"We are confident we will prevail in proving the lawfulness of the rules being questioned," spokesman says
Under fire from scrutiny over the long-held commission-sharing system used by home sales agents, the National Association of Realtors (NAR) – the industry’s lobbying group – has responded to litigation challenging the practice.
The controversy has emerged following reports of litigation centered on commissions. Under the commission-sharing system, home sellers are required to pay a cut of up to 6% to be divided up between their agent and the buyer’s agent. A pair of class action lawsuits challenging the practice could result in drastic changes across the real estate landscape.
NAR responded to a request for comment from Mortgage Professional America on Wednesday. “In response to the marketplace, NAR has developed guidance for local MLS broker marketplaces that supports consumers getting comprehensive, equitable, transparent and reliable home information while brokerages of any size, service or pricing model get a fair shot at competing,” NAR spokesman Wes Shaw said. “The result is an efficient model for brokers to serve sellers and buyers and to enable market-driven pricing and buyer representation for consumers.”
Agents adhere to strict code of ethics, NAR spokesman says
He noted that real estate agents comprising the association’s rank and file are held to a strict code of ethics in performing their work. The National Association of Realtors collects $150 in annual dues from among its robust membership of more than 1.5 million agents. Moreover, he stressed the US Department of Justice (DOJ) was not involved in the scrutiny – countering such claims previously made in media reports.
“Realtors adhere to a strict Code of Ethics and bring incredible expertise to guide consumers through the financial, legal and community complexities of buying or selling a home,” Shaw added. “We are confident we will prevail in proving the lawfulness of the rules being questioned in the trial of Burnett v. NAR, et al. The DOJ is not involved in this matter.”
He expounded on use of the commission-sharing system, noting the percentage is largely market-driven but ultimately negotiable: “Regarding commissions, the market decides compensation rates, and compensation is always negotiable,” Shaw said. “The free market determines broker commission costs through factors like service quality, customer preference and market conditions.”
Shaw added commissions are lower today than they have been in the past: “Historically, real estate commissions have always fluctuated due to the market conditions at a given time,” he said. “In fact, according to Real Trends, who started tracking real estate commissions in 1991, commission rates are currently well below where they were in the ‘90s all while real estate agent value has increased.”
At the end of the day, Shaw suggested, consumers are empowered in dictating the amount to be paid: “Consumers have the choice of who they want to pay and how they want to pay them. Consumers are encouraged to talk to their broker to understand and agree upon how they expect to be compensated. The seller decides what fee they are willing to pay for their broker’s services and how much that listing broker should offer a broker who brings a buyer to close the transaction. Listing brokers have agreements with sellers that spell out how this compensation works.”
Is scrutiny bad for the industry?
Many in the industry have expressed dismay over the recent litigation. MPA posed the question: Could this scrutiny be bad for the industry?
“It really depends on the outcome,” Dave Cunningham, managing director of SunnyHill Realty, told MPA. “The issue I see is that sellers are already not obligated to offer buyers agent commission. It is just an industry norm. Why wouldn’t the groups opposed to the current norms of the industry simply push to educate sellers of their options and let them make a decision on how to sell their property?”
Laura Ray, vice president and CFO of Florida-based Liberty Mortgage Lending Group Inc., was posed the same question: Could this scrutiny be bad for the industry?
“Depending on the resulting solution, yes it could be,” she said. “My concern is that commissions will be paid fully or partially by the buyer who already is struggling with down payment and the lion’s share of closing costs,” she added. “That is not acceptable. In what industry would you see a buyer pay the commission to the salesperson?”
Should the outcome of litigation place the burden of commissions primarily on the buyer, Ray added, it could result in an exodus of buyer agents from the marketplace: “This might cause buyer agents to leave the market leaving buyers to be represented with the same agent that represents the seller. I will never think that is the best idea. I feel strongly there is subconscious bias in that scenario to lean toward one or the other,” she said, referring to the buyer and seller). “Being in the loan origination industry, I see this occurring at times. So who are we protecting if this becomes the solution?”
Do they think commission-sharing, as it exists today, is fair?
“Fair is not the correct term as everything in real estate is negotiable,” Cunningham said. “Sellers continue to opt into the commission-sharing system as that feel it is the best way to accomplish their goals, sell their homes quickly, and have confidence that the transaction will be handled by professionals.”
Added Ray: “Yes, commission sharing is fair. High commission rates are not necessarily fair for the seller. I do feel there should be some regulation on that so that it does not increase simply because it can.”
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