NAR doubles down on commission practices ahead of trial
An attorney for the organization said a loss would be “bad news for consumers” and force the industry “back into the 19th century.”
- The Oct. 16 Burnett/Sitzer trial pits NAR and two brokerages against home sellers who challenge the current system of buyer-broker commissions.
- NAR’s deputy general counsel said buyers would be the real losers if the plaintiffs prevail.
- Proposals like rolling buyer agent commissions into the mortgage could actually hurt consumers, NAR said.
Heading into a trial that could have far-reaching effects on the real estate industry, the National Association of Realtors is unwavering in its assertion that existing compensation rules are ultimately better for consumers.
The Sitzer/Burnett class action trial is scheduled to begin on Oct. 16. NAR, Keller Williams and HomeServices of America are the remaining defendants in a case brought by Missouri homesellers who believe the current system of buyer-broker compensation unfairly forces sellers to pay buyer agent commissions, limiting competition and inflating costs.
NAR: A loss could push the industry back to 'the Wild West'
In a presentation and Q&A today, NAR Deputy General Counsel Lesley Muchow said a loss for the defendants would be "bad news for consumers," offering a preview of what the association is expected to argue at trial.
"We will be forced back into the 19th century or what we see as the Wild West where unscrupulous people can regularly defraud clients," Muchow said. "If MLS broker marketplaces didn't work the way they do now, there would be no centralized hub and source of available homes. Buyers would have to visit every single broker in town in order to see all of the available inventory that is out there."
The plaintiffs disagree, arguing that current practices have resulted in inflated commissions that are costly for consumers.
"Our experts have shown that NAR's anti-competitive rules result in doubling the cost of commissions in the United States," said Michael Ketchmark, lead attorney for the plaintiffs, in an email. "This NAR rule has cost homeowners hundreds of billions of dollars in commissions over the years and put the dream of homeownership out of reach for many Americans."
Other key topics
Muchow answered a variety of questions about the case and the implications for the industry. Here are a few topics she addressed:
Rolling the buyer commission into the mortgage: If buyers have to pay their agent's commission directly, some in the industry have suggested that federal mortgage regulations could be modified to allow buyers to finance the commission.
Muchow argued, however, that this suggestion involves a series of big, and possibly inaccurate, assumptions. She believes the approach would actually hurt consumers, especially those already struggling with home affordability.
Potential problems, Muchow noted, include the possibility of higher interest rates and increased costs around mortgage insurance. She also said that sellers might not drop their list price even if they are paying lower overall commissions.
$0 compensation offers: Recent settlement agreements have required defendants to change some of their practices, including no longer requiring an offer of compensation to buyer agents. NAR recently concluded that offering $0 would satisfy NAR's compensation rule.
Muchow reiterated that stance, saying it's not very different from the organization's previous position that something must be offered, even if it is a penny. The purpose of the rule was to fill out that field in the form in order to communicate what the offer is to the buyer agent.
"The plaintiffs argue that the sellers don't want their brokers to make any offer of compensation to other brokers and we say okay, great," Muchow said.
Recent settlements: The settlements by RE/MAX and Anywhere in the Sitzer/Burnett and Moerhl cases, and by MLS PIN in a separate case, do not change how NAR plans to defend itself in the upcoming trial, Muchow said.
"A lot of what they are agreeing to… [is] already required by our code of ethics or MLS rules," she said.
What's next? A verdict in this trial is expected around Nov. 10, but regardless of who prevails, an appeal is likely, Muchow said. A final decision in the case may take several years to work its way through the courts.