DOJ Lawsuit Forces Realtors To Change Co-op Commission Practices

DOJ Lawsuit Forces Realtors To Change Co-op Commission Practices
The DOJ is trying to get realtors to clean up the way they
handle co-op commissions

For some time the way realtors get home sellers to pay buyers’ agents (co-op) commissions has come under antitrust scrutiny. About 1 1/2 years ago a class action lawsuit was filed by some home sellers alleging that several brokerages engaged in price fixing with regard to co-op commissions. Now, just 1 1/2 weeks ago, the Justice Department and the National Association of Realtors reached a settlement in a lawsuit that alleged that the “NAR established and enforced illegal restraints on the ways that REALTORS┬« compete“.

As a refresher, the commission charged to home sellers gets split between the listing agent and the buyers’ agent. So the home seller pays for the buyers’ agent and that portion is known as the cooperating commission. Although the co-op commission is technically negotiable – and even optional – it’s usually just baked into the total commission without discussion and that makes a lot of people uncomfortable. In particular this latest lawsuit raised several complaints which the NAR agreed to fix:

  • Buyers’ agents often tell their clients that their service is free to the buyers when in fact it isn’t
  • MLSs are prohibited from disclosing the co-op commission to buyers
  • Buyers’ agents can filter from MLS results high or low co-op commission properties
  • Lockbox access is restricted to NAR affiliated brokers

In a nutshell what these complaints boil down to is that the co-op commissions are raising the cost to the home seller, are shrouded in mystery, and potentially create a conflict of interest for the home buyers’ agent. In fact, home sellers and their agents sometimes offer higher than “normal” co-op commissions with the explicit goal of corrupting the home buyers’ agent. The idea is to give the buyers’ agent an extra incentive to “sell” the property to their clients. And properties with lower than normal co-op commissions run the risk of being shunned by buyers’ agents. Providing home buyers with the visibility of co-op commissions and preventing buyers’ agents from filtering out low or high co-op commissions reduces the likelihood of these conflicts of interest.

The other, more subtle, issue with current commission practices is the illusion that the buyers’ agent is free, when in fact the seller is paying for it and, most likely, passing that cost on to the buyer in the form of a higher sales price. Buyer’s agents love to perpetuate that myth because it encourages buyers to use them. If buyers had to pay their agent’s commissions directly they would likely opt not to use a buyer’s agent or they might attempt to negotiate a lower commission.

By banning the practice of telling home buyers that their agent is free the NAR may make home buyers more aware of the economics of a home purchase. They might even become more aware that they actually have money saving options. As I’ve pointed out before the fact that home buyers can get a commission rebate is perhaps one of the best kept secrets in real estate and that could be because buyers don’t think about that commission as coming out of their own pockets.

#RealEstateCommissions #CoopCommissions #HomeBuyerRebates #CommissionRebates

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 or get an insider’s view of the seamy underbelly of the real estate industry 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.

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