By James Kleiman
Source: https://www.housingwire.com/?p=414990
Ask the average real estate agent or broker in America if they believe the National Association of Realtors (NAR) and brokerages are likely to win the bombshell Sitzer/Burnett commission lawsuit case on appeal. They might tell you, “Unfortunately, the level of misunderstanding of how agents are paid and the underrated value of their service is out of control. There are more and more copycat lawsuits, and I believe the situation is far too difficult to control now. What a shame.”
Perhaps if the real estate pro is more optimistic, they might reply, “I think the Appellate Court will [find] this does not violate the Sherman Antitrust Act and is in fact detrimental to the process of home ownership.”
Most agents and brokers anonymously told HousingWire in a recent 17-question survey that they don’t expect the verdict to be overturned. Such an outcome, many predict, could eventually force a disassociation between the Realtor-owned MLSs and the NAR mothership.
“NAR is a scam,” one agent wrote. “Would love for our MLS to not be a part of the organization. Code of Ethics was the only good thing to come out of NAR, yet they violated that entirely themselves.”
“This is only phase one,” concluded another industry veteran. “When the DOJ’s input gets added in and Clear Cooperation is identified as an even more flagrant violation of antitrust laws, NAR will dissolve and maybe rise from the ashes as merely a lobbying group.”
The point being, there’s no consensus among real estate agents and brokers regarding what happens next, how the industry should respond, or even how agents should talk to clients. An injunction by the judge on the Sitzer/Burnett case won’t come until spring at the earliest.
In the meantime, there’s anger, dismay, and confusion. And there’s a lot on the line — billions in commissions over the next decade.
Brooklee Han, Tracey Velt, and I have been reporting on the various commission lawsuits for years now. We’ve explored how mortgage LOs might be affected, how MLSs might evolve in a world without cooperative compensation, and assessed NAR’s ability to fight the verdict.
But in the end, the people most affected by this legal limbo are the millions of agents and brokers themselves. We wanted to hear from them.
We recently surveyed the RealTrends audience of real estate agents, brokers, and franchise leaders to share insights into how they’re communicating with clients, what their expectations are for a successful appeal, how they view the NAR in the wake of the bombshell verdict and, ultimately, what impact the case will have on the industry.
Nearly 300 responded. Let’s look at some of the results.
Even though most respondents (60.1%) thought NAR, HomeServices, and Keller Williams were going to prevail, just 36% of respondents are confident they’ll win their appeal.
“Appeals are hard. The jury was given bad information, made a bad decision, but appeals are hard,” one respondent concluded.
“Juries are made up by consumers who buy houses. I doubt they will side with the agents,” said another.
We asked respondents to also share what they believe is the biggest benefit they get from NAR membership. The most popular responses were lobbying and MLS access, which many respondents described as critical.
But plenty of respondents also took shots at the beleaguered trade group.
“Other than embarrassment, I cannot name one tangible benefit I receive from NAR,” said one agent.
“I don’t feel I have benefited directly from NAR, and I’m very disappointed in the quality of the defense/response NAR has made in reaction to the lawsuits,” wrote another. “What we think we get is a perception that we are held to a higher ethical standard, and that gives us a good image. Recent events have tarnished that image badly,” said a third Realtor.
Local associations were better viewed by the 249 question respondents. Quite a few were complimentary of the lobbying work done, classes, training and, yes, MLS access.
Even so, many respondents — more than 75% — said if given the choice to subscribe only to the MLS as opposed to joining their local state and national associations, they would do it.
A central premise of the commission lawsuits is that, in practice, agents don’t negotiate their commissions often. The survey results suggest that isn’t true. Of the 281 respondents to this question, 89% said they sometimes or always negotiate commissions.
Asked if they felt their compensation should change depending on the market and economy, 61.5% of respondents said no. A majority (60%) were also in favor of retaining current compensation practices.
Here’s a sample of some responses:
“What’s being proposed will eliminate upside in good years and devastate in tough years in the market,” one respondent said. “And you eliminate the current buyer agent comp system (sellers pay) and the consumer will really suffer.”
“We need to do business differently,” another respondent said. “There are some agents that only focus on commission. Not the consumer.”
“The consumer has spoken,” one agent said. “It won’t help my brand if I hold the line. I have always put my customers first. If they want things to change, I must adapt to maintain my relationships and keep my business moving forward.”
Several respondents said they supported a full overhaul of real estate commissions.
“It’s a wasteful absurdity that today in 2023, agents and brokers get compensated by the contingent commission. Real estate professionals should be paid the same way accountants, lawyers and other professionals do…by the hour…and contract,” one agent said.
“The Realtor organization should have been trying to get the public to understand they could save a LOT of money by taking the market ‘risk factor’ out of the equation by paying an hourly rate for services, but instead they have been satisfied with the status quo, which has often been a big failing of the Realtor organization over the years. They are NOT innovators and creators.”
Said another: “Buyers agents should earn additional commission for a lower purchase price. If a Realtor represents a customer, they should not be incentivized to get the buyer a worse deal.”
Several commenters considered the idea of hourly pay, but dismissed it.
“For 100+ years, consumers have desired that payment for real estate brokerage services be contingent upon the closing of a transaction,” one respondent said. “It’s only a small percentage of consumers willing to pay on an hourly basis or on a schedule of services rendered. There’s no question that the contingent fee model results in higher fees, but that’s the model preferred by consumers.”
Others didn’t specify what change should occur, but said the status quo shouldn’t remain.
“The current system invites more litigation, which will not go away if there is no change. NAR is a bloated monster that needs to be dismantled,” one said.
“I think brokers need to be realistic,” replied an agent. “For a basic run-of-the-mill deal in my market, brokers on both sides, regardless of their caliber, are getting commissions over $18K for what really accumulates to less than 40 hours of total work; that’s $450 an hour!”
Hard talks with clients
How are agents communicating with clients in light of the verdict?
“Letting them know about the lawsuit and explaining how that will affect their home search and selection, especially if there is no buyer agent commission and the client is a VA or FHA loan,” one agent said.
Many respondents said they are using buyer-broker agreements. Quite a few brokers said they’ve been training agents on how to have conversations face-to-face with clients and to always be transparent about how agents get paid.
For many, very little has changed since the eight Missouri jurors found in favor of the plaintiffs.
“I’m changing nothing, for now,” said one agent. “I’ve always disclosed how the commission splits work. Who doesn’t disclose that? It’s in our rules and in our contracts, and I talk to clients about what it means.”
“No change for me except being careful of putting a number/percentage in writing on any marketing for fear of being accused of collusion,” another wrote.
Several respondents said they were preparing for significant market changes.
“We are seriously discussing limiting the amount we pay buyers agents. Most don’t know what they are doing and, frankly, aren’t worth half of the commission,” one said.
One broker told HousingWire, “We are telling our agents to do full disclosures on the buyer’s agency agreement and what it means to the buyer. The agents will certainly have to show the ability to earn their commissions.”
Industry impact
In our final survey question, we asked how respondents believe the Sitzer/Burnett case would impact the industry.
The range of responses to this question was fascinating.
“Already has changed it,” said one real estate pro. “Things aren’t clear. I feel it has shaken the confidence of all involved.”
“I think total commissions will go down, and part-time and/or unskilled agents will be forced out,” another responded.
“I believe this will democratize buyers agents’ commission. Listing agents won’t see much of a difference. Buyers agents will be highly impacted.”
“Compensation practices will change. NAR will be crippled by this and mandatory membership will become optional.”
“Listing commissions should come down, new business models will develop and, hopefully, unprofessional and unproductive agents leave the market. Buyers will need to pay a fee or allow their agent to negotiate a fee with the seller, or pay it themselves.”
“I think some sellers will decide that they do not want to offer compensation to a buyers agent initially, but over time I think it will revert back to the way it has been done. Explaining exactly what someone is signing, and what it means is the key. It may potentially harm buyers if they cannot afford representation for themselves after making deposits and closing costs. I have buyers who I know would not be able to compensate a buyer’s agent out of pocket.”
“It will just add another disclosure, and change some verbiage. Once the dust settles, it’ll be back to what [sic] was.”
“I don’t think it will have a huge immediate effect. In the long run, some online company or companies will try to capitalize on it.”
“A little chaotic at first as we figure out how to compensate buyer agents, whether it’s offered on the front end or negotiated at the time an offer is presented. I truly think the structure will look similar minus NAR/Realtor owned MLSs.”
“It’ll create a pyramid pay structure. Top agents will benefit [and] charge more. They will charge both buyers [and] sellers commissions. Bottom feeders will compete for scraps [and] dissipate. NAR will negotiate [and] settle.”
“Every transaction will be different, and compensation for buyers agents will be negotiated with every transaction. Over time, the market will even out. Home values/appreciation will settle down and in the end, sellers will net the same amount on the sale of their home, with or without paying compensation for a buyers agent. This will also reduce the number of agents by 500,000 or more.”
Concluded one salty real estate pro, “Goodbye, Zillow.”