NAR-DOJ Ruling Divides Agents Over Commission, Pocket Listing Rules

Republished By Plato

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A court ruling in favor of the National Association of Realtors over a Department of Justice probe has drawn a variety of reactions from agents, brokers and other industry players, demonstrating divisions within the industry over two of NAR’s rules on buyer-broker commissions and pocket listings.

On Thursday, a federal district court in Washington, D.C., set aside the DOJ’s request for information from NAR on:

the Participation Rule, which requires listing brokers to offer a blanket, unilateral offer of compensation to buyer brokers in order to submit a listing into a Realtor-affiliated multiple listing service
the Clear Cooperation Policy, which requires listing brokers to submit a listing to their Realtor-affiliated MLS within one business day of marketing a property to the public

It’s unclear at this point what the ruling means for the DOJ’s investigation into NAR’s policies or if the agency will appeal the district court’s decision.

Regardless, these rules will continue to be debated as they are also the subjects of multiple antitrust lawsuits filed against NAR filed by private parties, some of which the DOJ has intervened in and appears poised to continue to get involved in.

Last week, the DOJ asked to submit an amicus brief in one such case regarding the Clear Cooperation Policy and an appeals court granted the agency’s request. On Monday the court gave the DOJ until March 13 to submit its brief and gave NAR until April 20 to submit an answering brief in the case.

Agents, brokers and others commenting on Inman’s article about the NAR-DOJ ruling were mixed regarding their thoughts on the ruling and on the NAR rules at issue.

Some viewed the DOJ’s investigation as a classic example of “government overreach” and lauded the court’s decision.

“The sad fact in this case was what did NAR have to spend to defend such a common sense decision?” said Keller Williams co-founder Joe Williams.

Joe Williams

“That was paid by all the hard working Realtors through their dues? Classi[c] government overreach. Good job NAR!”

Jeff Stewart, an agent at RE/MAX Homefinders, opined that the probe revealed a government bias against the real estate industry and was after tax dollars.

“The government doesn’t like the fact that real estate agents are mostly all independent contractors – with the tax benefits that accompany,” Stewart said.

Jeff Stewart

“There are approx. 2M of us in the U.S. that they’d like to be W-2 employees. Changing the cooperative commission structure won’t put money back in the seller’s hands. It’s a limited pool of resources and if the buyers have to pay a buyer’s agent – those are resources that would go to down payment and closing costs. It’ll just come back out of the seller’s hands in transaction concessions to make the deal work. The current administration evidently has a huge issue with the industry model and is chasing tax revenues.”

Others viewed the rules the DOJ probe was concerned with as nonissues.

“Good; we have a lot of problems to solve in this country,” said Kevin McGrath, managing broker at Long & Foster, of the court’s ruling. “This ain’t one of them.”

Sharon Mulholland

“The law of contracts determin[e]s how the agents get paid, whether by buyer directly or through the seller, who uses their proceeds from the sale of their property by the buyer to pay the agents involved in the transaction,” said Sharon Mulholland, an agent at Mulholland Realty.

Dick Stoner, broker at Reist Corporation, stressed that buyer-broker commissions are no different than other seller incentives.

“[A] seller may offer whatever promotions they wish, whether it be extreme advertising or social media posts, or buyer agent commissions,” Stoner said.

“Some sellers of products offer paid ‘next day’ delivery and other incentives to look at and purchase their products and the buyer agency commission offer is the same — something to attract more buyers (those with agents) to the particular sale.”

Others called for NAR to make changes to the current rules, saying it was NAR who was “overreaching.”

“As an agent I absolutely despise the Clear Cooperation Guidelines imposed by NAR,” said Patrick Harris, an agent at RE/MAX Crossroads. “I feel it is overreaching and professionally unsound. If a seller doesn’t want to put their property in the MLS but is amicable to marketing it in other ways than NAR and no state or local association shouldn’t have a say in the matter. It’s between the listing brokerage and the seller. Ultimately the seller should be able to do what’s in their best interests.”

“[If] NAR really cared about doing what’s right for buyers and sellers they [should] declare Limited Agency and Dual Agency as unethical practices,” he added. “You can’t have two masters and do your job effectively. Someone always feels slighted and the only one that really wins is the brokerage with the double paycheck.”

Patrick Harris | RE/MAX Crossroads

Regarding the Participation Rule, Harris advocated for allowing the buyer agent commission to be rolled into a buyer’s mortgage.

“The main reason why buyer agent commission is integrated into the listing contract is that the majority of lenders refuse to allow Buyer Agent Commission to be part of the buyer’s financing,” he said.

“This honestly needs to change and if it has to change by force, I’m ok with that. All that said, the seller has their representative and the buyer deserves to have representation to negotiate on their behalf as well. The whole process is convoluted.”

Derek Eisenberg

Derek Eisenberg, corporate broker for discount brokerage Continental Real Estate Group, responded that it’s a “fallacy” that lenders don’t allow buyer agent commissions to be financed.

“As long as it is on the closing statement it can be financed,” he said. “Still if a lender did stand on ceremony, the parties could just inflate the price and have the seller pay it. There is always more than one way to skin a cat.”

Ralph Odierna, an agent at Coldwell Banker Realty, pushed for NAR to require its members to use buyer-broker agreements when they get new buyer clients.

“The listing agreement guarantees a commission to the broker because they entered a contractual agreement and the listing agent is on record of representing the seller,” he said. “The buyer’s agent should be required to do the same, enter into a buyer broker agreement so they are contractually representing the buyer.”

Fran Brooks, an agent at Berkshire Hathaway HomeServices Commonwealth Real Estate, agreed that all buyer agents should use such agreements.

“[A]s a sales manager I strongly encourage our agents to use them, few do — all should,” she said.

Still others reacted to a comment from Stephen Brobeck, senior fellow for consumer watchdog the Consumer Federation of America, who said the ruling “will limit DOJ’s ability to investigate anti-competitive industry policies costing consumers billions of dollars annually.”

CFA has pushed for a ban on homesellers offering buyer agent commissions, arguing the practice constitutes “unfair restraint of trade.” NAR has maintained that commissions are and have always been negotiable and that commissions are set by the market.

“At the NAEBA conference Steve Brobeck of the CFA stated he thought buyer agents were getting paid ‘too much’ on high value properties and THAT’S why CFA has their collective shorts in a bunch!” said Andrew Show, buyer broker at Buyer’s Resource Realty Services. “Their call for a ‘ban’ is nonsensical and without merit.”

Brobeck told Inman that Snow mischaracterized what he said and what he’s written in recent reports.

“What I said was that I thought the industry defense of 5-6 percent commissions to an extent reflects their desire to preserve big paydays for selling high-priced properties,” Brobeck said in an emailed statement.

Steve Brobeck

“And I have never called for a ‘ban’ on these rates, only for support of industry policies, such as uncoupled commissions, that would allow a competitive market to set the rates. My guess is that in a truly price competitive market, annual compensation of the most competent and successful agents would increase not decrease in part because there would be less cream-skimming by marginal agents (identified in the industry’s 2015 DANGER report).”

Eisenberg, who has worked as a consultant for the CFA, said many commenters were missing the point made by the watchdog about the freedom to negotiate fees with one’s professional.

“If two people get in a lawsuit, the plaintiff negotiates a pay rate with his lawyer and the defendant negotiates a pay rate with his,” Eisenberg said.

“When the 49ers play the Eagles today, because Philly is hosting San Francisco, the Eagles don’t get to say what the 49ers pay their coaching staff or players. When one investor sells 1,000 shares of AT&T stock through Morgan Stanley, Morgan Stanley does not get to state how much Merrill Lynch gets paid for procuring a buyer for that stock.

“Real estate is the only industry where the buyer does not get to negotiate how much their professional staff (the buyer’s broker) gets paid.”

Brobeck pointed out that his critics haven’t said why prohibiting sellers from offering buyer agent commissions wouldn’t result in more competition for real estate brokerage services.

“None of the commentators explain why uncoupling commissions would not lead to a more price competitive marketplace, a traditionally conservative goal advocated by CFA that we wish was shared by Realtors,” he said.

In response to a commenter’s assertion that he’d resisted an offer to debate, Brobeck said he and CFA are always ready to publicly or privately discuss their criticisms of real estate brokerage policies.

“I’ve made it a point to respond to every individual industry member who’s called or written to me,” he said.

“What’s surprised, even astonished me, is that during the some 30 years I’ve been issuing reports, neither NAR nor its affiliates (with the exception of the Council of MLSs recently) has invited me to board meetings or industry conferences where I would have a chance to explain and debate our criticisms.

“In the many years we criticized banking and insurance policies, I was frequently asked to their industry meetings to discuss these policies.”

Brobeck said he spoke to the board of CMLS in early December.

Email Andrea V. Brambila.

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