortable with fixing up an older home will open up possibilities that other buyers will be ignoring.
We have buyers who found a home they would like to purchase….but they need to sell their house to make the deal. We scrambled to get it prepared, and we were ready to hit the open market this weekend – but the forecast is for more rain.
Normally, we would wait until the following weekend.
But the listing agent of the house they want to buy said there has been a renewed uptick in activity this week (it’s been an active listing for three months), and yesterday they received a non-contingent offer. Thankfully it was lower.
With the Fed threatening to raise rates higher, he and his seller agreed that this could be their moment. Instead of trying to come to terms with the existing offer, they are going to do open house in the rain this weekend to see if there are any other contenders.
So we will submit our contingent offer today, and do open house this weekend too!
Our listing is perfect for the extended family who want to live the good life in the country!
16390 Whispering Oaks Drive, West Ramona
6 br/4 ba, 3,801sf
Get away from it all and move to the country! Bring everyone with you too! This 4br/2ba one-story house has newer kitchen and baths, full solar, pool, views of the hills, circular driveway with lots of parking (RVs!), plus TWO ADUs – including a new tiny house – all on 2.35 acres! Total of 6 bedrooms and 4 full bathrooms – perfect for multi-gen! Gated community on the west end and only 3.5 miles from Poway Road.
LP = $1,250,000!
This is the west end of Ramona, just 3.5 miles from Poway Rd!
There will be one overwhelming factor in selling real estate this year:
Buyers Will Want To Pay Less.
They are coming into every situation with that mindset. Whether it’s online or in person, they will be looking for ANY reason to NOT buy this house. If they can’t find one, they will at least be doing the mental math on how much money they will have to pay to customize it to their tastes……and they will want someone else to pay for it.
It’s a 180-degree change from the frenzy era when buyers just wanted to win a house. Nothing mattered during the frenzy – bad floor plans, bad locations, bad improvements, bad agents, and bad prices didn’t stop buyers from paying insane amounts OVER the asking price. And what’s worse – those are now the comps!
Will sellers adjust?
Will listing agents adjust?
Here’s the first thought to go through their mind:
Let’s add a little extra to the list price to compensate. We can always come down later!
How is it playing out so far? These are NSDCC sales from the last 30 days:
These are starter homes and mid-rangers for the area – not the high-end where it’s more challenging.
It will be easy for sellers to shrug it off, and mentally prepare to sell for 2% to 4% under their list price…..because they already added it on top! But 31% of the recent sales closed for a double-digit percentage below their list price.
Just a quick reminder of the constant grift in real estate.
Before the listing was entered onto the MLS:
After the MLS listing was inputted – at least they didn’t recreate the history graph…..yet:
Before the listing hit the MLS:
After MLS input:
Why does it matter? Because too many people – both buyers and sellers – are relying too much on these to be their accurate value estimators. People are moving too fast, they don’t want to spend much if any time investigating, and it’s too hard to get good help. Everyone just wants to grab and go!
The second set says they are based on recent home sales? How can it fluctuate 20% in one day? These revised real estate values aren’t a result of an algorithm; they are purely derived from the list price.
You are being manipulated by the Corporate Warlords – watch yourself!