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I recently wrote about the legal troubles the National Association of Realtors (NAR) and major national residential brokerages are having. A settlement appeared to be on the table that would put the litigation to rest so NAR members and residential real estate agents could sleep at night.
The proposed settlement in question is actually the solution that has been proposed in many of the Commission cases. This includes giving the seller's agent the ability to enter any commission amount to the buyer's agent, even if he is $0. It was thought that this would free listing services, and by extension the real estate associations that operate them, from responsibility for “price manipulation.'' In response, the Department of Justice (DOJ) rejected the settlement offer.
The Justice Department said in its decision that the solution “does not create competition or reduce commissions,” and that “the amended rules still allow sellers and their listing brokers to set compensation for buyers' brokers.” I am giving them a role to play.” The problem, according to the Department of Justice, is that giving a seller's agent the power to withhold a commission price from a buyer's agent still does not leave the commission in the hands of the buyer. In this scenario, there can be, and is, pressure on seller's agents to comply with industry norms.
“Sellers will continue to offer 'customary' commissions for as long as they can offer commissions to buyer brokers for fear that buyer brokers will lure buyers away from listings with lower commissions. This is known as steering. This is a phenomenon that has been documented in the past,” the filing said.
The Department of Justice has proposed a complete reconsideration of fees, saying, “Instead, the parties may propose an injunction that prohibits sellers from making any fee offers to buyer brokers.'' The order would give buyers the power to negotiate directly with their brokers and encourage competition.”
Consumers use the current system because it works for them. Buyers and sellers are not forced by law or regulation to use an agent to buy or sell a home, and they already have the option of using one without the help of an agent.
But it's clear that ending legal disputes over residential real estate commissions will require major changes in how the Multiple Listing Service (MLS) operates. It is becoming clear that judges, courts, and the Department of Justice are not looking for minor adjustments, but rather an overhaul of a system that is deeply embedded in homebuying culture.
J. David Chapman is a professor of finance and real estate at the University of Central Oklahoma ([email protected])
