Though Chip Stella lives and works in Ipswich, Massachusetts, his focus is 1,500 miles away at a squat, windswept stone courthouse in downtown Kansas City, Missouri. It’s at the Charles Evans Whittaker U.S. Courthouse that the future of real estate agent commissions could potentially be decided.
“I am pretty much obsessed with it,” the LandVest broker said of the trial, known as “Sitzer/Burnett” after the lead plaintiffs. “I was an agent for 10 years and I’ve been in management now for the better part of seven years, so the trial is really important to me in terms of what it may mean for the future.”
Although the verdict has yet to be announced, Stella said he has been seeing changes to how MLS and agents operate over the past few years. According to Stella, as recently as a year ago he could print off a form from MLS Property Information Network (MLS PIN), his local lawsuit. He said that now those fields are fixed in place and there is no way to make them invisible to clients. Stella also noted that he has seen more buyers’ agents use buyer broker agreements.
Since the outcome of the lawsuit has yet to be determined, Stella has been particularly focused on the settlement agreements reached by both RE/MAX and Anywhere, paying particular attention to National Association of Realtors membership now being optional.
“I think it will have an impact,” Stella said, “I think association-owned MLSs will have to look very carefully at requiring NAR membership or local board membership in terms of access to information and properties, that agents need to help consumers. You have to put consumers first.”
Despite this belief, Stella, who has been a NAR member for the past 15 years, said he would not be dropping his membership any time soon.
Logan Moffett, a RE/MAX agent in Utah, also took notice of the NAR membership provisions in the settlements.
With NAR membership being called into question, Moffett said that this is a perfect time for the association to really show agents its worth and provide members with more value.
Like Stella, Moffett also believes changes to MLS access may arise as a result of the lawsuit and the provisions outlined in the two settlement agreements.
“A lot of people, a lot of association, a lot of brokerages across the country rely on the MLS, which has been connected to NAR. Our association owns a large portion of our MLS,” Moffett said. “I am not sure if it is going to trickle down all the way to say you don’t have to be part of the association to have MLS access, but I could see an instance where they would charge non-members a higher fee for MLS access.”
Ken H. Johnson, a real estate economist at Florida Atlantic University and former broker, is weary as to what some of the changes to the nation’s MLS system could look like.
“My greatest fear is that if we are not careful, one day we will destroy the mechanism that makes all this work and that is the MLS because I think people forget that it is at the point of listing where all this information is collected,” Johnson said. “This is the point of contact for all of the sale side information and if they aren’t careful, they are going to destroy the mechanism that produces this and then the ability to price homes goes out the door and the ability to make the Great American Dream where you buy a home and build equity disappears.”
While changes that may impact the MLS are Johnson’s greatest concern, he believes this trial, regardless of the outcome, will result in several changes to the industry.
“Even if the ruling comes completely in favor of the defendants, they are still going to make some adjustments, as we don’t want to find ourselves in this situation again,” Johnson said.
Based on the settlement agreements and what he has seen already in the industry, he believes it will become standard practice for buyer brokers to use buyer’s agency agreements and that both sell-side and buy-side agents will be more transparent in how they are getting paid and the fact that their fees are negotiable.
Out in San Diego, Todd Armstrong, a Compass agent and the head of the firm’s military division, shares a similar view.
“You are going to see a lot more buyer broker agreements in place. If you weren’t doing them previously you are already behind the game,” Armstrong said. “Sellers have always had a choice to offer a commission to the other broker. Technically you could offer as little as a dollar, but not many people would do that because they thought their house would never be shown. But now I think sellers are still going to offer commission, but agents are going to be clear that they do have options, and make sure that they know that up front.”
While Johnson acknowledges that commission rates all hover around 5% to 6% nationwide, he does not believe that this is a sign of collusion.
“As an economist, in a perfectly competitive market, you have one price,” Johnson said. “That is what they forget. It may look like collusion, but perfectly competitive markets produce a single price.”
Johnson also believes that no evidence of collusion among brokerages and NAR has been presented at the Sitzer trial.
“I just don’t see it,” he said. “As a former broker, we would all go to lunch and the last thing we all ever spoke about was our commission structures. I find it hard to believe that brokers are colluding given that they can’t even agree where to go to lunch.”
RealTrends Consulting co-founder Steve Murray was surprised by the plaintiffs focus on collusion during the trial.
“To me, the plaintiffs’ attorney was almost banging away at this notion that there must be collusions because otherwise why would the rates be so high,” Murray said.
Based on Murray’s interpretation, the nature of the original complaint and the amended complaints was that the plaintiffs took issue with the system of cooperative compensation itself.
“They were trying to paint a picture of Gary Keller telling his agents what to charge and Bob Goldberg and NAR telling everyone what the commission rate is,” Murray said. “But what does any of that have to do with cooperative compensation, as a system, being harmful for buyers and sellers.”
Or as Anthony Lamacchia, the broker-owner of Lamacchia Realty, put it: “Their arguments about violating the Sherman Antitrust Act are garbage. There is no such thing. Find me an industry that doesn’t teach their people how to justify charging more. Michael Ketchmark [the lead attorney for the plaintiffs] is not in this to help homebuyers. I mean think about it he says buyers are being treated unfairly, but now he wants them to pay Realtors out of pocket instead of out of the proceeds of the sale.”
For now, only time will tell exactly what the impact of this landmark trial will be.
