Two weeks ago, a jury in a high-profile class action lawsuit in Missouri against the National Association of Realtors (NAR) and a group of real estate brokers brought by sellers who say they essentially overpaid for their properties. returned the verdict. Inheritance fees when selling a house.
The jury’s award is $1.78 billion, but in Missouri it could triple to $5.36 billion, but it would still have to be approved by a judge. NAR announced an immediate appeal.
Plaintiffs, sellers Joshua Sitzer and Amy Winger, and seller Rhonda Barnett, allege that the fees charged in 2019 for listing their home on the MLS (a portion of which is paid to the buyer’s agent and a 5% (exceeding) amounted to price manipulation. NAR and intermediaries colluded to raise costs for sellers in violation of the Sherman Antitrust Act. The crux of their argument is that NAR and agents are colluding to artificially lower fees through compensation rules that require listing agents to provide a portion of their fees as a condition of listing a home on the Multiple Listing Service (MLS). The idea was to keep it high. A buyer agent who represents a buyer in a purchase.
The jury’s verdict reinterprets a long-standing industry practice known as the “cooperative compensation rule,” created more than a century ago as part of the agreement that established the first “multiple listing service.” This rule was introduced because listing a property on the MLS and rewarding the agent who brought it in with a buyer resulted in the property gaining maximum exposure to potential buyers. is.
Seller’s agents offer a portion of their commissions to buyer’s agents, allowing them to introduce their clients’ homes to the maximum number of buyers, and ensuring that a competent and experienced agent represents the buyer. Increase your customer base by making your customers more productive. The possibility that the sale will actually end. Additionally, since the offer is made to the buyer’s agent, the buyer no longer has to provide extra funds for the agent, a significant advantage in financial transactions that are typically heavily biased in favor of the seller. .
However, the Sitzer/Barnett verdict reframed this practice as a “conspiracy among competitors” that had the anticompetitive effect of raising fees. By requiring sellers to provide some level of co-operation compensation to buyers as a condition of listing on the MLS, the ruling effectively means that sellers are forced to pay unduly high fees to realistically achieve a sale of their home. It was determined that it was binding on him to pay the amount. This is the “price manipulation” mentioned in the judgment.
The judge in this case has not yet issued an injunction clarifying how the rules regarding agent compensation must change as a result of the verdict, and the NAR said that both the verdict and the award amount It is unclear, as the company has promised to appeal the decision. How will Sitzer/Barnett and other similar cases filed by plaintiffs’ attorneys impact the real estate industry?
If a judge were to forbid listing agents from offering cooperative compensation to MLS buyer’s agents as a violation of antitrust law, it could have serious consequences for the industry. This allows the buyer agent to either demand payment directly from the buyer (not an easy sell in a market where buyers already face high prices, low inventory, and high interest rates), or the seller and their agent to request payment directly from the buyer. You will be forced to either expect them to voluntarily agree to compensate their agents. At the end of the meeting, they called for finding a way to make their intentions clear outside of MLS.
Alternatively, a judge could choose to limit injunctive relief to the case at hand, allowing the industry to proceed with business almost as usual, or somewhere in between. , may result in a court ruling allowing the seller and its listing agent to proceed with the offer. Provide cooperative compensation to MLS buyers unless the seller is required to do so as a condition of listing on the MLS (already standard practice in many MLSs nationwide).
Regardless of the ultimate outcome of Sitzer/Barnett, this case and others are already driving changes in practice and, primarily, industry transformation for the benefit of all involved. Many real estate agents clearly communicate their value proposition to potential buyers from the beginning, and include all aspects of the representation in the buyer representation agreement, which clearly explains that representation is not free, whether or not the seller pays. We are strengthening our guidance to agents to include more details. Buyer agent fees or the buyer is in a post-Sitzer/Barnett environment and collaborative compensation is prohibited.
The contract includes commission terms (“X” paid by the client in the event of a successful purchase, which amount is offset by a fee provided by the seller) and performance expectations (search listings sold by the MLS, regardless of source) ) must be specified. Owner, Internet – also provides expert negotiation, transaction advice and support).
The same push for greater transparency extends to sellers as well. Listing agents are encouraged to start by establishing a value proposition with their clients and clearly explaining why listing fees and collaboration fees are so important and valuable to the process of achieving deal terms. I am. Target sales price of the house. Sellers need to understand that all commissions are freely negotiable (even most MLSs now allow 0% co-op commissions) and an understanding of the commissions exchanged between sellers and agents. must be specified in the detailed listing agreement. (Sellers are often also buyers, and this will also shape their view of the change, where sellers no longer have to pay buyer agents. Buyer agents may also be forced to come up with their own funds to pay buyer agents.) (This is because
At the end of the day, regardless of the Sitzer/Barnett case, the fundamentals of the existing real estate transaction process remain sound, so increased transparency can only benefit both consumers and real estate professionals. In my opinion, having the seller pay a commission to the buyer’s agent through the sales price makes the transaction more affordable because the buyer can source the purchase price, and the agent represents the buyer’s interests in the sale. can do.
In a market where buyers face high prices, high interest rates, and extremely low inventory, this dynamic is disrupted by imposing the burden on buyers to pay directly or without the use of agents in transactions that already favor sellers. Not only is it unfair, but it could reduce the number of ready, willing, and capable buyers coming to a seller’s doorstep. Professional representation is essential in the current market, which is less favorable to buyers than the tough seller’s market of the past three years.
That’s why a lawsuit aimed at upending the real estate industry by freeing sellers from paying commissions to buyers may ironically end up strengthening the value proposition for good buyer agents. . Even if sellers don’t pay agent fees, those who can afford to pay agent fees will look for the best agent instead of taking a chance on this market alone.
Sellers and their agents are also likely to devise new ways to compensate buyer agents as needed. This is because long-standing MLS-based cooperative compensation mechanisms have provided a solution to a problem: efficiently matching large groups of suitable buyers. By choosing the right property, you can maximize the exposure of your listed property and equip yourself with the skills to make the deal happen and maintain it despite the many inevitable obstacles that can derail it along the way. This worked because the agent ended up representing the buyer.
AAG has always offered the same level of commitment to listing as a buyer’s agent. That’s why so many of our buyers stay with us and become repeat customers. We work with prospective buyers until they find the right home, sometimes for years, and never force buyers to sell. No algorithm exists that provides this level of commitment to buyers. Not to mention the human touch it takes to discern what a person really wants in a home and continue to search patiently and diligently on behalf of the buyer. find it.
We know we have to prove our value to our buyer and seller customers every day, and we expect nothing less. So even if there is a seismic shift in the real estate landscape as a result of Sitzer/Barnett, we will be part of the foundation that will remain for our clients.
If you would like to discuss Compass’s best services or are looking to buy or sell on the North Shore, please contact Amanda Armstrong Group at 978.879.6322 or amanda.armstrong@compass.com.
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The Amanda Armstrong Group is a team of real estate agents affiliated with Compass, a licensed real estate brokerage and compliant with Equal Housing Opportunity Law. All material contained herein is for informational purposes only. Information is compiled from sources believed to be reliable, but is subject to errors, omissions, price, condition, sale, or change without notice. It is not intended to solicit properties that are already listed. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.