In a legal advisory this month, the New York State Association of Realtors told its members that there is an apparent rise in the offer of variable payments to cooperating brokers in real estate transactions, and there is a potential for antitrust violations related to the discussion of these practices.
Listing brokers are in some cases notifying other brokers that they will pay them a different amount of compensation than the level advertised in the local multiple listing service for bringing a buyer to the real estate transaction, according to the advisory.
Anthony Gatto, director of legal services for the Realtors association, said in Nov. 8 notice to member brokers, “It has come to NYSAR’s attention that the amount of a listing broker’s cooperating compensation in the (MLS) or otherwise being offered to the successful selling broker is possibly being discussed in venues that could lead to unintended legal consequences of an antitrust nature.”
The real estate industry is already on the antitrust hot seat, as the U.S. Department of Justice is engaged in an antitrust lawsuit against the National Association of Realtors, and federal agencies also have taken several actions this year to oppose state measures that they say wouldlimit consumer choice and harm competition for real estate brokerage services. And federal and state agencies are already scrutinizing real estate commission practices in New York.
Gatto’s legal memorandum states that the practice of offering variable commissions is “legal as long as the broker has independently come to this decision and is disclosing the differing compensation of cooperating brokers to the seller,” and as long as the broker also discloses “why a different compensation is being offered to a particular broker.” But he cautioned, “In and of itself, the reason the broker discloses (why a different compensation is offered to a particular broker) may be antitrust in nature. Brokers need to be aware of what constitutes antitrust practices or behavior and when they are in violation of the same.”
Excerpts from a National Association of Realtors publication titled “Antitrust and the Real Estate Brokerage Firm,” an overview of antitrust laws and antitrust-related sections of the Realtor association’s Code of Ethics and Multiple Listing Policy Suggested Rules and Regulations are also included in Gatto’s advisory.
Salvatore Prividera Jr., a spokesman for the New York State Association of Realtors, said the legal advisory was intended to “get information out to brokers to make sure that they’re doing the things they need to do.” He added, “There are no investigations, no pending litigation. We’re just trying to be proactive as topics come up.”
In a typical real estate transaction, the real estate broker or agent who listed the property for sale typically receives a percentage of the home’s selling price as compensation for services. That commission percentage, which historically has ranged around 6 percent, has dropped to an average of about 5 percent for the past few years, according to industry estimates. The listing broker or agent typically offers a share of this commission to the broker or agent who represents the buyer in the transaction, and this commission share is typically advertised in the MLS. Traditionally this share offered by listing brokers to cooperating brokers has been 3 percent, or roughly half of the total commission.
Peter Hunt, president and CEO of Hunt Real Estate Corp., an ERA affiliate based in Buffalo, N.Y., said he had a first-hand experience with a broker who offers variable commission rates in his company’s market area.
“One broker issued at least one or two letters to other brokers – they were going to retaliate in their split offering based on what they perceived as predatory practices that singled them out. I got a phone call telling me I was going to receive a letter. I said, ‘That’s preposterous.’ We offer the same thing to everybody. I steadfastly deny any type of discriminatory pricing policy on our splits. We’ve never done that in 95 years,” Hunt said.
Variable commission offerings have popped up sporadically over the years, though these actions are typically short-lived, he said. “I don’t view these as long-range issues. I think it’s a passing thing as a result of some emotional response. There is generally a fair amount of price competition out there in the market. You’re going to see splits that may not appear normal. I think it’s more a reflection of industry conditions as much as market conditions.”
Foxtons, a discount real estate company with operations in New York, New Jersey and Connecticut, earlier this year contacted the New Jersey Attorney General’s Office to complain about real estate business practices that the company claims are discriminatory, and also has been in contact with the New York Attorney General’s Office.
A company official told Inman News that more than 80 New Jersey Realtors sent letters to the company “outlining their intention to offer discriminatory commission splits to our agents. Each of the letters states, in similar wording, that the listing agents will only pay a Foxtons broker a 1 percent commission on the sale of any of their listings.” The practice was reportedly in retaliation for a Foxtons practice of offering 1 percent of a total 3 percent commission to cooperating brokers for its listed properties.
Foxtons officials had no comment about the legal notice that was sent out this month by the New York State Association of Realtors.
Laura Rubinfeld, association executive for the Manhattan Association of Realtors, and Lynnore Fetyko, CEO for the Greater Syracuse Association of Realtors, said they haven’t heard of instances in which companies offer variable commission splits in their market areas.
Fetyko said that the association is handing out copies of the legal notice issued by the state Realtors association and is planning to show a National Association of Realtors-issued video on antitrust issues to “make sure folks are clear on commission discussions and issues — to educate them as to the right way to conduct business.” She said she isn’t aware of any complaints related to varying commission rates.
In another matter related to real estate commissions in the state, the New York Attorney General’s Office and the U.S. Federal Trade Commission are scrutinizing commission practices within the Real Estate Board of New York (REBNY), a group that represents real estate brokers, property owners, financial services companies and other real estate-related trades.
Steven Spinola, REBNY president, said the group has received a subpoena from the Attorney General’s Office and a letter from the FTC requesting information related to commission-setting practices. “There was a meeting between those two parties and our attorneys, and we gave them answers. We are pulling together whatever information we have,” Spinola said.
“We never advised (members) about what commissions they pay,” he also said. “(Commission) is not something that can be set by anybody other than the two parties who are sitting down to make a deal.” The agencies have also requested information relating to REBNY’s property listing service, Spinola said. “A lot of the documents they ask for we don’t have. We don’t have a multiple listing system as traditionally identified. We don’t own it – we don’t control it.” REBNY is not affiliated with the National Association of Realtors.
***
Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.
