RE/MAX (NASDAQ:RMAX) has agreed to a $55 million settlement to resolve claims brought in two class action lawsuits that the company colluded with the National Association of Realtors to inflate commissions paid by home sellers.
The company announced the settlement in a document filed with the U.S. Securities and Exchange Commission. In its filing, the company said that the settlement will resolve all claims against RE/MAX and “releases RE/MAX and the Company, their subsidiaries and affiliates, and RE/MAX sub-franchisors, franchisees and their sales associates in the United States from the Claims.” In addition to the financial aspect of the settlement, RE/MAX said it “agreed to make certain changes to its business practices” – including “no longer forcing homesellers to pay buyers’ agents.”
The lawsuits, known as Christopher Moehrl and Sitzer/Burnett, claimed the company ran afoul of the Sherman Antitrust Act in its actions. The settlement must be approved by the U.S. District Court judges in Illinois (Moehrl) and Missouri (Sitzer/Burnett), where the two cases were filed. (Sitzer/Burnett), who are overseeing the two lawsuits.
The company added that it would use available cash to pay the settlement amount.
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Our message to home sellers needs to change. First it starts with saying that our job is to get your home sold NOT we sell your house.
Secondly, we need to explain to our seller clients that our fee is —- to market their home to as many buyers as we can. And because we as the listing agent do not have all the buyers, a portion of our fee is to incentify buyers agents to introduce your property to their buyers. But by no means is the seller paying the buyers agent, we the listing agents are.
By posing it this way, the seller is not paying the buyers agent.
Also realize that if the buyer pays our fee directly, they will be unable to mortgage it, resulting in a lower selling price for the seller or no sale at all because the buyer may not have the funds to buy the home.
We said Jeff!
That is a great way to explain it to our buyers, buyer agents and the general public who are confused on who pays the Buyer Agent commission. Thank you Jeff!!
Yes, Jeffrey. Quite right. But then again, who really pays the commission? The buyers pay it in the purchase price.
Nonsense. When a buyer purchases a car, who pays the sales rep? It’s the car dealership, not the buyer. It’s a cost of the dealership to sell the car. The cost of the listing agent’s fees is a cost of the seller to sell the house.
The Seller never pays anybody in the transaction. It is the Buyer who is providing the funds to close the transaction!
WRONG
The commission comes from the sellers funds
TRUE!
Right on the spot, That’s what I exactly see the commission fee being paid, if the Seller doesn’t Sale the property, in my limited experience seller owes no commission fee but, if the sale takes place then the commission fee is paid but the one who brings the money to the closing is always the buyer, so if this issue is not properly resolved it may come up again!!!
Really John? So no company with customers ever pays their own employees? It’s actually the customer who pays the employees? Or does you twisted logic only apply to real estate?
John…..Have you ever heard of a SELLERS CONCESSION? It’s the sellers quite often who provide the buyers money towards closing cost and/or pre-paids that permit buyers in many cases to qualify to purchase the home. Obviously you must not work with first time homebuyers much…. This is often the case!
In reality, the Buyer pays both sides of the commission at the time of closing.
It has always seemed misleading to insinuate that the Seller pays the commissions of both the listing (seller’s) agent and the buyer’s agent too. Actually, BOTH commissions are paid by the Buyer!
Think about it.
Where does the Seller get the money to pay for those commissions??
Answer: From the Buyer!
No commissions get paid to either the listing agent or the buyer’s agent until the sale closes. In typical sales, the commissions for both agents come 100% out of the Buyer’s funds (i.e. the purchase price).
Look at a typical detached family home sale. Assume a final purchase price of $500,000.
The Buyer (and the buyer’s lender if there is a loan) send $500,000 to escrow, and that money shows up on the Seller’s closing statement as the Total Consideration (a credit).
Out of that $500,000, there are a list of costs (debits) shown on the Seller’s closing statement. Those debits typically include BOTH the listing agent’s commission and the buyer’s agent’s commission.
The debit column on the seller’s closing statement MIGHT also show a Seller Credit to the Buyer for Buyer’s closing costs.
Other debits on the Seller’s closing statement typically include: payoff of any mortgage that the seller might owe on the home, the seller’s escrow fee, owner’s title insurance, prorated property taxes, county transfer tax, wire fees, natural hazard report & home warranty fee, etc.
But, again, ALL the funds to pay for all those debits that are listed on the Seller’s closing statement came out of the $500,000 purchase price funds paid by the Buyer and the buyer’s lender.
Thus, it can be argued that the Buyer’s $500,000 has paid for BOTH the listing agent’s commission and the buyer’s agent’s commission, as well paying for ALL of the Seller’s closing costs (debits). Just because those costs (including both commissions) are listed in detail on the Seller’s closing statement does not mean that the Seller paid those costs. The seller paid nothing!
What is the Purchase Price? What are its components?
The Buyer’s $500,000 purchase price pays for many things. It pays for home, the land, and all of the Seller’s closing costs (including both commissions), and the buyer’s purchase price also pays for any seller credit that gets regurgitated back to the buyer (in other words, the Buyer actually pays for the credit that the buyer received from the Seller). It’s an accounting illusion that the Seller paid those costs simply because those debits show up on the seller’s closing statement.
The Seller and the Buyer need to be educated that Purchase Price has all those components, all of which is paid by the Buyer, and only some of the purchase price money will go to the Seller which will show as “Net Proceeds” to the Seller.
This is not always intuitive, even for those used to accounting methods.
WRONG!
Wow! Such a long-winded answer and still never got it right. By your logic, when I buy groceries, I’m paying the salary of the kid who checks me out. Wait until the IRS finds out and makes me pay my portion of that kid’s FICA taxes.
The Seller pays the commission. Sellers closing cost always include total commission. Buyers closing cost never include commission. No commission is paid unless there is a sale.
The money comes from selling a home which the Seller owns period!
I use a BA Agreement that states what my commission is as well as who pays it. If the seller doesn’t cover the full amount, any shortfall shows up as a charge to the buyer.
Not use to accounting methods? How about contract law? You place a seller under contract to sell their property. You state in the contract company commission to be payed if and when the property sells . If you want to trace origins of funds to the federal reserve it is still the seller who pays the commission. Learn your business.
John Bruszewski is spot on correct. If the sale does not close, the Seller pays nothing to listing agent nor to the buyer’s agent (even in a cancelled escrow). The Buyer’s purchase price pays both commissions.
Future Legal Problems on Commissions
It could be argued that the Buyer has a legal case worthy of consideration by the courts because the Buyer has ZERO input about the listing contract and the commissions that are decided by the Seller and the listing agent, which includes the buyer’s commission. Yet, it will be the Buyer’s funds that end up paying for both commissions.
How is that fair?
This is why having the seller pay for their listing agent’s commission, and the Buyer paying for their buyer’s agent’s commission is more clear cut, more understandable for the seller and the buyer because each client can negotiate with their own agent.
However, the Buyer should still be allowed to know the listing agent’s commission at the time the property is put on the market because, ultimately, it is the Buyer who pays the purchase price, and out of that purchase price, the seller pays the listing agent. If the listing agent is charging a high commission, the Buyer might want to negotiate a lower listing side commission, which would then likely lower the offer price, or if the purchase price stayed the same, the seller would get more money (higher net proceeds) and would be more likely to accept the offer.
The Buyer is the person being left in the dark, totally, and with zero negotiating power. The Buyer does not even see what the buyer’s agent commission is because that shows up on the Seller’s closing statement, not the Buyer’s closing statement. Though some people do know where to look on MLS feeds that post the buyer’s commission rate, but it is not obvious to find either. And even if a Buyer sees the posted buyer’s agent’s commission that is being offered by the listing contract; the buyer cannot negotiate that either as that was negotiated between the Seller and the listing agent only.
It’s kind of crazy, really. I am not sure why I have not seen these issues discussed in court cases. Perhaps I have not seen those cases, or they have not happened yet.
Julie Fisher…. your statement the commissions cannot be negotiated is incorrect.
Earning a commission only at the time of sale seems unfair, with far more benefits accruing to long established agents, agents with more money to market aggressively, or agents who had an easier entry into the business through family or friends or associates already in the business or real estate related businesses.
In my opinion, the current situation creates a very tilted playing field against new agents, those who are on a limited budget, and those who lack real estate connections. Yes, they can build those connections over time, but when you are starting out in this business with small change money and no connections and sometimes no income for a long time, it can be brutal, which is one reason why so many agents struggle to make a decent living.
A more equitable system would be for sellers and buyers to pay agents per hour worked, or to pay agents for each step in the services they provide, rather than paying one commission which is only paid if a sale successfully closes. In other words, emulate other professionals like lawyers, doctors, and accountants, all of whom charge by the hour or by a set service fee that reflects the time it takes to do that one job segment! This “pay as you go” system would hone sellers and buyers into being far more efficient at setting realistic goals in the selling and buying process.
A lot of real estate agents work extremely hard but never get paid when a sale does not happen, no matter how hard they worked on that sale or how smartly they worked.
I have never thought that was fair nor professional.
The current system makes it hard to compete for the new agents or for agents with limited funds. The current system also invites clients to waste time on unrealistic pursuits (like over-pricing a home or looking to buy homes outside their abilities), and this is a cost (a loss of income) paid only by the real estate agents.
A pay per hour or pay per work segment performed would ensure that agents get paid fairly for their work time, even if a sale never happens. Sellers and Buyers would quickly learn to respect the time they are asking from agents because those clients would be paying fees along the entire process.
Any commissions paid at time of closing a sale could be reduced by the amount the clients paid along the way, provided that the time during the actual sale transaction was not excessively long or difficult.
Just curious…has anyone been able to read through all of Julie’s extended diatribes?
Reading Julie’s comments were no different from reading anyone else’s except yours, which incidentally, said more about you than it did about her. She offers an opinion and speaks of her experiences as an agent. Literally speaking (and just curious…), if you can’t read through all of her posts, how on earth can you get through a real estate contract?
Julie,
You have the opportunity to open your own brokerage and do the commission structure as you see fit. It seems you haven’t been paying attention the last few years to the changes in BAC and how they are displayed to the buyer. Lastly, a buyers agent or buyer has no right to mess with a contract a listing agent has with the seller.
When I entered real estate, I was warned never to market within a farm that another agent from that same company was marketing. Those policies, which most brokerages had, was essentially a monopoly that absolutely benefitted older agents, established agents who had gotten in early. Some of these agents were even handed farms when another agent retired. It was really weird to see such monopolistic practices going unchallenged, but new agents did not dare say a word for fear of being fired.
As such, newer agents often had to drive a long way away from their home or preferred area, often in lower cost neighborhoods because the higher cost neighborhoods were already being farmed by someone in your company.
The long distances to find a farm, the costs to get there, and the likelihood that sellers would prefer to hire an agent who lived and worked most of the time near the seller’s neighborhood put further pressures on agents who were trying to get listings or work with buyers.
I do not know if that practice of hoarding farms via monopolies is still allowed, or not.
I just know that a lot of agents were harmed by it.
That’s when you go work for a competitor . The real estate business is a lateral advancement culture. Why struggle in a corporate system that doesn’t work for you? That’s why there are multiple companies in every market. As an agent with no experience you will find yourself at the crossroads of believing what you are told and putting the effort in to find the truth. The truth being most complex companies are pyramid schemes and they hope you will work as hard as you can for them. Find a honest office to work for , have real respect for yourself and your customers/ clients and never let a bad company ruin your business or your career. If you find a broker who doesn’t want you to advertise because someone else advertised there , you have a problem, if it can’t be resolved you have reason to move your business elsewhere. You are the extension of whatever company label you choose to carry not the other way around. Again , learn your business.
Saying the buyer pays the commission is like saying we’re paying the bakery’s electric bill when we purchase donuts, because the bakery uses that money to pay the electric bill.
The fact is, the buyer pays a price. Period.
What the seller does with that money has no effect on the price to the buyer.
So, no, the buyer is not paying the commission.
Exactly correct Laura!
It really is in how you look at it. But no sales = no bills get paid (also no income for the bakery owner).
When you and other customers buy a donut, yes, you are all helping to pay for the electric bill and lots of other bills (including salaries, lease costs, flour, etc), any excess over those bills is the profit the owner keeps.
If there were no donut sales, the bills would not get paid, and the bakery would go out of business.
The only winners here are the attorneys that filed the lawsuit! If the seller sells the property choosing not to use a Realtor, there is no fee paid to anyone. The seller pockets the savings. So if said seller chooses to hire the services of a realtor, and negotiates and agrees on the fee, the seller is the one paying the commission, no matter how the fee is split.
Wait until you see what is forthcoming, in the next few months
All of these arguments are silly and circular in their framing a la chicken or the egg discussion.
Who pays what or to whom is determined by the parties involved. Where the income generates from is irrelevant to the transaction.
If you keep arguing back to the origin of how the income was produced then the wood used to build the home has appreciated and is the actual payer. Oh wait, the wood was originally in a forest so it’s the forest that paid. Wait! There would be no wood were it not for the rain which originated in the clouds.
Silly!! All fees are paid by the parties that contract to do so at the time they decide to so willingly with mutual consideration.
All the rest is irrelevant. How hard an agent works, how fast the home sold, how you feel on a given day.
As stated at the beginning. Circular and pointless.
Fact: Excellent exercise for attorneys to argue and profit from. Circular in nature with plenty of scenarios to argue.
Best argument of all.
Selling a home too complicated for mere REALTORS.
We need lawyers involved to protect the world from greedy, uneducated, unsophisticated and inefficient real estate Brokers. That would end the discussions re Commissions.
For context I’m holding a letter of engagement from an attorney that will charge $1,100 per hour for his services and estimates 30 hours or so to prepare family trust documentation. It’s complicated work but so is representing buyers and sellers in a very important event in their lives. To wit.
Have owned my current home for nearly 30 years and have no plans to sell.
So.. no commissions being paid anytime soon.
Yep , can you say Sh*t show
33 years in the business no one ever complained, until 2 groups decided to sue. And got paid off handsomely.
Sadly the whole business model will be changed, and not for the better.
Of course both the buyer and the seller have the potential to be involved in a negotiation of commission, because they are both negotiating sales price. I would bet most of the folks on this thread have been involved in a situation where both parties dig in their heels and say “that’s it!” And what might the agents do? “Hey, Fred. I’ll contribute $2,000 if you will and we can get this baby closed.”
Italy requires the Sellers to pay their agent..and the Buyers to pay their agent… which does result in a lower selling price… longer selling times…and fewer buyers with sufficient savings to enter the market. So these conflicting arguments will continue until the Supreme Court steps in to set up 1 rule.
Evidently Julie worked with the wrong Broker if she was told she couldn’t market herself if a more experience agent was farming in an area. Probably should have left that broker immediately and gone somewhere else. When you list a property to sell, you negotiate the commission with the Seller. When you get an offer from a buyer or buyers agent, they buyer has an opportunity to state in the purchase agreement to pay the agents commission, although rare, it does happen when in a competitive to purchase a property. At the closing, the sale is completed and the funds of the transaction has gone to the Seller and the Title of the property has changed to the Buyer, who at that time owns the property and the Seller has the funds, waiting for closing attorney to cut the check to the Seller. During the closing both sides, Buyer and Seller have an opportunity to examine and question any cost associated by each side in the Settlement Statement. If the cost of the transaction are in agreement to both parties, they sign it and the remainder of the documents are signed, including the Act of Sale. The closing attorney then collects the funds, such as down payment, insurance premiums if they are collecting them, deposit from Listing Broker if they funds are not being held by the title company and the closing collects all funds and then send the signed and notarized documents to the lender, if there is one. If there is a loan involved and all signed documents are in order the lender then releases the fund to the closing attorney and the attorney then cuts the check less commissions to the Seller. Once those documents are signed and the lender approves and releases the funds the sale is complete and the Buyer owns the house and Seller owns the sale proceeds. Then and only then are the commissions deducted from the Seller’s funds. Therefore the Seller paid the commissions.
I’ve been a broker since the 70’s when were were no buyer’s brokers or seller’s brokers and the system worked relatively well. Half of the sales were co-broke and I felt the selling broker had a bias for the buyer. I never have accepted the fact the the buyer’s money is paying the fees concept as above stated the fees are a cost of doing business. Net net the market determines the sales price and then the house must appraise if there is a loan. Now we have buyers brokers with an overt bias. An astute buyer would offer to pay the commission, another kettle fish, if he can afford the extra down to lower his annual tax burden. Be that the case the argument would be reversed. We are chewing this not so relevant to death there never will be perfection in our rules as we are human.
correction. I met to say buyers broker had a bias not selling broker (should proof read)
When the buyer’s money is transferred to the seller and the property is transferred to the buyer, the buyer owns the property (not the seller) and the seller owns the money as personal property (not the buyer). Since it is then the seller’s money, the seller may do whatever the seller (legally) wants to do with the seller’s money. In fact, the seller can pay the seller’s debts, including attorney fees, title fees, sellers closing fees and commission, etc and/or use the money to go on vacation. It is the seller’s decision and the source of the seller’s money does not have a bearing on how the seller spends the seller’s money. In short, the person who owns the money is the one who pays the bills. The person who exchanged the money for goods or services cannot then use the money to pay for anything.
Easy explanation- seller pays the commission with funds provided by buyer at closing
Hard to believe courts reached this verdict – the thought of brokers getting along well enough to fix is hilarious- hopefully this verdict will be appealed