A federal jury today agreed with the plaintiffs that organizations such as Keller Williams, Berkshire Hathaway HomeServices of America, and the National Association of Realtors had violated the law by conspiring to inflate commission rates.
Their attorney then filed an additional lawsuit against the other large brokerages, including Compass.
There’s enough for several blog posts here! Let’s begin with the first problem:
In this trial, the defense was pathetic, and the realtors will likely lose in appeals court too.
The defense attorneys rode in cocky and notched it up on the first day when they said the plaintiffs have the burden of proving their case…..and the defense may not even call a witness! Then when they did call a witness, it just had to be the CEO of NAR, Bob Goldberg, whose arrogance may be unrivaled.
He offered the following:
The CEO returned to the stand on Tuesday to face cross-examination from plaintiff party’s attorney Michael Ketchmark. During the cross, Ketchmark tried making an analogy — not for the first time — between the allegations facing NAR and the hypothetical of chicken producers inflating prices.
Goldberg argued the analogy was “apples and oranges” because real estate agents offer a service, not a product. When Ketchmark continued his analogy and pressed Goldberg on whether he needs an explanation of antitrust law, the CEO responded, “No. I need you to explain to me the chicken law.”
What the defense never considered was that the jury came into the courthouse with the same biases/prejudices that every American has considered – realtors are overpaid, and it’s a racket. The industry never bothers to educate the public, so you can’t blame the jurors or anyone else for thinking that we need to be taken down a notch…or two.
When Bob made his crack about chicken law it had to make every juror hate him even more. Sure, it was kinda funny but this is no time for wisecracks when billions of your members’ money is on the line!
Gary Keller is a nice guy but his soft-spoken testimony didn’t sway the jury – and you can blame his defense attorneys for asking questions that were too lame and indifferent:
Keller’s was the final testimony in the defense’s bid to argue that broker commissions vary and are not set by real estate companies.
Keller denied in his testimony that a “standard commission” existed, saying agents are responsible for setting their own commissions. He said the company had no say in the commissions charged by agents.
While it is true that realtors are independent contractors and each sets their own commission rates, having a gazillionaire state it towards the end of the trial isn’t going to persuade anyone.
The two most important facts of the case were never brought up:
The sellers should have the right to pay a reward, or bounty, to persuade agents to sell their house.
Every seller pays the listing brokerage the full commission, and it’s the LISTING AGENT who decides how much commission the buyer-agent gets.
For the defense to not bring up these points just shows how arrogant and unprepared they were for this trial. The NAR president didn’t exactly give us a reason to think it might be different next time:
This matter is not close to being final. We will appeal the liability finding because we stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition. We remain optimistic we will ultimately prevail. In the interim, we will ask the court to reduce the damages awarded by the jury.
In court, NAR presented evidence that consumers are better off and business competition is able to thrive because of our rules and how well local MLS broker marketplaces function. In fact, the NAR cooperative compensation rule for local MLS broker marketplaces ensures efficient, transparent and equitable marketplaces where sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation. NAR also presented that REALTORS® are everyday working Americans who are experts at helping consumers navigate the complexities of home purchases and advocates for fair housing and wealth building for all.
Is that all you got? With leaders like this, any future trials will be decided in the same 2.5 hours that it took the jury to decide this one. The only hope is that Compass will hire our own attorneys, and they call on a part-time blogger from San Diego to testify!
Paying referral fees is a standard practice in the realtor business.
Are you thinking of moving to a new town and need an introduction to a realtor there? Your agent here will track one down for you, and that agent will pay them a referral fee, which used to be 20% to 25% of the gross commission. The challenge? Getting good help!
Great agents don’t need any assistance with procuring new clients, and they might reluctantly pay a 20% or 25% referral fee only if the new client is motivated and in the upper regions, price-wise.
Less-experienced agents are willing to pay out higher referral fees, which doesn’t do the client any favors.
What we do is tough work, and fewer and fewer people want to do it.
It’s so hard to hire, train, and retain good/great agents now that many real estate companies are just resorting to referring clients, and taking a substantial referral fee instead.
Zillow has staff taking the incoming calls, and qualifying the leads before sending them to their Flex agents. Their referral fee is now 40% of the gross commission, AND they want buyers to use Zillow Home Loans too. Their Flex agents who send their buyers to ZHL will be rewarded with more leads, and vice versa:
Less than five percent of the U.S. real estate agent population works with Zillow (with far fewer Flex agents), and Zillow only touches around three percent of U.S. real estate transactions. They are running a small, exclusive ecosystem of agents that are willing to play by their rules, which now includes tight integration with Zillow Home Loans.
You’ve probably seen the TV ads by Homelight? The ones that pitch teaming you up with the best agents in town? Well, at least with the best agents who are willing to pay them a 30% cut of the gross commission.
Now Redfin is giving up on their agent-employee program, and they are testing the idea of hiring agents on commission splits, instead of salary and paying them “up to 75%”. It’s doubtful they will pay many of their agents the full 75% split. It’s just another way for them to get referral fees of 30% to 50%.
None of the referral fees are disclosed to the client, and it’s never discussed of how the size of the fee will impact the quality of the agent service you receive.
But most of all, any thought of commissions dropping will be fleeting at best. Commissions need to stay high in order to pay the larger referral fees!
Currently, every listing agent is required to offer some sort of buyer-agent compensation on the MLS. Zillow and Redfin publish those commission amounts on every listing now, so they are all out in the open.
Today, there are 79 homes for sale between La Jolla and Carlsbad in the $2,000,000-$3,000,000 price range. Thirty percent of those listing agents are offering less than 2.5% commissions to the buyer-agents.
Outsiders who see that will assume that commissions are finally starting to drop, after all these years.
But the vast majority of those listing agents are probably still taking 5% to 6% commissions, and offering 2% or less to the buyer-agent (and more for themselves).
If the listing agent is supremely talented and brings special skills to the transaction, then it would be understandable. But I’ve been a buyer-agent on listings that are offering less than 2.5%, and they’re not different. Virtually every listing agent still practices the Three-P marketing plan: Put a sign out front, Put it in the MLS, and Pray.
There are hundreds of multiple listing services in America. So far, only a few have removed the requirement of offering a buyer-agent commission. But the NAR lawsuits are going to change that, and soon every MLS will permit 0% commissions to be offered to the buyer-agents (hoping buyers will pay their own agent).
The listing agents who have little or no repsect for the buyer-agents will keep offering them lower and lower commissions. Eventually, their rate will get down to zero or close.
Will sellers figure it out?
Sellers focus on the total commission. They don’t do enough transactions to know that the amount the listing agent pays to the buyer-agent will impact the sale. It is a bounty offered to encourage the sale of the house, and when market conditions are soggy, it is better to pay buyer-agents more commission, not less.
In the lawsuits, they will discuss agents steering their buyers to homes that pay higher commissions. It’s why the search portals publish the commission rates now so buyers can track whether their agent shows any bias based on the commission rate being offered.
It’s why the industry will be racing towards 0% commissions offered to the buyer-agents.
Eventually, the DOJ will probably step in and insist that ALL sellers pay 0% commission to the buyer-agents to insure there is no chance of steering. Instead, listing agents will just offer them spiffs under the table in a softer market or when the house is ‘unique’.
Until then, the listing-agent teams are going to keep offering lower and lower commissions (if any) to the buyer-agents – who will then try to get their buyers to pay them something….anything!
At the same time, the listing agents will be encouraging buyers to avoid paying a buyer-agent commission altogether by coming direct to the listing agent instead. Their in-house assistant-agents will attempt a faux representation of the buyer but it will just be a novice clerk who processes their paperwork.
Boom! The seller didn’t have to pay a buyer-agent commission – making these lawsuits worth it – and instead the listing agent keeps the whole commission. If buyer-agents can somehow wedge themselves into the deal, then great, but will the buyer pay them too, when it doesn’t seem necessary?
Mark my words – this will be standard fare in the next year or two.
I have mentioned repeatedly that the buyer-agent is a dead man walking. All forces within the industry are combining to push the buyer-agent out of the equation, and home buyers will be worse off because they will only have faux representation when buying directly from the listing agents.
Everything is negotiable……well, except the buyer-agent commission. From the Code of Ethics:
The Code of Ethics Standard of Practice 16-16 prohibits buyer-brokers from “using the terms of an offer to purchase to attempt to modify the listing broker’s offer of compensation.” Thus, the buyer-broker cannot attempt to condition the purchase of a home on the seller-broker’s agreement to adjust the amount of compensation offered to the buyer-broker.
Second, the Code of Ethics’s Standard of Practice 3-2 requires that any modification in the compensation offered to the buyer-broker “must be communicated to the [buyer-broker] prior to the time that [buyer-broker] submits an offer to purchase the property. And once a buyer-broker “has submitted an offer to purchase the property, the listing broker may not attempt to unilaterally modify the offered compensation.”
Third, Case Interpretation #16-15 advises that any negotiations regarding the buyer-broker’s commission “should be completed prior to the showing of the property.”
The buyer-agent is NOT allowed to negotiate their commission during the offer process!
What’s worse is that any negotiation of the commission must happen BEFORE the home is shown to the buyer. How many listing agents will agree to pay more commission before the buyer sees the home? The answer is zero.
The pending lawsuits against realtors are all about the seller being required to pay the buyer-agent’s commission. Miraculously, ReMax and Anywhere have already settled, and the whole thing could get resolved shortly. But it has been univeral among observers that the end result will be that home sellers will not be required to pay ANY commission to the buyer-agents. It will be optional instead.
Two things will happen:
The buyer-agents will be even more likely to steer their clients to where they can get a commission.
There will be even more shenanigans by listing agents.
Rob lays it out here, starting around the 26-minute mark:
It means that the buyer-agents will have to either live with the commission that the seller is offering (if any) and steer their buyers to those homes, or have an agreement with their buyer to be paid directly by them. While that sounds nice, it is a complete change to the business and most agents won’t be able to justify being paid for their services. When buyers can just go direct to the listing agent for free – which the listing agents will be advertising – they will be very reluctant to be contractually obligated to pay a buyer-agent.
The local index is about where it was last month AND last year at this time.
It is 3% below the peak of last May, and +9.6% year-to-date.
It wouldn’t surprise me if it slides downward ~3% the rest of 2023, then up ~3% in the first half of 2024, then down ~3% in the second half of 2024….recession or not.
Because rates won’t be going down until 2025 (at least), pricing should stay rangebound. Without wild swings in pricing, the buyers can focus on finding the perfect home without compromise.
When there are bidding wars and rapidly-rising prices, buyers are prone to just grabbing something and paying whatever it takes. Without those, sellers and agents have to be really good at selling homes – which hasn’t been required over the last several years.
It is common to see the same words or phrases in the MLS descriptions.
A few years ago, the fancy new buzz word was ‘boasts’; a word realtors would use to describe the home’s best features. The word got overused, and eventually we would read that a home “boasts three bedrooms, and two baths”, as if that was something special.
There are two buzz-phrases you hear regularly these days.
Watch how many times you see, ‘this one checks all the boxes’ and ‘this is the one you’ve been waiting for’.
For those who have access to the confidential remarks, you will see a third phrase currently that is very curious: “Reviewing Offers As Received”
Isn’t that what you are supposed to do? Isn’t that required by law? I think so!
The phrase is probably a response to inquiries from buyer-agents wondering about their full-price offer they just sent in. Sometimes the listing agent will tell you that they have a specific date in mind to review offers with the sellers, or they are reviewing them as received, one by one.
What the buyer-agents really want to know is….when are you going to respond? How long will my buyers and I have to sit on pins and needles while you dink around with no strategy or game plan and instead just play around with the process?
The reason buyer-agents don’t like asking that question is because they cringe at the thought of having to hear one more time the same answer given by listing agents in almost all cases: ‘I don’t know’.
You get a very specific answer from me: “Should we have multiple offers, everyone will receive a highest-and-best counter-offer from us on Monday, and we hope to select a winner by Tuesday night”. It gives buyers and agents alike a specific idea of what to expect, and they can start planning their response.
It’s part of the slow-motion auction – full transparency includes an clear outline of the process, and how to win the game. Our counter-offer will level the playing field by balancing out the other terms, and ensure that everyone knows the winner will be determined by price.
It may sound simple and obvious, but I haven’t seen any other agents embracing full transparency.
I have another example happening now. The listing agent said they have already received one offer and expect a couple of more. When I asked how they will handle it, I got the usual uncomfortable laugh and a vague, joking response of doing something about it next week.
A constant flow of 3-6 groups at a time all to see our hot new PQ listing off the 56 and only one exit down from CCHS. Talk about a convenient location – within five minutes you can get to top-rated K-12 schools, shopping, grocery, and freeway on-ramps without hearing any road noise. Perfect!
For homes in this location, the demand is overwhelming the supply. We’ve already received two offers over list, and we’re just getting started. The way it sounds, I think there will be 8-10 offers.
How do I handle it?
I am as upfront and forthright as possible, and I discuss how the process works with everyone:
We’ve covered the ways that buyers and buyer-agents are getting battered by listing agents.
Making homes tough to show, no transparency about offers and bidding-war process (if any), below-market commissions, sandbagging listings in-house for days or weeks before exposing to general public, etc.
Some can be chalked up to inexperience or clerical errors, but most are a deliberate attempt by the listing agents to box out other agents, and limit the number of offers.
Agents input their listings onto this website only, which gets the property onto Zillow and Realtor.com where waiting buyers might see it. Typically, the buyer-agents are using their local MLS to track the new listings, so they’re not watching Zillow or Realtor.com (and certainly not some unknown MLS website).
It has to be a deliberate attempt by the listing agents to limit the exposure to fellow agents, with the intent to reach buyers directly and double-end the commission.
Won’t somebody just produce an all-encompassing (pardon the pun) website to facilitate homes sales? There is a new disruptor every month with their unique solution, and it’s ALWAYS born out of their frustration with buying a home recently so they are happy to bash agents and the current process.
But consumers have become more adept at searching online, and because there are so few quality homes for sale in 2023, their standards will probably relax further as their frustration mounts. Pretty soon, they will accept just about any risk, just to get their home search over with.
If a bigger company with some brand recognition put together the right website at the perfect moment when the consumers’ frustration is mounting and agents are flailing, it might catch fire. Something like this:
I’d prefer an auction company because it would be more effective at selling homes fairly, and for top dollar. But the winner will be the company that advertises the most.
I spoke to a few agents on the broker preview yesterday about business this year, and the common theme was that agents are have big trouble finding people who want to sell their home. It suggests that the inventory of quality homes will be extremely low this year.
What happens, when that happens?
It means that when listing agents get a hot new property to sell, they will be tempted to find their own buyer first, and/or spoon it to a select few of their agent friends, and then maybe expose it to their office mates before putting it on the MLS/open market.
The extinction of buyer-agents is well underway.
As the market tightens further, more listing agents will be tempted to sandbag their listing and not put it on the open market. Look what happened to the agent this week who received 20+ offers (they told me the final count was 30 offers). After the listing was put on the open market, the flood of offers caused regrets about the workload, so they just grabbed one and shut it down.
Last night I popped off in the comment section about how the business gets shadier every year.
Here’s proof – not every listing with zero days on market was sandbagged, but let’s face it. If you mark your listing pending within a few hours of it going live on the MLS, you didn’t get full exposure.
NSDCC Annual Closed Sales With Zero Days On Market
Year
Annual Detached-Home Sales, Total
# With Zero Days on Market
Percentage
2016
3,107
84
2.6%
2017
3,084
99
3.2%
2018
2,799
84
3.0%
2019
2,834
100
3.5%
2020
3,190
116
3.6%
2021
3,184
173
5.4%
2022
1,939
124
6.4%
When agents see other agents touting their off-market business, they think it must be ok, so they do it too. It feeds on itself, especially when the allure of double-ending the commission is so strong in a tight-inventory environment.
This disease among agents is everywhere. You will notice it at every open house you attend – the agents conducting the open house can’t wait to tell you about their off-market opportunities to get you to sign up. You’ll see it mentioned on social media daily – agents don’t think there is anything wrong with promoting off-market deals. Heck, everyone is doing it!
I regularly ask the agents who have a quality home for sale how they will handle multiple offers, and the answer is always the same: “I don’t know”, before they stumble and mumble something about the seller will decide (oh, thanks for that!) so the agents don’t get blamed for the end result. It’s embarrassing that they don’t have any strategy, and want to leave the door open for shenanigans later. No wonder they want to do an off-market deal, with no scrutiny.
Because no one is doing anything to intervene, the off-market deals will continue to be an accepted practice, and exacerbate the trend towards single agency (and the extinction of buyer-agents). Within the next year or two, every buyer will just go to the listing agent and take their beating.
