• Tue. Jun 21st, 2022

Regulation requires real estate brokers to disclose commissions


The National Association of Real Estate Agents is reorganizing its rules on commissions to comply with a settlement reached with the Department of Justice. (Photo IL / Olivia Covington)

On the home page of the National Association of Realtors website is the link to the spotlight.

The tab allows visitors to access information about a settlement reached last fall with the US Department of Justice regarding the association’s practices, which the federal government said reduced competition between real estate brokers and led to an inferior quality of service for residential buyers and sellers.

Essentially, the amount of commission the buyer’s real estate broker would earn was not disclosed to homebuyers. Buying brokers are generally paid for their work by dividing the commission that sellers pay their real estate brokers.

However, according to the Department of Justice, the buying brokers were able to trick buyers into believing their services were free. The cover-up allowed buying brokers to avoid showing homes with lower commissions, hurting buyers by making them less likely to be matched with the home that best meets their needs and deterring sellers from reducing the amount they paid their brokers.

As a result, the DOJ viewed this practice as increasing the prices of buying brokerage services while reducing the quality of those services.

The NAR did not admit any responsibility, wrongdoing or truth regarding the Justice Department’s allegations. But as part of the settlement, the association is making details of the deal readily available on its website and amending its rules so that the compensation offered to buyers’ agents for each MLS ad is made public.

Apline

Real estate attorney Robert Aplin of Scott & Aplin LLC in Fort Wayne has not had clients contacting him with concerns about their real estate agents‘ commissions, but he is not surprised by the settlement between the Association of Agents. real estate and the federal government. The matter was stirred up in state and federal courts until finally the DOJ got involved.

Aplin expects the deal to bring transparency to the process of buying and selling a home, but the changes won’t happen overnight.

“I think it’s the buyer’s responsibility to make sure that the big brokers are strongly encouraged to show all homes,… not just the MLS ones or the ones offered by the other big brokerages in town,” Aplin said. “(Consumer demand) is the only way it’s really going. “

Market forces

One thing that could hamper the demand for transparency is the demand for single family homes.

The residential real estate market continues to sizzle. Data from the Indiana Association of Realtors pointed out that in Hoosier State, 96,028 homes were sold in 2020, an increase of 6.4% from 2019. The median sale price was 185,000. $ in 2020, an increase of 9.5% over the previous year.

The market does not seem to be cooling down. Although, as the IRA noted, January is generally a slow month for real estate, closed home sales jumped 9.9% in the first month of 2021 compared to the same period in 2020. The median selling price climbed 15%.

Aplin has witnessed hyperactivity in his community. Sellers get the asking price within 24 hours of the house being put on the market, and bidding wars offering more than the house’s value erupt 48 hours later.

In addition to the sales of existing homes, the construction of homes in new subdivisions is flourishing on former agricultural fields. Aplin said people were moving from their “affordable, moderately priced” homes to new homes that could be priced above their value because of the “insanely high” cost of building materials.

Aplin stressed that in this market real estate brokers don’t have to accept lower commissions and sellers have confidence that their agents will offer a very competitive rate. However, a slowdown in demand could prompt consumers to question.

Families trying to sell their homes in a declining market might look for ways to cut costs, including limiting the commission paid to their real estate brokers, he said. The transparency that accompanies the DOJ’s settlement would allow consumers to eventually negotiate with their agents or find a broker who will take a lower commission.

This, in turn, could bring into play market forces and make real estate brokers more responsive to economic conditions.

“With this industry when the market is bad, they want 6% (commission),” Aplin said. “When the market is good, they want 6%. It looks like their commissions are expected to change as the market changes.

Honest earnings

In addition to the Department of Justice action, a few lawsuits regarding NAR practices are pending in federal courts, including one in the Northern District of Illinois, Eastern Division.

Illinois antitrust action, Christopher Moehrl et al. v. The National Association of Realtors, et al., 19-cv-01610, echoes allegations in DOJ’s complaint but focuses on home sellers. The plaintiffs describe the NAR as having entered into a conspiracy with the other defendants to impose all costs on the sellers when a portion should be paid by the buyers.

“It’s a bit like lawyers working for one side in a transaction paying lawyers working for the other side,” the complaint said, citing a 2006 article in “Inman,” a publication covering the real estate industry.

Like the DOJ complaint, the Illinois lawsuit claims the defendants violated Section 1 of the Sherman Act. The two motions for dismissal filed by the defendants were dismissed in October 2020. Quoting Agnew v. Nat’l Collegiate Athletic Ass’n, 683 F.3d 328, 335 (7th Cir. 2012), Justice Andrea Wood found that the plaintiffs had passed the three hurdles required to make a claim under Section 1, including unreasonable restriction of trade.

“Further evidence of the anti-competitive effect of buyer-broker commission rules is the stability of commission rates over the years. Indeed, between 2000 and 2017, the total commission rates remained in the range of 5.0 to 5.4%. … Phone ‘[u]normal and sustained price stability is not expected in a competitive market, ”Wood wrote, citing In re Dairy Farmers of Am., Inc., Cheese Antitrust Litig., MDL 2031, 2013 WL 212908 to * 5 (ND Ill. January 18, 2013).

About a month after Wood issued the order in Moehrl, Judge Timothy Kelly of the United States District Court for the District of Columbia signed the Proposed Stipulation and Order which was submitted as part of the settlement reached by the Department of Justice and the National Association of Realtors.

The agreement requires the NAR to make changes to its code of ethics and MLS policies. In a video statement posted to the association’s website, NAR 2021 chairman Charlies Oppler discussed the settlement and stressed that the organization disagreed with the Justice Department’s allegations. .

“While our rules and policies have created a competitive and efficient market that benefits both buyers and sellers, we sometimes engage with government entities to ensure that NAR rules are kept up to date and promote these goals,” said Oppler said. “Based on our commitment to act in the best interests of buyers and sellers, we regularly update our rules and policies to protect consumers and ensure transparency. “

Aplin believes the changes to NAR practices could have a positive impact. Notably, the revised rules could increase competition by opening the door for discount real estate brokers to enter the market, which would give consumers another option.

“I am a capitalist,” Aplin said. “Everyone deserves to earn money. It’s just that the money has to be honestly earned through transparency.


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