Wow! On some level I'm really enjoying this. I've always maintained that real estate commissions are just too damn high. So imagine my amusement when a class action lawsuit is filed, claiming that 4 of the nation's largest franchised brokerages conspired with the National Association of Realtors to fix real estate commissions in 25 cities. Chicago is not on the list (I wonder why), though the lawsuit was filed in the Northern District of Illinois. The 4 named brokerages are Realogy (parent company of Coldwell Banker, Sotheby's, and Century 21 among others), RE/MAX, Keller Williams, and HomeServices of America (parent of Berkshire Hathaway among others).
The lawsuit focuses primarily on the coop, or buy side, commission and oddly enough this lawsuit was filed just 3 days after an editorial appeared in the Wall Street Journal alleging the same thing. Coincidence?
But, to be clear I'm mainly amused because this lawsuit is totally groundless. This is litigation lottery at it's best. As I pointed out in my Tuesday blog post the only thing keeping the consumer from paying a lower commission is not doing a Google search for realtors offering low commissions and buying into the fantasy peddled by high commission realtors.
Let's analyze some of the allegations regarding NAR practices in the lawsuit.
"Only allowing listing brokers to list a property on an MLS if the listing broker makes a unilateral, non-negotiable offer of compensation on the MLS to buyer brokers."
This is a bogus allegation. From the NAR code of ethics:
Realtors® shall cooperate with other brokers except when cooperation is not in the client’s best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker.
Now, the MLSes (sp?) are not controlled by the NAR and they would set their own listing policies but, as I pointed out on Tuesday, the Chicago area MLS allows us to offer as little as a $1 coop commission. Perhaps that's why Chicago was not named in the lawsuit. Who knows what other MLSes allow but they would be fools to mandate a minimum in clear violation of antitrust rules.
"Prohibiting buyers and sellers from negotiating buyer broker commission."
Nothing could be further from the truth. You can't find this anywhere in any document and, in fact, our required training repeatedly pounds into our heads that all commissions are negotiable and any attempt to set commissions is an anti-trust violation. In fact there is a lengthy discussion of antitrust rules on the NAR Web site in which they explicitly state:
listing brokers may not agree on the commission “split” to be paid to compensate cooperating brokers who produce a ready, willing and able buyer for a listed property. Conspiracies among competitors to fix the compensation paid to cooperating brokers may also be deemed per se illegal.
"Prohibiting brokers from disclosing commissions offered on MLS."
Again, there is no such prohibition and Standard of Practice 1-12 in the Code of Ethics requires that
When entering into listing contracts, Realtors® must advise sellers/ landlords of...the Realtor®’s company policies regarding cooperation and the amount(s) of any compensation that will be offered to subagents, buyer/tenant agents, and/or brokers acting in legally recognized non-agency capacities
Various other allegations in the lawsuit are true in whole or in part but it's not at all clear if they are violations of the law. I guess that's for the courts to decide.
The Buy Side Commission Is Just Not Well Understood
According to a recent survey 45% of home sellers don't realize that they will pay the buyer's agent. Although the NAR's code of ethics requires realtors to explain this to home sellers this was a survey of homeowners planning to sell in 2019 so they most likely have not yet met with a realtor. Nevertheless, given this level of confusion it's no surprise that a) home sellers don't shop around more for discount commissions and b) there isn't more discussion about how high the coop commission should be.
Given all this confusion I think it's worth another blog post next week digging into that topic a bit further. However, before sign off I found one other interesting tidbit in that survey: 2/3 of survey respondents thought a 6% commission was fair. Seriously? That must be why more people aren't looking for lower cost options. Go figure.
#Realtors #RealEstateAgents #RealEstate #RealEstateCommissions
Gary Lucido is the President of Lucid Realty, the Chicago area's full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.