I have spoken numerous times over the past 35 years about the fairness and efficiency of what I refer to as the Realtor marketplace, which is a combination of a multiple listing service with Realtor association oversight, supported by a majority of brokerage firms and sales agents. The provision of abundant information with rules that govern the conduct of all market participants, whether Realtors or non-Realtors, serves all parties well.
Threats to the Realtor marketplace
Now, the outcome of the class action litigation threatens this marketplace to its core, with long-lasting impacts on all the participants — Realtors, the Realtor Associations, and buyers and sellers of homes.
Here are my thoughts about how this Realtor marketplace may change and how market participants will react. A cautionary note — no one can say with certainty how this will play out over the next few years.
The two main changes
There are two main changes which I think are going to happen. First, cooperation will remain among participants, but the compensation will change. In place of the required compensation for cooperating buyer brokers, we could see several different options become substitutes. Second, we’ll see changes to franchise agreements.
Cooperation and compensation
On the cooperation and compensation question, I think there are a few ways agents, brokers, and buyers may change their practices. I am also confident there are more than are listed here.
Buyer agents could ask or require their buyers to pay them directly.
Buyer agents could include a request that sellers pay their fee as a part of the offers that buyers make to a seller (much like they have for repairs, etc.)
Buyers may begin to go directly to listing agents.
Sellers may choose to offer a referral fee to buyers’ agents.
Franchise agreements may change
Based on what we have learned about the settlements between defendants and plaintiffs in these class-action cases, brokerage firms affiliated with the national companies that have settled thus far (yes, multiple companies have settled so far) end these requirements in their franchise agreements:
That franchises must belong to the Realtors at any level
That franchises will not be required to abide by the Realtor Code of Ethics and
Such franchises will no longer be required to abide by the Realtor MLS guidelines.
There is some confusion over whether the settlement actually requires these defendants to abandon these three areas or merely ends the requirements for brokerage firm participation for those currently part of existing franchise agreements. Certainly, more information about these details will be forthcoming shortly.
Regardless of how this area shakes out, the outcome will likely be lower commission revenues for the industry in the aggregate.
Any or all of these options, or others, may become available. At this time, it is almost impossible to make predictions about which of them may become the most frequently used method.
A far less efficient market
What is almost certainly an outcome is a far less efficient market than what exists today. Sellers, buyers, listing agents, and buyer agents will be in an entirely new world where transactions may have a widely different schedule for who is performing what services, how much each person will be paid, and from whom payment will be received. Each agent will have to spend time determining how this works on each transaction.
We will go from a predictable, fair, efficient market to a chaotic one, at least for a period, until this gets worked out.
Potential impacts of amended franchise agreements
If national firms no longer require their franchises to be members of the Realtors, or to follow the Realtor Code of Ethics or the MLS policy guidelines, there is far more uncertainty about possible impacts Incumbent brokerage firms belonging to national franchise firms are already under pressure from lower cost, flat-fee brokerage firms. Should more national firms choose to settle with the plaintiffs on similar terms, it is possible that some franchises will choose to stop compelling their agents to be members of the Realtor Association. This would be a means to be cost-competitive with low-cost brokerage models, than it as a vote against the Realtor organization.
Should this happen, one can imagine a significant decline in Realtor membership may occur. How far this trend might go is anyone’s guess, but it won’t be a good development for the Realtor organization at any level.
Few understand our current fair and efficient market
Most outside of our industry have little understanding of all the work that goes on outside of public view in the creation of information that is as accurate as possible and available to all. Few understand that it is not just information that creates a fair and efficient market, but regulation and policy that guides professionals in their conduct within that market.
Reducing the influence of the Realtor organization in any of these areas will result in less transparency, discipline and predictability.
While the Realtor marketplace has some flaws, these are outweighed by the benefits of a fair and efficient market, with understandable and enforceable procedures and practices.
National portals as a replacement?
There are those who think the national portals can replace MLS. Who will police the accuracy of the seller’s information? Who will police and enforce Fair Housing standards? Who will ensure that compensation agreements made between different parties are enforceable?
What happens in the market should buyers frequently go direct to the listing agent? Will the listing agent automatically step up to provide the services previously provided by the buyer’s agents? It is a little bit frightening to think that millions of first-time buyers will begin their homeownership experience with no formal representation.
There are many unknowns. It may be some time before we understand what the new marketplace looks like.
