The bombshell ruling in October in the Sitzer/Barnett class action lawsuit alleging that rules established by the National Association of Realtors (NAR) led to questionable business practices among industry players has received constant attention in the press in recent weeks. and has fueled numerous copycat lawsuits around the world. Country. With a long-running appeal underway and the final outcome remaining uncertain for up to two years, changes are already occurring within the industry, and whether consumers will ultimately benefit or be attacked. A legitimate question arises as to whether a class action law firm will simply be lining its own pockets.
The case is rooted in the historical practice of sellers providing compensation to buyers’ agents. This is facilitated by the NAR’s requirements for association-governed MLS organizations that participating members must provide “cooperation and compensation” to other members working with prospective homebuyers. In reaching their verdict, jurors were assured by the plaintiffs’ lawyers that a collusive environment existed within the industry. They argue that buyers should be able to freely negotiate a fee structure separate from the fee structure set out in the listing contract, leading to lower commission costs for consumers. In my view, this decision is critically flawed.
Despite an appeal by NAR, the group moved quickly to “unbundle” the fees applicable to seller and buyer agents, with multiple listing services that do not charge fees to agents who bring buyers from sellers. The real estate was allowed to be made public. Because separation is not actually a required outcome of litigation, sellers may continue to offer such compensation to increase the likelihood of a successful sale.
Some may argue that this is not a huge change. Before the lawsuit, the seller could have offered as little as $1 to satisfy the “indemnity” requirement. The practice of sellers paying high buyer agent fees is not a requirement, but is based on decades of successful practice. So now there is this additional degree of freedom, but every real estate company has the right to set their own prices. Brokers may still require sellers to offer buyer agent commissions as a condition of accepting a listing.
Separating commissions between the listing and selling sides does not mean that commissions no longer apply to agents representing buyers, it simply gives them greater choice in who pays. Real estate agents earn 100% of their income from commissions. Granted, no one reading this article is going to start a business with zero compensation for their work. If the seller does not offer a commission to the buyer’s agent, the commission will likely be negotiated and paid by the buyer. The buyer, on the other hand, either incurs the fee with a lower bid or requires the seller to pay the fee as a contingency to the offer. Down payment and overall affordability challenges will be further exacerbated because the commission paid by the buyer is not eligible for the mortgage.
The unnecessarily high cost of bulk pricing is a major premise of this argument, but it is also a premise without merit. Over the past several decades, countless business models have emerged that offer highly differentiated discount pricing structures. Today, there are many companies that claim to sell homes for just a few hundred dollars.
Virtually none of these models will gain any substantial market share or become financially successful due to the lack of quality of marketing, service, trading representation, professionalism and skills provided . There are significant differences between intermediaries, and these differences have a decisive impact not only on the seller’s final financial results, but also on the marketing and experience during the transaction process.
The premise of “unconscious parallelism” applies here. Based on market and competitive knowledge, competitors can share similar pricing and practices without agreement or collusion. We find general similarities in rates across a myriad of industries, and are usually confirmed by receiving multiple bids. How much difference are there in the price of a gallon of gasoline or milk between stores? Are they all colluding? Almost not. Similarity is based on wholesale costs plus a reasonable profit limited by other consumer choices. And isn’t it interesting that all these law firms that are filing class action lawsuits have recoverable fees ranging from 30% to 40% of their fees? It’s not pro bono.
Real estate brokerage is one of the most fragmented industries and competition is fierce, with even the largest companies controlling a small market share. In fact, there are currently more than 9,200 agents from more than 1,200 brokerage firms in the Sarasota area, competing fiercely for entry into the market. Real estate agents are expressly prohibited from discussing commission rates with each other. Easily see the differences in commission rates by location, price range, and specific company. You also need to be aware that this is a success-based industry and unless the seller achieves the objectives and agrees to the terms of the transaction, a large investment in both time and money will be made with no return at all. there is. The customer is always in control.
In my more than 40 years in this business, I have had the opportunity to travel the world and observe real estate practices in countless countries, and I have found that there is little organization and that real estate is I was often disappointed in how I didn’t receive the level of exposure that established me. A truly competitive environment. There’s a reason this model is the envy of its efficiency, transparency, and customer satisfaction levels in the United States. Personally, I believe it is in the best interest of our customers and the public to continue doing business the same way we have always done so. My competitors will definitely agree.
Budge Husky is the Chief Executive Officer of Premier Sotheby’s International Realty.