A Phil Hall Op-Ed: I just did a Google News search for the phrase “real estate” and I came up with a remarkable collection of headlines from major news outlets. These headlines and their sources included the following:
“After a $1.8 billion verdict, the clock is ticking on the 6% real estate commission.” – CNN
“A Class Action Suit Could Upend the Entire Real Estate Industry” – NPR
“Lawsuit Against Real Estate Brokerages, Realtors Will Reshape Home Buying” – Business Insider
“How the Real Estate Broker Business Could Change” – The New York Times
I have to give credit to headline writer at The New York Times for not assaulting readers with clichés and broad assumptions – their headline simply stated the real estate broker business could change, not that it would and not that the entire industry will be shaken up.
Still, these are not the kind of headlines that the real estate industry wants to see online – and we can thank that wave of bad press on last week’s verdict in the Sitzer/Burnett case involving the National Association of Realtors (NAR). That trade group has been harvesting bad press this year – there is still the residue of sexual harassment media reports that percolated in August, plus Redfin’s decision to pull out of NAR and the recent news that the U.S. Department of Justice is trying to void a 2020 settlement in order to pursue new antitrust litigation.
So, how can the industry in general – and NAR in particular – come up with a crisis management strategy to address the negative coverage? As someone who ran a public relations agency for 10 years, my advice is simple: time is your ally.
Okay, NAR probably doesn’t need that particular advice because it seems to be focused on the same strategy. As Mantill Williams, NAR vice president of communications, told CNN, “This matter is not close to being final as we will appeal the jury’s verdict.”
Indeed, the case could easily find its way up to the U.S. Supreme Court – and if that entity maintains its pro-business conservative-majority set-up, there is an excellent chance that the final verdict will be in NAR’s favor. While getting to the Supreme Court will be a long and costly journey, smart money would go on NAR having the final victory in this fight.
As for the Justice Department’s itching to launch more antitrust lawsuits against NAR, that also has to go through the courts – another lengthy process. And if a certain real estate developer is back in the White House come January 2025, I suspect that the department will shift its focus away from NAR.
As for the brokers, there is a lot of speculation regarding what could happen next. The New York Times quoted some fatalistic analysts at Keefe, Bruyette & Woods who forecasted that “as much as 30% of the industry’s commissions could disappear” and “lower fees could drive down the number of U.S. agents as much as 80%.” But that could only happen if the industry panics and starts to realign its fee structures before the next NAR trial starts – and that doesn’t appear to be happening.
One consideration that the media coverage is not citing is the lack of consumer opinion on this issue. The American public is not fixated on changes in how real estate brokers concoct their fees – with elevated mortgage rates, home prices at record highs and inventory at record lows, people are happy that they can buy a home. If there is a controversy about broker fees, it exists with the government lawyers and the financial media, not the homebuyers and sellers.
NAR faces another trial in Illinois early next year (the Moehrl case) and it will be interesting to see how the trade group’s lawyers learn from the Sitzer/Burnett case in how they present their evidence and frame their arguments. Until such time, the industry should put a “to be continued” sticky note on the subject and go about doing its important work.
Phil Hall is editor of Weekly Real Estate News. He can be reached at [email protected].
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If “a certain real estate developer” ends up back in the Oval Office, America will have bigger problems than real estate commissions. For instance, the end of democracy.
The end of democracy happened when an incompetent, incoherent and weakling to the reins. We certainly have bigger problems now than when we had a “businessman” in the office as opposed to a lifelong sponge on the public dole.
Trump is the Best President this country has ever seen !
I listed a house and sold it in 6 days and the seller ask if I would lower the fee since I sold it so quick? My response was I should recieve a bonus for doing such a great job selling your home for full price in 6 days.
Another listing I took, took 3 months to finaly sell. The seller ask me if I would dicount the commission since it took so long for me to do my job? My response was I quickly figured I made less than a $1 per hour and spent a lot of marketing money to finaly get your home sold. Everyone makes alot more than a dollar per hour for work performed. Maybe you should pay a bonus for me being so dogmatic on your behalf.
That is very funny.
I am sure that you could not explain your “end of democracy” theory. I am sure that you are just repeating something that you heard on CNN.
As a former broker and retired appraiser, this entire case is nonsense. There is no collusion between agencies on commissions. And the seller paying the buyers agent has been the practice for decades. It’s simply called a split commission. And if that commission wasn’t there then the buyer would have to pay. And that would be a problem, because new home buyers would have to increase the loan amount to pay the commissions of their agent. New home buyers would be adversely affected and poorly represented. Add in seller concessions, buyer broker commissions, good luck getting a loan.
As a practitioner for 45 years I’ve seen many changes. Most of them consumer & market driven. From all agents worked for the seller to all agents work for buyers except the sellers agent. When we made that paradigm shift we should’ve addressed buyer representation and compensation, but we avoided the elephant in the room and passed it on to the seller who had been paying the full freight already. If lenders would allow buyer agent fees as a add on to the mortgage like FHA&VA funding fees (of 2+%) we could solve this dilemma.
The brokerage industry is unlike any other. It’s broken and the industry prefers it stay that way. What other industry requires one party to pay the opposing party to negotiate against the best interests of the first party? Answer? None. I’ve heard all sorts of nonsense about this verdict, from buyers just won’t buy if they have to pay their own broker, to lawsuits will be rampant. The scare tactics are just that and they’re a sign of desperation. I typically sell 40% to almost 60% of my investments annually to unrepresented buyers and not once have I had a complaint and not once has a buyer said they will walk away if I don’t pay their buyer. Buyers (consumers) want what they want and will simply work directly with the listing broker to get it. A new pro-business, pro-America administration “may” save NAR but change is still inevitable…and it’s high time to see change.
Directly, I can’t think of an example where you’re wrong in your claim that no other industry works like this. But it’s close when you buy a car. You’re indirectly paying that salesman when they sell you a car; the higher the price he can get you to pay, the higher the benefit to him/her and the dealer. But everyone kind of knows the deal, which seems to be no big deal.
I don’t think this article laid out any claims of the 2 sides, unless I missed something. As I understand it, someone made the claim that forcing a seller to pay the buyer’s broker, while the buyer’s broker is working in direct conflict with the seller’s best interests, should be illegal. Sounds like a reasonable claim but not a slam dunk claim. The seller is made fully aware of this arrangement and agrees to it. Seems to me that a better ruling from the court would be to force the Realtors groups to allow the option to sellers to not pay the buyer’s broker anymore, but not fine the NAR $1.8 billion for something that almost no one was complaining about. You fine them if they break the order.
“A certain real estate developer” who has just been barred from practicing his business in the state of NY due to illegal practices…
We have bigger problems with the NAR, and its local affiliates, then bad press. Internally, many agents do not respect other agents, and are only looking to maximize their earnings, I have been licensed in Florida for 35 plus years. I have been on both sides of transactions. I find more of a problem with agents not being honest with other agents, especially with regard to commission splits. In Florida, our MLS does not require seller agent commission percentage disclosure to buyers agents. As such, there have been times when a sellers agent who has managed a 6% commission from a seller, take a 4% split and only provide the buyers agent 2%. (Imagine you bring the Buyer and only receive 33% of the commission.) Although a 50/50 split is brought up to sellers agent prior to contract, in an effort have a fair & reasonable split, one never finds out until you are at the closing table (or by way of settlement statement). Higher ups in the organization see it as aggressive, smart, and competitive. I view it as greedy and unprofessional.
Every state has their own real estate forms. Our own WRA (Wisconsin Realtors Association) is very succinct in their message: “The national antitrust conversations do not take account of the fact that not all states are the same. Wisconsin’s state-approved WB forms currently provide a great deal of transparency and flexibility for consumers about commissions and the payment of commissions, and Wisconsin’s WB forms arguably do not support and are inconsistent with the antitrust allegations being litigated nationally.” The WRA directly states that it looks like many states do not include such consumer-transparent provisions. Any consumer that reads through our forms (& additionally our own company addendums), clearly understands how the commissions are handled once they’re ready to sign.
You make an excellent point that “every state has their own real estate forms”. The same can be said for every Broker. Our forms have always stated that commission is negotiable and has fill in the blanks for Listing Broker Commision and Selling Broker Commission.