As the trial of Burnett v. the National Association of Realtors (NAR), et al kicked off this week in a Kansas City, Missouri, federal courtroom, there is a lot at stake for consumers and business competition.
Class action attorneys allege real estate commission rates are too high and buyer brokers are being paid too much due to NAR rules. In reality, consumers are better off and business competition thrives very much because of NAR’s rules and how well local Multiple Listing Service (MLS) broker marketplaces function.
In response to the marketplace and at the urging of consumer advocates, NAR began to develop guidance for local MLS broker marketplaces as part of what always has been a very involved and public rule-making process aimed at creating the most consumer-friendly market possible.
These virtual marketplaces provide efficiency, transparency and accurate information to facilitate home transactions. That requires real estate professionals to cooperate with each other by sharing pertinent information with competitors regarding the home and about the terms of a potential transaction.
Listing brokers make offers of compensation to buyer brokers who bring a buyer to the table. That offer can be any percentage or even $0, and NAR doesn’t tell practitioners what to charge. They need to provide the information so that the buyer broker knows how much they will be compensated before they do the work and if that amount is not satisfactory, the buyer broker then discusses payment with their buyer.
Further, compensation is set between the brokers and their clients and is always negotiable. The free market establishes broker commission costs based on things like service quality, value for price and market conditions.
Every day, consumers make choices about which broker they want to work with and how much they want to pay. Real estate commissions always have fluctuated given the market conditions and, according to RealTrends, commission rates are currently well below where they were in the ‘90s.
These local MLS broker marketplaces work in favor of consumers every day. Sellers get access to the largest pool of buyers and the chance to sell their home for 35% more on average than for sale by owner.
Buyers get equitable, transparent, reliable and efficient access to homes for sale and access to professional representation in what is the most complex and significant purchase most people will make in their lifetime.
Class action attorneys in this case want to take away that buyer representation or force buyers to have to pay for representation out-of-pocket on top of the cost of a down payment and closing costs.
And who is hurt most by that proposition? Black, Hispanic/Latino, first-time and low- and middle-income buyers, according to a May 2022 study by a Freddie Mac and Urban Institute alum and others. If what class action attorneys are fighting for became a reality, the dream of homeownership would be pushed even further out of reach for large segments of the U.S. population.
And if those same consumers had to go it alone without buyer representation? You’re asking them to try to take the place of real estate agents who guide consumers through all the legal, financial and community complexities of buying a home even as 89% of homebuyers would use their agent again or recommend their agent to others.
Real estate agents know city and county property taxes. They decipher public property information. They coordinate with lenders and research mortgage rates and terms. They manage attorney reviews and navigate all required state and federal forms. They use their experience and expertise to negotiate on behalf of their client.
The list goes on and on. And the big payouts class action attorneys say Realtors get for all that work they do? Realtors, 66% of whom are women, make about $50,000 on average annually.
A far cry from what the class action attorneys will suggest, the U.S. real estate market has long been viewed as the most consumer-friendly around the world as real estate agents from places like Romania, Ireland and others can attest to.
There are many costs absolutely not accounted for in apples to oranges comparisons of commissions. Information on homes is less accurate, less reliable and very scattered across real estate sites creating much more work and much less certainty for consumers in other countries. Sellers end up having fewer potential buyers seeing their homes and small brokerages struggle to compete with larger competitors if they can even stay in business.
The reality is that NAR looks out for consumers with its rules for local MLS broker marketplaces. The reality is the market (hence the consumer) is in the driver’s seat when it comes to real estate commissions.
And the reality is that because of NAR’s rules, small businesses and brokerages of any size, service and pricing model can compete and thrive. The law, the facts and the economics will prove this as NAR makes its case in court.
