This could be the end of Boston condo buyers agents
Some of my readers are asking about the NAR lawsuits
The lawsuit that began this week contends that realtors force sellers to pay a commission to the buyer’s agent.
The Defendants, ReMax and Coldwell Banker, Sotheby’s, etc.) have already come to settlement agreements, though they haven’t been approved by the judge yet.
The other two brokerages, Keller Williams and Berkshire Hathaway, plus the National Association of Realtors are the remaining defendants. Their attorney started the proceedings by declaring that the plaintiffs have the burden of proof, and the defense may not call a witness.
My Boston condo thoughts
I understand how the defendants require the plaintiffs to provide the burden of proof, but what’s up with the plaintiffs can’t have any witnesses.
In their trial brief, the plaintiffs in the suit allege that NAR’s Participation Rule, which they refer to as the Mandatory Offer of Compensation Rule, is “a market-shaping and distorting rule” that stifles innovation and competition.
“The Rule requires every home seller to offer payment to the broker representing their adversary, the buyer, even though the buyer’s broker is retained by and owes a fiduciary obligation to the buyer (who may be told, falsely, that the services of the buyer broker are “free”).”
They argue that the current practice of the seller’s agent splitting their commission with the buyer’s agent, who typically negotiates for a lower selling price for their client, works against the seller’s interest and only exists due to the alleged anticompetitive rules. The plaintiffs also note that the NAR rule in question requires a blanket offer of compensation for the buyer’s broker regardless of their experience or the level of service they provide the buyers with, and that the compensation offer was only visible to the buyer’s agent and not their clients, until very recently.
“This artificial and severed market structure created by Defendants’ conduct deters price-cutting competition and innovation, resulting in inflated commissions,” the brief states. “The Mandatory NAR Rules impede the ability of a free market to function in the residential real estate industry, and the plain purpose and/or effect of the Rules is to raise, inflate, or stabilize commission rates.”
In the brief, the plaintiffs claim that the other defendants in the suit colluded with NAR to enforce this and other NAR and MLS policies.
“The Corporate Defendants compel compliance in multiple ways, including by requiring their franchisees, subsidiaries, brokers, and agents become members of NAR; writing the NAR Rules into their own corporate documents; and requiring that their franchisees, subsidiaries, brokers, and agents become members of and participants in the Subject MLSs — entities that compel NAR membership and adopt the mandatory NAR Rules,” the brief reads.
The brief notes that Craig Schulman, the director of Berkeley Research Group and professor of economic data analytics at Texas A&M University, will be an expert witness for the plaintiffs at trial. In studying transaction data from NAR and other parties, the brief states the Schulman has concluded that “(a) the NAR Rules have anticompetitive effects; (b) the NAR Rules caused a seller to pay his adversary (buyer broker) and that, but for the conspiracy, a seller would not pay the buyer broker; and (c) all class members were impacted.”
The brief also notes that Schulman will testify that NAR’s rules have stabilized commission rates at an “anticompetitive level,” noting that commissions have remained at 6% for several years.
My thoughts as a Boston condo broker
Unfortunately, none of the reality of what happens on the street will get introduced during the trial. For example 6% commission is not the standard commission here in Boston, its more 4-5% is the standard.
Instead, it will be ivory-tower guys hoping to persuade the judge and jury (one of which has to breast-feed her infant every 1.5 hours) that the whole commission thing is out of control and someone is to blame.
NAR also argued that the plaintiffs do not have the ability to sue for damages —which some believe could reach as much as $4 billion in this case — because under federal and Missouri antitrust law, only “direct purchasers” can be allowed to sue and the plaintiffs have not bought anything directly from NAR or the other defendants.
“And, according to those same Model Rules and listing agreements, Plaintiffs did not directly pay cooperating agents, NAR, or the other Defendants; sellers only directly pay their listing agents and only directly receive services from their own agents,” the brief states. “Therefore, at best, Plaintiffs might claim that they paid their listing agents (who are not parties to this case) who, only then, paid Defendants. But such an indirect claim is prohibited by Supreme Court case law.”
Home sellers pay the full commission to the listing brokerage. It is the listing agent who declares in the original listing agreement of how much of the full commission they are willing to pay the buyer’s agent. None of this will be discussed during this trial, but it’s the most important part!
The plaintiffs should be suing the individual listing agents – good luck with that!
Updated : Boston condo for sale website 2023
Byline — Holden Walter-Warne
The National Association of Realtors is facing a $4 billion problem as an antitrust trial kicks off, but a bigger issue could be coming down the pike.
The Department of Justice is considering its own case against NAR after years of investigating the trade group for alleged antitrust behavior, Bloomberg reported. The department has taken a particular interest in the commission-sharing system at the heart of the landmark lawsuits that could change how buyers’ brokers are compensated.
The Justice Department this June filed an appeal after a judge ruled the agency couldn’t reopen an investigation into two NAR policies: the Participation Policy and the Clear Cooperation Policy. The department came to a settlement in its investigation of NAR under the Trump administration that would head off any further probes, but withdrew from the proposed settlement under the Biden administration.
Attorney General Merrick Garland has also sought to intervene in other NAR cases. Recently, the Justice Department asked for a two-month delay on approval of a potential settlement in a Massachusetts antitrust lawsuit pertaining to commission rules.
Redfin CEO Glenn Kelman pointed to a Justice Department case as a much bigger threat to the residential real estate industry than the two ongoing antitrust lawsuits, sizable as they may be.
If the department ultimately dismantles the commission-sharing structure, it would create a “seismic change” in the industry, Kelman said, potentially putting half of the nation’s real estate agents out of work.
The participation rule requires listing brokers to offer compensation to buyers’ agents. The plaintiffs argue that the rule creates a conflict of interest for buyers’ agents and prevents buyers from determining a commission amount based on performance.
The remaining defendants could be on the hook for $4 billion in damages, including $1.3 billion in commissions members of the class-action suit paid to buyers’ agents in a seven-year span.
Updated: Boston condo for sale website 2023
Buyer agent commissions hang in the balance during federal case beginning this week
For the next three weeks, the eyes of the residential real estate world will be on a federal courthouse in Kansas City, Missouri, where a trial that could alter how buyer agents earn commissions is set to take place.
The Sitzer/Burnett case — one of two pending class-action lawsuits — seeks damages from The National Association of REALTORS®, HomeServices of America and Keller Williams. The lawsuit, originated by home sellers in Missouri, also wants to change how buyer agent commissions are paid, uncoupling them from seller agent commissions.
The primary allegation in the lawsuit is that buyer agent commissions have remained artificially high because they are tied to the seller agent commissions.
Changes to the current commission setup could alter whether buyer commissions can be folded into a mortgage and, some fear, could require buyers to pay agent commissions in advance, potentially persuading more buyers to skip working with an agent or buying a home at all.
“For the next three weeks, we will be presenting our case to the jury. We’ll expect a jury verdict the week of Nov. 6,” NAR Chief Legal Officer Katie Johnson said in a podcast posted to NAR’s website Monday.
“The class-action attorneys in these cases, they do not understand how Realtors and local MLS marketplaces work, period. And they also don’t understand or appreciate how they serve the best interests of buyers and sellers alike,” Johnson said. “These class-action attorneys are mischaracterizing our rules and do not understand how the rules themselves and the practice of cooperation between real estate professionals have contributed to this efficient, pro-consumer model that we have and have had for 100 years for transacting real estate in America.”
Johnson urged Realtors to make clear their value to consumers “early and often” and explain the services Realtors provide and how compensation works. She also recommended agents use buyer representation agreements, where commission details can be discussed and explained.
Jury selection in the case began Monday and opening statements are expected Tuesday. No matter what the jury decides, it could take years for the appeals process to work itself out, delaying any potential changes to agent commissions.
Anywhere Real Estate and RE/MAX were previously defendants in the lawsuit but settled for $138.5 million and agreed to make changes to buyer agent commission arrangements. A judge still would need to approve that settlement before it is finalized.
Source: Boston Real Estate Agent 2023
Byline – John Ford Beacon Hill Condo Broker
I’m no sure that this court case regarding buyer broker agents is really going to help Boston condo sellers. My reasoning, if you’re a Boston condo seller you want as much exposure as possible for your property, by eleminating the buyer agent commission you’re limiting the number of buyers who may want to view the property.
Secondly, the Boston condo seller is still go to charge his/her 4-5% commission and if they want to split it with another real estate company I don’t see the harm as long as the seler is aware of it.
I might have more thoughts on the latter on, stay tunned.
Updated: Boston condos for sale 2023
Byline – John Ford Beacon Hill Condo Broker
The National Association of Realtors laid out a doomsday scenario for the industry in the case home sellers prevail in two landmark antitrust cases.
The group warned that a ruling in the plaintiff’s favor could render buyer’s agents unaffordable, block equal access to listings and restrict buyer choice, NAR’s general counsel Lesley Muchow said. The trade group held the online webinar five days before Sitzer/Burnett, the first of the two closely watched suits, is slated to start trial in Kansas City.
“This would be bad news for consumers,” Muchow said. She added that if NAR isn’t allowed to continue with some of its practices, “we would be forced back into the 19th Century or what we see as the Wild West, where unscrupulous people could regularly defraud clients.”
Muchow argued that if the lawsuits’ results upset local MLS systems, buyers would have fewer homes to choose from and sellers would lose exposure to their properties.
“Buyers would have to visit every single broker in town in order to see all of the available inventory that is out there for them,” Muchow said.
This scenario would likely lead to outdated and inaccurate listing information, she said, and would cost brokers more money if they have to pay to feature their listings on third-party platforms.
Jury selection will begin on Friday.
Both of the landmark lawsuits center on NAR’s “participation rule,” which critics claim violates antitrust laws by inflating commissions charged to home sellers.
The rule’s interpretation was largely understood as requiring listing brokers to offer compensation to buyer’s agents, but a spokesperson for NAR said that it only “requires participants to communicate an offer of compensation to other MLS participants and that offer can be any amount, including $0.”
Updated: Boston condo for sale website 2023