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A week after the U.S. Department of Justice came out in favor of completely prohibiting homesellers from making commission offers to buyer brokers, the National Association of Realtors says that change would hurt consumers.
For decades, listing agents and buyer agents have shared commissions, a system reinforced by a NAR rule that requires listing brokers to make blanket, unilateral offers of compensation to buyer brokers in order to submit a listing in a Realtor-affiliated multiple listing service. That rule is known as the cooperative compensation rule or the Participation Rule and it is the subject of ever-multiplying antitrust lawsuits across the country.
On Thurs. Feb. 15, the DOJ submitted a statement of interest in a case challenging a rule similar to NAR’s rule, known as Nosalek. In that legal filing the federal agency rejected rule changes in a proposed settlement and instead called for “an injunction that would prohibit sellers from making commission offers to buyer brokers at all,” thereby promoting competition and innovation between buyer brokers because buyers would be empowered to negotiate directly with their own brokers.
Such a move would “decouple” commissions — a change the consumer watchdog the Consumer Federation of America has been pushing for since May 2022.
The DOJ emphasized that that change would not necessarily force buyers to pay commissions out of pocket because buyers could, in their home purchase offer, request that the seller pay the buyer’s broker from the proceeds of the home sale.
“Thus, the current practice could continue, where the seller factors the commissions into the offer the seller is willing to accept,” the DOJ’s filing says.
Nykia Wright
The day after the DOJ’s filing, NAR issued a public statement from Interim CEO Nykia Wright decrying “[e]xternal commentary” that “purported to tell our story for us,” but did not mention the DOJ or its call to end commission sharing.
On Thursday, Inman asked NAR what the consequences of the DOJ’s proposal to decouple commissions would be and whether they would be positive or negative for consumers and agents.
“The Statement of Interest confirms that the DOJ wants to regulate what sellers and their listing agents are allowed to do with their own money and homes,” NAR spokesperson Mantill Williams told Inman in a statement.
Mantill Williams
“Prohibiting all offers of compensation will harm consumers, including by making it more costly for home buyers to access capable representation and by reducing access to fair housing.
“There is a great deal at stake for buyers and sellers all across the country, and NAR will continue to work, in and out of court, toward the best possible outcome for property owners in America and the professionals who represent them.”
NAR did not elaborate further. The statement also served as NAR’s response to CFA, which hailed the DOJ’s filing as “a major watershed in efforts, over the past 80 years, to introduce more price competition in agent and broker compensation.”
“This DOJ opinion virtually guarantees that buyers will eventually be able to negotiate buyer agent commissions that are currently fixed through industry collusion,” said Stephen Brobeck, a CFA senior fellow, in a statement.
Steve Brobeck
“It is also likely that there will be greater variation of agent compensation depending on factors such as agent experience and time spent on the sale.”
CFA warned that price-fixing could continue even within a decoupled system if agents refuse to negotiate their rates.
“Agents could tell buyer and seller clients that 2.5-3.0 percent rates [5-6% total] were normal, and agents could refuse to negotiate these rates, as many listing agents currently do (around three-quarters, CFA research has found),” Brobeck said.
Regardless, he doesn’t expect current commission rates to decline either quickly or drastically.
“To ensure significant price competition, both buyers and sellers would need to discuss and try to negotiate compensation of their agents,” Brobeck said.
“Even then, rates would be unlikely to fall immediately, yet over time could decline to an average of 3-4 percent level, saving consumers an estimated $20-$30 billion annually, with much greater variation in types of compensation and rates charged by different agents.
“No longer would inexperienced agents be able to charge the same rates as highly competent agents with years of experience.”
Kevin Sears
Earlier this month, NAR President Kevin Sears told hundreds of agents the DOJ was going to be a “bigger problem” for brokers and agents than a multibillion-dollar verdict in an antitrust commission case known as Sitzer/Burnett that found NAR and major real estate franchisors had conspired to inflate broker commissions.
Sears warned agents that “the way that we operate our business is going to change. It is going to change whether we embrace it and adapt, or it’s going to be forced down our throats.”
Judge Stephen R. Bough
The most likely avenue through which the DOJ’s proposal could be made reality the soonest may be when the judge in the Sitzer/Burnett case issues a final judgment, which could include an injunction, this spring. The judge, Stephen R. Bough, is currently weighing NAR and the other defendants’ motions to set aside the jury’s verdict, or barring that, for a new trial.
