What the DOJ-NAR settlement means for Realtors and homeowners.

If the DOJ’s timing seems curious, as their complaints around NAR’s behavior is nothing new, it is because they have been working closely with REX Real Estate council, who had been providing them with evidence of NAR’s anti-competitive practices. REX is not a member of any REALTOR association or MLS, nor do they offer a buyer-agent commission. I have spoken to REX council myself, and have been on the receiving end of a REALTOR code of ethics violation for publicly coming to REX’s defense. Had NAR not already been exhausting their legal resources on the winner-take-all class action lawsuit currently underway, I’m sure they would have fought back rather than settle before the ink dried.

In this piece I will review the DOJ-NAR settlement in context of a recent deal of my own that really highlights the DOJ’s case complaints. I’ll also explain why the DOJ’s settlement stipulations will do almost nothing to do deflate fees.

Complaint A, from the case filing:

prohibiting NAR-affiliated multiple-listing services (“MLSs”) from disclosing to prospective buyers the amount of commission that the buyer-broker will earn if the buyer purchases a home listed on the MLS

Buyers are kept in the dark regarding their agent’s commission by design. Lets look at what happens when a home owner offers less than 2.5% of the home’s selling price:

MLS advertising a commission of 2%

I listed a home for sale nearly a million dollars. I can tell you, the doors aren’t harder to open, there isn’t more paperwork and it doesn’t take longer to settle. Folks, there is absolutely no correlation between the effort involved in selling and the commission received. My sellers, who hadn’t sold anything since the days of newspaper ads and attorneys, firmly asserted a twenty five thousand dollar commission (2.5%) was totally uncalled for. Although a ten thousand dollar commission to the buyer agent should have been plenty for less than ten hours worth of work — a thousand an hour — four times what a cardio-thoracic surgeon earns, they quickly got up to speed on today’s environment and reasoned the buyer-agent would go to great lengths to avoid the property; lie to their buyers about its availability, etc. So, we offered a 2% commission, almost twenty thousand dollars. Its worth repeating; twenty-thousand-dollars. That is 38 shares of Tesla, or a wobbling 17 inch stack of five dollar bills. If you counted the money in front of the buyer agent, licking your thumb, passing three bills a second, it would take 22 minutes to hand all the money over. How could it possibly be argued that this is not a sufficient amount of money to? It can’t. At least, not coherently… Realtors have it in their head that they absolutely have to have at least 2.5% of the selling price. It is as obsessive a compulsive disorder, and the percentage points are just as arbitrary. It makes no difference to a Realtor how much effort was involved relative to the selling price. This cognitive dissonance comes into full view when they work just as hard on a $100,000 sale and you don’t hear a peep. They happily accept $2,500 because it happens to be the magic number, 2.5%. But if $20,000 falls short of 2.5%, get ready for the most superstitious, incoherent and disingenuous defense of their fee, coupled with a scheming, slimy, calculated and exploitative plan to get it.

My sellers received an offer for their home. Accompanying the offer is the compensation agreement. Notice, she checked the box, “Listing broker’s offer of compensation IS MODIFIED and listing broker agrees to pay 2.5%:

Her buyers don’t see this form. At the top of the form, NAR states that the form is not an addendum to the agreement of sale, so it isn’t required they sign it. This is by design. They know that the buyer agent can keep her buyers in the dark this way:

“Not to be used as addendum to agreement of sale”

The buyer agent leverages the buyer, whose interests are supposed to come before their own. They use them for commission ransom. Buyers have no idea they’re being held hostage, and their dream home — their lives there, are hanging in the balance of their Realtor’s greed and the homeowner’s willingness to cave in. A homeowner may very well accept the buyer’s offer, but not their agent’s commission. The agent will turn around and simply tell their buyers the sellers don’t accept their offer, and they’ll move on, having no idea the deal fell apart over commission. It is fraud on a massive scale.

Complaint B:

allowing buyer brokers to misrepresent to buyers that a buyer broker’s services are free

The implication here is that buyers are probably financing their agent’s commission, because its assumed that if a buyer is without representation the seller would be willing to come down on price by the amount of the agent’s commission. Redfin is going so far as to incorporate this theory into their advertising:

If I wind up an expert witness, I’ll have to tell the truth. I don’t believe it is generally the case that buyers pay for their agent. In other words, if you were to wave a wand and all buyer-agents disappeared, I don’t believe we would see selling prices decline nationwide. That would require a manual accounting to lay over top of each deal, subtracting the cost of the would-be agent, and this seems too inelegant for the laws of supply and demand, if not too procedural to be paid attention to by the vast majority of buyers who just want to be the winning bid. At any rate, my issue with sellers agreeing to come down on price in the absence of a buyer agent is that we are agreeing that 2.5% is the benchmark, and it shouldn’t be. There is no reason to believe that the fair market value of a buyer agent is 2.5% across all selling prices, and therefore in the absence of the agent anything below 2.5% of the selling price ready to be renegotiated as a perceived savings to the seller. It isn’t — we will only know what the true value of a buyer agent is when buyers pay for their own agent. This is also why I take issue with buyer-rebates. If there is so much excess commission up for grabs, that entire companies like Prevu and Redfin can make a name for themselves by giving half of it to the buyer, it goes to show how desperately we need to just reduce the damn buyer-agent commission and let the homeowner keep their hard-won equity. These are games that are played and made possible by virtue of how grossly inflated the cost to sell a home are in this country. As previously mentioned, Cohen Milstein, who is the Mike Tyson of class action firms, knocked out VW, big oil and big pharma, and is suing NAR, Berkshire Hathaway, RE/MAX, Realogy, and Keller Williams, They are seeking permanent injunctive relief for sellers, by requiring buyers pay their agent. They cite section 16 of the Clayton Act, a guide to anti-competitive and antitrust practices. Of course, they aren’t going to continue receiving anything close to 2.5–3% of the selling price, and between damages owed and the new laws on the books eliminating nearly half of all revenues, legacy brokerages are finished. They set themselves up for failure by insisting on brick and mortar locations and massive overhead inherent in an outbound sales force model, not an inbound customer centric model.

Complaint C:

enabling buyer brokers to filter MLS listings based on the level of buyer broker commissions offered and to exclude homes with lower commissions from consideration by potential home buyers

Granted, this is less of an issue today where the vast majority of buyers search and identify the homes they want to see online. This issue is that many MLS’s provide the ability for agents to organize available homes for sale by the amount of commission being offered… This is what we get when anyone with three months and three hundred bucks can obtain a real estate license. We are not dealing with financial advisors or asset managers, the residential resales business is as depraved and sales-driven as the time share industry.

Complaint D:

limiting access to the lockboxes that provide licensed brokers with physical access to a home that is for sale to only brokers who are members of a NAR-affiliated MLS

This bulky piece of shit is about as helpful as it is attractive.

If I show a property, and drive thirty minutes to an hour in any direction, I’m in a new MLS territory. There are almost a thousand MLS’s across the country:

As a NJ licensee, I can buy and sell in New Jersey, but when my clients are interested in a home listed by an agent who attached a Supra lockbox, I cannot access the property if I am not a member of that MLS, without the aid of the listing agent. I see this taking place in only certain regions, which leads me to believe there is a strong push on the local REALTOR association (who owns the local MLS), to attach these lock boxes in a scheme to increase the number of dues paying members. Never mind this isn’t in the seller’s best interest because it doesn’t get the home shown to the most number of buyers possible in a timely way.

In conclusion, NAR is a big trade group, their business is membership. There is an inverse relationship between what benefit’s NAR and what benefits the homeowner. Its an awful irony, that so many homeowners turn to agents for guidance only to get mixed up in a world of corruption. In a normal, healthy market, consumers benefit from increased efficiencies and productivity that translate into savings, then passed onto the consumer. This is not the case in real estate, fraught with price fixing and monopolization. Despite the internet, technology, software and networks, commissions have hardly budged since they were conceived in the 1940s. Lower commissions equal less dues paying agents. NAR conspires to keep commissions high.

A valiant, but futile effort.
NAR has settled and will be making changes to their business strategies, carried out vicariously through 1.4 million Realtors. Unfortunately, it will do little to make this system more fair and equitable for homeowners. Homeowners are on autopilot. The majority of sellers just want to get their home sold, they don’t want to take risks and therefore begrudgingly agree to give the buyer agent the 2.5% fee they want. As previously mentioned, that arrangement is called into question by Moerhl VS NAR and company, where NAR is focusing all of its resources to win this jury trial.

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I used to add miracle grow to data-analytics firms, now Im a proptech founder bringing offline consumer experiences online.

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John Fulton

John Fulton

I used to add miracle grow to data-analytics firms, now Im a proptech founder bringing offline consumer experiences online.

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