The National Association of Realtors has come out swinging against detractors of the real estate commission structure its rules reinforce.
NAR, which has more than 1.4 million members, is currently defending itself from multiple antitrust lawsuits from homesellers and a homebuyer backed by prominent law firms that seek to have homebuyers pay their broker directly, rather than have listing brokers pay buyer brokers from what the seller pays the listing broker — a move that could upend the U.S. real estate industry by effectively forcing changes in how buyer’s agents are traditionally compensated.
On November 19, the U.S. Department of Justice (DOJ) filed an antitrust lawsuit against NAR alleging the trade group’s rules were illegal restraints on Realtor competition. The DOJ and NAR filed a proposed settlement at the same time that required NAR to repeal or change several rules the DOJ deemed anticompetitive, including a requirement that the amount of compensation offered to buyer brokers for each MLS listing be made publicly available.
Discount real estate brokerage REX Real Estate, which has clashed with NAR in print before and provided the DOJ with recordings of agent steering before it sued the trade group, commissioned a study that published earlier this month, authored by government attorney Mark Nadel, which argued that real estate commissions are inflated by as much as $50 billion per year due to a lack of price competition.
Nadel said the lack of competition was created by having listing brokers set co-op fees for buyer brokers, which is the result of the NAR multiple listing service rule at issue in the aforementioned commission lawsuits, which requires listing brokers to make a blanket, unilateral offer of compensation to buyer brokers that is either a percentage of the gross sale price of the home or a definite dollar figure when entering a home in a Realtor-affiliated MLS.
Also earlier this month, REX filed suit against NAR and Zillow, alleging antitrust violations for NAR rules that require Zillow to segregate non-MLS listings from MLS listings on its website, including listings from REX, which eschews MLSs.
REX CEO Jack Ryan told Axios in February that NAR’s commission system suppresses U.S. homeownership rates and reduces overall household wealth. “This is a great David vs. Goliath story, both in terms of the odds but also in terms of the moral implications,” he said. He later told Axios that REX’s fight against NAR and its rules would be “an ongoing brawl over the next five or six years.”
In an op-ed, NAR President Charlie Oppler accuses those impugning the way commissions are currently set up of duplicity under the guise of protecting consumers.
“Those attempting to attack the real estate agent commission structure are cloaking their true intentions in misleading claims of consumerism,” Oppler wrote. “These class action attorneys and those illegitimately trying to position themselves in the real estate market are looking for a payout if they can confuse enough people with misinformation and glaring omissions. The reality is that the commission structure gives everyday Americans and small businesses critical advantages they otherwise wouldn’t get.”
Oppler did not name specific companies or lawsuits in the op-ed. Inman asked NAR who “those illegitimately trying to position themselves in the real estate market” is referring to and what is illegitimate about them, but NAR declined to comment.
The op-ed said the current commission structure allows more people to achieve the American dream of homeownership because paying a buyer broker directly at closing would end up freezing out already cash-strapped buyers. “[U]nlike the purchase price, the payment to the broker could not be rolled into the mortgage and financed,” Oppler contends.
By contrast, Nadel’s study asserted that the buyer broker fee could be amortized as part of the mortgage.
“[A]s long as the fee a buyer pays to a buyer’s broker is legitimate, mortgage lenders should be willing to view the fee as part of the purchase price of the home for the purposes of the mortgage, as it is now,” he wrote.
“Mortgage lenders should not care whether a buyer’s broker is paid directly by the buyer or indirectly by the listing broker, and that should be reflected with a definition of ‘sale price’ — for the purpose of setting the maximum level for a mortgage — that includes the amounts paid to both buyer and seller brokers as listed on the standard closing form.”
For instance, for-sale-by-owner (FSBO) sellers and non-traditional listing brokers like REX allow buyers to include the buyer broker commission in the sale price, according to Nadel.
“To the extent that a traditional listing agent wants to hinder non-traditional buyer agents, they might refuse to bake the buyer agent’s fee into the selling price, but a mortgage broker should still be willing to do so,” he said.
“Any lack of availability of this option today is probably due to a lack of demand. If it became illegal for listing brokers or sellers to pay the buyer’s agent, then one would expect lenders to formally define the sale price to include the buyer’s broker fee, even if it was separate from what was paid to the seller.”
Asked whether these assertions are accurate or not, NAR spokesperson Mantill Williams told Inman, “Lenders typically don’t provide for commissions to be financed as part of mortgages.”
NAR’s op-ed also argued that critics ignore that buyer agents provide a critical service for homebuyers.
“Agents level the playing field of knowledge for homebuyers, especially for those who are first-time and less well-financed consumers, something antagonists conveniently neglect to mention,” Oppler wrote.
“Consumers who don’t value these services don’t have to pay for them,” he added. “The market already offers alternatives to the traditional broker model. However, consumers who do choose to engage a broker offering more complete services are getting real value in exchange, especially compared to consumers in foreign markets.
“The consumer’s MLS system experience in the U.S. far surpasses other countries where, with rare exception, there is no MLS, and consumers are forced to rely on a few major brokerages, which creates a more fragmented and less competitive market.”
Oppler also highlights the role that MLSs play in increasing competition between brokers, thereby giving consumers more options regarding what service, broker and commission model they prefer.
“The cooperative broker MLS system also makes it possible for smaller brokerages to compete with larger ones,” he wrote. “Within seconds of logging into an MLS, you have instant exposure and access to the largest, centralized database of residential real estate listings in your market.
“By having all properties listed in one spot, even the smallest brokers have access to the same listings, information and pool of buyer brokers as the largest brokers.”
Oppler also asserted that the MLS database and system is “designed to incentivize cooperation between brokers who share all their information in one place, providing the best and greatest number of options for buyers as efficiently and transparently as possible. In turn, sellers also get access to the largest possible pool of buyers within a market because their listing broker will cooperate with all the buyers’ brokers to achieve the best offer.”
Inman asked NAR if that means the trade group believes that if buyers paid their brokers directly that the MLS system would cease to exist and, if using the MLS is in the best interest of buyers and sellers, if it isn’t the fiduciary duty of listing and buyer brokers to use it and contribute to it, regardless of who is paying them.
“Without the collaborative incentive of the existing MLS, brokers would be incentivized to grow market share by only making listings available to buyers working with their agents, fragmenting rather than consolidating property information,” Williams told Inman via email.
“Courts have repeatedly held that the MLS system increases the efficiency of the market and thus serves the best interests of sellers and buyers alike.”
He added, “Some brokerages are trying to take benefits of the MLS system without contributing to it” — a charge NAR leveled at REX earlier this month.