A recent federal jury verdict in Missouri has caught the attention of real estate industry professionals across the country. The jury in Sitzer v. National Association of Realtors et al. Al (Case No. 4:19-cv-00332-SRB) sued the National Association of Realtors (“NAR”) and many of America's largest real estate franchises for her $1.7 billion sale to sellers of over 260,000 homes. ordered to pay $80 million in damages. Missouri, Kansas, and Illinois.
This class action antitrust case rested on a simple premise. The plaintiffs argued that NAR's cooperative compensation rule, which requires listing brokers to indemnify buyer brokers, constitutes collusion. Let's first take a look at NAR and how its features and reward structure work.
What is NAR?
NAR is the nation's largest trade organization; 1.5 million member. Most people are familiar with NAR's trademarked term “REALTOR.”®however, not all real estate agents and brokers are REALTORs.®. actual, The Association of Real Estate License Law Officials (ARELLO) estimates that there is more. 3000000 Active real estate licensee. Real estate licensees aiming to become REALTORS® You may participate in NAR, but you must abide by the Code of Ethics and Regulations.
One such rule is Cooperation compensation provisions. Simply put, the rule requires listing brokers to compensate buyer brokers for having their listings listed on multiple listing services.inside Sitzer In the lawsuit, the plaintiffs argued that this requirement artificially inflated fees and put both buyers and sellers in an unfortunate position. The jury agreed with this argument that without the seller's ability to negotiate fees with her NAR members, transaction costs would increase.in front of Sitzer After the trial began, NAR informed the listing broker that a $0 broker fee for buyers was an acceptable interpretation of the rule. Based on that decision, the jury gave little weight to this argument.
Broker business
Traditionally, buyer intermediaries have been compensated by sellers rather than their own clients. For NAR members, it was a simple and efficient way to conduct business and maximize commissions. However, in recent years, many brokers have adopted low-fee listings. red fin. Other brokers employ flat fee models or discount models based on customer market segments.
Such an arrangement is usually not possible because these decisions are made at the firm level and many nationally recognized firms require membership in the NAR. Independent brokers and those operating in more flexible environments have worked to adjust fees as needed to connect more buyers and sellers.For those who make a living as a real estate agent®discounting services is usually not an option.
Impact of the judgment
There has been much debate over the years about the value of brokers (or realtors).®) in residential real estate transactions. Just like tipping a server at a restaurant, the value of the service does not directly correlate to the price of the transaction. A server at a high-end restaurant may do just as much work for a table of $100 bills as a table of $200 bills, but his or her compensation increases as the bill gets higher. Some home sales may involve dozens of viewings, closings and rehabilitations, and significant negotiations and concessions. A listing broker doing this on a $300,000 listing is likely to spend significantly more time than an “easy” $1 million listing that had a very busy open house and multiple offers from day one. . The fees for the latter transaction will be significantly higher. , But is it good for the seller? For the market as a whole? That sentiment is, and likely will continue to be, the driving force behind this class action lawsuit.
Impact of Sitzer The ruling will ultimately have ripple effects in various markets across the country. In addition to flat fee or alternative fee arrangements, buyer's brokers will undoubtedly become more eager to enter into commission agreements with their clients that require the buyer to pay a commission. From NAR's perspective, shifting the burden of commission costs to the buyer rather than the listing broker does not materially impact the transaction. For home sellers, paying commission to just one agent certainly equates to a savings of 1-3%. But perhaps the buyer will have to budget for her additional 1-3% as compensation to the broker, so she may end up offering a lower price. These differences can be significant for buyers and sellers who are involved in a limited number of transactions compared to brokers. Buyers and sellers in the housing market will likely be better prepared to ask these questions when interviewing potential agents. It will be interesting to see how the industry reacts to this changing dynamic.
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