Real estate professionals on Monday weighed in on a decision by a federal judge in Illinois to deny a motion to dismiss a lawsuit challenging the industry practice of homesellers paying buyer brokers, with reactions ranging from predicting that it will all end in just another disclosure form for sellers to sign to foreseeing a paradigm shift in the industry if the plaintiffs have their way.
“The outcome could create one of the paradigm shifts we have all been discussing for years,” Saul Klein, industry veteran and executive editor of Realty Times, wrote in response to an Inman Coast to Coast Facebook post about the judge’s order, adding that the case and other related class-action lawsuits should get more industry attention than they have received.
Filed in 2019 on behalf of Christopher Moehrl and other homesellers, the lawsuit is one of two seeking class-action status that allege the sharing of commissions between listing and buyer brokers inflates seller costs and violates the Sherman Antitrust Act. The National Association of Realtors, Realogy, Keller Williams, RE/MAX and HomeServices of America are the defendants.
The plaintiffs seek to have homebuyers pay their broker directly, rather than having listing brokers pay buyer brokers from what the seller pays the listing broker — a move that could upend the U.S. real estate industry by effectively forcing changes in how buyer’s agents are traditionally compensated.
In her order, U.S. District Judge Andrea Wood found if it were not for NAR’s rules requiring homesellers to make a blanket, unilateral offer of compensation to any broker who finds a buyer for a home — regardless of that broker’s experience or the value of services that broker provides to the buyer — and for the corporate defendants’ requirements that their franchisees follow NAR’s rules, that “each plaintiff would have paid substantially lower commissions.”
Reaction was mixed on Monday as real estate professionals weighed in on social media and in interviews with Inman.
“Can you picture a day … where buyers have to pay their buyer agents and sellers pay their listing agents, and the two are separate transactions?” Valerie Garcia, vice president of Realvolve and Firepoint, wrote. “The implications of that are a lot to think about.”
Eileen Romito, head of customer success at Zenlist, said it wasn’t hard to imagine. “I can’t think of any other industry where someone you are negotiating with is the person who effectively pays your representation,” she wrote.
Some industry pros predicted that such an eventuality would result in more dual agency deals or transactions in which buyers are unrepresented, which would subsequently lead to more lawsuits.
“Buyers cannot afford their down payment and closing costs now, do you think they are going to tack on a commission to the buyer’s agent? Many don’t even put any value on a buyer’s agent (with good reason in many cases),” wrote Christopher Dean, director of operations and marketing at The Monica Foster Team at eXp Realty, in a comment on Inman’s article about the judge’s order.
“So because of those two things all you will have is a reversion back to the days before buyer agency (and no buyer representation) and a majority of all realtors will disappear (which companies who don’t rely on buyer agents to sell homes might prefer).”
In an email to Inman, Las Vegas agent Steve Hawks suggested that NAR and the franchisors are fighting the suits because they and local MLSs thrive on the status quo, which depends on having masses of agents all paying the same dues regardless of their quality or productivity.
“Some models will thrive with the proposed changes like buyers agents’ commissions being shown,” he said. “Full-time productive agents are just a small fraction of revenue for local MLS and NAR. The majority of revenue comes from low-producing and part-time agents.”
Still other real estate pros didn’t anticipate the suits would change much. Murray, Utah, agent Patty Rife Laforte forecast a bifurcated market where well-off buyers will be able to pay their own agent while most will still depend on sellers.
“A vast majority of buyers in the lower end of the market do not have the money to pay their agent so what will happen is the market will stall and sellers that want to sell faster will then offer to pay that for the buyer and boom we are back to where we are but with additional paperwork,” she wrote in the Facebook thread.
“Now in the upper end of the market that may change and people with money may need to pay their own agent.”
J. Philip Faranda, broker and owner of J Philip Real Estate in Westchester County, New York, predicted an even milder result. “I think there’s a strong possibility that this will not matter more than to make extra paperwork if the plaintiffs do prevail,” he wrote in the Facebook thread.
“NAR lawyers will huddle, seek the path of least resistance that conforms with the outcome, and wordsmith. Sellers will sign another boilerplate ERS [Exclusive Right to Sell form] with an additional paragraph of verbiage that satisfies whatever the judgement mandates, and it will continue to be business as usual.”
“As an aside, this is a time for all of us, haters and those otherwise occupied, should whisper a silent thank you to ‘alternative’ business models that give consumers a choice that bucks the accused model,” he added.
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