Lot Lines: Identifying real estate broker settlement issues
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I recently wrote about the legal troubles the National Association of Realtors (NAR) and large national residential brokerages were having. It looked like a solution, in the way of settlement, might be on the table to put the law suits to rest, allowing NAR members and residential Realtors to sleep at night.
The settlement in question is actually a solution that has been offered in a number of the commission lawsuits. It involves giving sellers’ brokers the ability to enter in any commission amount for the buyer’s agent, even $0. The thought was that this would remove listing services and, therefore, the real estate associations that run them, from the liability of “price fixing.” In response, the Department of Justice (DOJ) rejected the proposed settlement.
The DOJ in their decision stated that solution would “not create competition or reduce commissions,” and “the modified rule still gives sellers and their listing brokers a role in setting compensation for buyer’s brokers.” The problem, according to the DOJ, is that giving seller’s agents the ability to not list a commission price for buyer’s agents still doesn’t leave the commission up to the buyer. In this scenario there would still be pressure that can, and is, put on sellers’ agents to keep up with industry norms.
“As long as sellers can make buyer-broker commission offers, they will continue to offer ‘customary’ commissions out of fear that buyer-brokers will direct buyers away from listings with lower commissions—a well-documented phenomenon known as steering,” the filing said.
The DOJ has suggested a complete rethinking of commissions and “Instead, the parties could propose an injunction that would prohibit sellers from making commission offers to buyer-brokers at all. That injunction would promote competition by empowering buyers to negotiate directly with their own brokers.”
Consumers use the current system because it works for them. Buyers and sellers are not compelled by any law, or regulation, to use an agent to buy or sell a home, and already have options to do so without the help of an agent.
However, it’s clear that ending the legal disputes over residential real estate commissions will demand a substantial transformation of how Multiple List Services (MLS) are run. It is becoming evident that the judges, courts, and DOJ are not looking for minor tweaks, but an overhaul of a system that is embedded deeply into our home-buying culture.
J. David Chapman is professor of finance and real estate at The University of Central Oklahoma ([email protected])
