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Now that a federal court judge has granted class-action status to an antitrust lawsuit that alleges that how buyer agents are typically paid is illegal, the real estate industry is rife with debate about the merits and impact of the multibillion-dollar case — but many are urging the industry to stop arguing and prepare for what’s coming.
Known as Moehrl after its lead plaintiff, the suit names the National Association of Realtors (NAR) and real estate franchisors Realogy (now Anywhere), RE/MAX, Keller Williams and HomeServices of America as defendants and alleges the sharing of commissions between listing and buyer brokers violates the Sherman Antitrust Act by inflating seller costs. None of the defendants have said whether they will appeal the decision.
The order means that the Moehrl suit now represents potentially millions of sellers who paid a broker commission in connection with the sale of residential real estate in 20 multiple listing service (MLS) markets nationwide from 2015 to 2020.
“Regardless of what happens with this lawsuit, we all need to start building and articulating our true value proposition for buyers, because we need to show them why we deserve to be paid by them directly for the work we do,” Joe Rand, chief creative officer of Howard Hanna Rand Realty, told Inman.
“We need to professionalize our relationships with buyers, the same way we do with sellers.”
NAR itself has suggested this. In a notice posted to the California Association of Realtors’ website, NAR’s legal team noted that the class certification was “not a victory for the plaintiffs” and “only procedural” but urged C.A.R. and its members to use materials provided by NAR to “articulate their value.”
The 1.5 million-member trade group also encouraged “the continued use of Buyer Representation Agreements in order to formalize a working relationship with clients and detailing what services consumers are entitled to and what the buyer broker expects from their client in return.”
Michael Lissack, a Realtor and managing broker at 100% commission brokerage the Virtual Realty Group, faulted NAR for its “hubris” in creating the current commission structure and urged the industry to adapt before NAR ultimately loses its case.
“There is nothing special about real estate which can even begin to justify the existing system where the seller determines fees (or at least that is how it is generally perceived by the buyers),” Lissack wrote in a comment to Inman’s article about the class certification.
“NO other industry has such a practice. It is easy enough to create procedures and notices (hello NWMLS) which make it clear that both seller and buyer have every right to change the ‘fee determination decisions’ at EVERY step in the transaction. ONLY HUBRIS stopped this. NAR will as a result be toast. GOOD.”
He added that no jury would find the existing system to be OK.
“Now that the class has been certified the game is over. Sure NAR will appeal. And it will lose. It’s a new era and seller pays both sides is about to be dead. Stop arguing and start adjusting.”
Real estate tech veteran, blogger and podcaster Greg Robertson agreed that the industry should prepare for change and read up on the litigation, but warned against drastic responses to the certification.
“What I fear is that the chess pieces are still moving and I don’t want the industry to make any rash decisions based on fear,” Robertson told Inman.
“Everyone should wait before they start doing anything crazy.”
An example of a potential “rash decision” would be to change MLS policies “because we think it’s going to help,” he added.
Others responded to the class certification ruling with differing opinions on the facts of the case and its impact. Consumer watchdog the Consumer Federation of America predicted that if the current litigation against the commission structure is successful, consumers would not only save billions but the most competent agents would benefit.
“This case, which involves widespread industry collusion to set broker commissions, does not pit liberals against conservatives,” said CFA senior fellow Stephen Brobeck in a statement.
“Both have criticized the industry practice. If the court grants plaintiffs injunctive relief, we estimate that consumers should save $20-$30 billion annually in lower commissions, which are likely to decline from the current 5-6 percent level to 3-4 percent.”
“Our view is that the industry will fight hard to retain mandatory offers but is slowly realizing that the practice is unsustainable in a competitive, capitalist economy,” he added.
“We believe that embracing price competition will only help the most competent and dedicated real estate agents and brokers. Today, real estate agents are usually paid the same commission rates regardless of their experience and competence.”
John Gibson, principal broker at Gibson Realty, agreed that buyers should pay for their agents and that it wouldn’t be the end of the world for the industry if they did.
“I may be a minority, but feel a buyer agent fee should be negotiated between a buyer and the agent and not directly paid for by the seller,” he said.
“Why should a buyer agent with years of experience and knowledge be paid the same as a buyer agent who is a newbie? As a seller’s agent, I hated for the seller to pay a fee to a buyer agent who wouldn’t return calls, ghosted the client and left me to clean up a mess. On the other hand, the awesome buyer broker doesn’t get any more $ than the lousy agent.
“I’ve been in this business 45 years, started when we all represented the seller. The industry will survive and thrive.”
Real estate consultant Victor Lund of WAV Group pointed out that the commission offered in an MLS is not always the commission actually paid to a buyer broker.
“LOOK AT COMMISSION NET SHEETS — the lawyers in this case defending the industry really misunderstand real estate,” Lund said.
“They are only looking at MLS data, and listing agreements. Look at the commisssion net sheets — agents are discounting their commissions at the closing table every day — which is evidence that the buyer knows that their commission is negotiable.”
Jose E. Kunhardt, an agent at United Realty Group, said the suit was “absolutely ridiculous” given that listing brokerages offer the buyer broker a commission as an incentive to bring a buyer.
“This will do absolutely nothing but prohibit millions of people from being able to buy a home with their own representation, and possibly open the door for a bunch of dual agency violations,” he said.
“Listing agents will still charge whatever rates they want and now keep all of it. Better sharpen your call calling skills and listing presentations as listing agents will be the only people making money if they get away with this.”
Keller Williams agent David Marcantuno stressed what many in the industry assert in response to the litigation: That real estate commissions are negotiable.
” [Y]ou can sell your house with no agent involved at all – nobody is forcing anyone to hire a Realtor or pay a Realtor – by definition a commission is a fee that is negotiated between parties,” he said.
“You can hire me if you want to, or don’t hire me if you don’t want to; if you don’t like my fee structure, you can negotiate with someone else. How does ANYONE think these people were ‘forced’ to pay anything to anyone else when everything is negotiable?”
Nicki Moss, an agent at Worth Clark Realty, agreed. “[A]nd the suit is after the fact too so now that the house has been sold and you got your money and probably got more because of the market, NOW you’re saying that you felt slighted because you paid too much in commissions?” she said.
“Commissions are negotiable. Buyers, especially those that are FHA cannot afford a downpayment, closing costs and to pay commissions to a Realtor too.”
Renee Porsia, an agent at First Team Real Estate, agreed no one forces a seller to sell with an agent, but objected to the primary policy being challenged in the litigation.
“Where I’ve always had an issue is that a seller MUST offer a buyer agent a fee in order to list on the MLS,” she said.
“I never agreed that a seller should have to offer a fee to a buyer’s agent. A buyer should have to pay the fee for their own agent. If it was optional then fine but it’s a MUST in the MLS. These sellers were not forced to list their home … but in order to get their home listed on the MLS they had to offer a fee to a buyer’s agent and to get that exposure. [T]hey did what they had to do.”
She also indicated that she wished that, instead of taking the litigation personally, Realtors would consider whether the commission structure does violate federal antitrust law.
“It always boggles my mind to see that so many Realtors can’t look at a situation without making it personal about them or our industry,” she said.
“[T]his isn’t about forcing people to list their homes with us. It’s about the fact that in order to list your home on the MLS you MUST offer to pay a buyer agent and, as it reads, it does seem that it does violate the antitrust act. That should not be the case. I think the entire industry should actually read the Sherman Antitrust Act.”