The housing craze may get crazier. Court rejects rules about realtor commissions | Opinion
How Californians buy and sell their homes may some day — perhaps sooner than later — feel a lot more negotiable when it comes to setting the costs of the realtors. The national realtor organization has lost a federal class-action lawsuit on a foundational rule that puts the commission burden on the shoulders of the seller.
Buying and selling a home can be among the most stressful moments in a property owner’s life. Leaving unresolved the commission responsibility of the buyer and the seller would upend a decades-long relationship with the realtors, the middle men and women of any deal.
That said, it is hard to argue against the logic of the backers of this lawsuit. Some half a million home sellers in the state of Missouri went to court and successfully challenged how a realtor “rule” to place the commission burden solely on the seller is unlawful.
Why is the commission system involved in selling a home so sacrosanct? Americans buy and sell most things entirely differently than they did a generation ago. There is no room for evolving how we buy and sell our homes?
At the center of this issue is the largest trade group in America, the National Association of Realtors. It has more than 1.5 million member realtors across the country. Members agree to various association rules when they help homeowners buy and sell properties. The basic question is whether some of these rules have gone too far.
At the center of the Missouri case is a rule that the seller must pay the commission costs for the buyer, the so-called Mandatory Offer of Compensation Rule. The lawyers representing the home sellers claimed this rule violates federal anti-trust laws. The jury seemed to agree, and then some. What has this lawsuit getting realtors’ attention throughout the nation is the size of the jury award — $1.8 billion.
The association is challenging the verdict. The status quo remains in place for now. But pressure for change is increasing. The U.S. Justice Department, for example, sought in June to re-open its inquiry into the association and its rules.
The association has taken some previous steps. It no longer, for example, refers to the commissions for the buyer as “free.” But for how long can America’s property transactions be dictated by a private trade association’s set of rules?
I have some dear friends in real estate. It’s a hard job. One posted 90 different and real tasks that realtors representing sellers face, another 90 for buyers, plus their own costs for websites, fliers, gas and their own fees to the national association, among others.
But the real estate transaction is a curious combination of what is negotiable and what is not.
The price is negotiable. How to handle the property inspector’s findings is negotiable. How long the escrow, negotiable. How long the rent-back period for the buyer, negotiable.
Why shouldn’t the requirement for the seller to pay for the buyer’s commission be just as negotiable? How is it legal to forbid that by an industry rule?
“What’s at issue nationwide is costing Americans about $60 billion in extra real estate commissions,” said Michael Ketchmark. He is an attorney representing the plaintiffs in the Missouri litigation.
I get it. Realtors don’t want to compete on price. In closing a difficult deal or recruiting a client, they don’t want to see some of their commissions automatically on the table as part of the process.
But in essence, they want to avoid the very same market forces that the buyers and the sellers face in California’s topsy-turvy real estate market.
When we buy a car, we pay in essence a commission, a mark-up for the profit of the dealer and the salesman. That commission is embedded in the sales price of the vehicle. It is rarely a line item, but it is there.
If we pay commissions when we buy cars, is it so outrageous to expect likewise when we buy a home? The options of how consumers buy cars have exploded over the years as well. Isn’t that likely because car dealers never organized to operate under the same set of transaction rules as the realtors?
I shudder at what may be coming as an industry resistant to change collides with legal and market forces that will likely force that change, and how the inevitable transition may make transactions more stressful than ever for quite some time.
It reminds me of my first home sale. It was an agonizing process. My realtor told me, repeatedly, that the price is based on what the buyer is willing to buy and the seller is willing to sell. His one-liner happened to omit that 6% in realtor fees, and what he was willing to do.
This story was originally published November 14, 2023 at 5:00 AM with the headline "The housing craze may get crazier. Court rejects rules about realtor commissions | Opinion."