Trends Report dives into compensation, 'a core issue for the industry'
The 2023 Swanepoel Trends Report looks at agent and broker compensation structure, which is at the center of several pending lawsuits.
- Changes to compensation structure "could profoundly affect how homes are bought and sold and how agents earn their livings."
- The real estate industry is facing “unprecedented scrutiny” as a result of federal investigations and court challenges.
With federal review of the real estate compensation structure underway — as well as class action litigation pending — authors of the 2023 Swanepoel Trends Report provided an overview Wednesday of the issue and its implications.
T3 Sixty's annual Trends Report, now in its 18th year, is designed to help real estate leaders plan for the future by analyzing key trends shaping the industry.
The newly released report examines, among other topics, real estate compensation structure, the status of related lawsuits and regulatory reviews, and what the outcomes could mean for the industry.
"We are not advising on compensation or compensation structure, to be fully upfront. We are looking at the state of lawsuits and implications of compensation changes," said Jack Miller, president of T3 Sixty.
On the topic of agent compensation, the report states: "The industry's engine, approximately $100 billion of brokerage compensation each year, faces a potential restructuring that could profoundly affect how homes are bought and sold and how agents earn their livings, and how brokerages, MLSs, and Realtor associations function."
The report concludes that "the federal government regulators and large class action lawsuits have their sights set squarely on the real estate brokerage industry's current compensation structure," and the real estate industry faces "unprecedented scrutiny" from these investigations and court challenges.
"I was surprised by how big the compensation issue is and how little is known throughout the industry about what is happening," said Paul Hagey, report author and editor-in-chief, during a webinar for industry leaders. "This should be a hot topic for everyone."
Hagey discussed specific claims over compensation made in lawsuits filed since 2019. Separate reviews by the Department of Justice and the Federal Trade Commission are continuing. While the scope of various lawsuits and federal reviews differ, the report identifies similar allegations among the suits:
The current fee structure inflates compensation and is not always clear to buyers.
Buyers in some instances are steered from listings that fall below a market's average buyer broker commission.
The ability of buyers to negotiate commissions is hampered.
Unilateral offers of compensation stifle competition.
The lawsuits seek damages "on behalf of home sellers and in some cases home buyers for what they characterize as inflated compensation," according to the report.
Policy changes at NAR
In 2021, NAR implemented policy changes related to compensation — the Cooperative Compensation Rule — requiring listing agents to offer buyer-broker compensation when submitting a listing to an MLS, according to the report.
Buyer-brokers and agents are prohibited from advertising services as "free" unless they receive no compensation. "This adds a level of transparency without FTC action," Hagey said.
Agents are prohibited from filtering the listings that consumers see based on compensation. That feature in MLS platforms has been turned off, Hagey said.
Other major industry players have implemented changes as well. In January 2021, RE/MAX announced it would display buyer-broker commissions on all listings as available. The California Regional MLS, the largest in the nation, followed with the announcement that it would begin displaying buyer-broker commissions.
In January 2022, Realogy (now Anywhere Real Estate) spoke out against the Cooperative Compensation Rule, calling on NAR to eliminate the requirement. In July, the Northwest MLS announced new rules and the rollout of standard forms specifying how compensation is handled for both buyers and sellers.
Just how significant are these lawsuits and ongoing policy changes related to compensation structure? "This is a core issue for the industry," Miller said. Added Hagey: "Foundationally, this represents a shift in how the industry works."
Note: T3 Sixty founder Stefan Swanepoel also founded Real Estate News.