As most members know by now NAR had three lawsuits filed against them in the past year in regards to the MLS, broker compensation and anti-trust violations. One of the suits was quickly dismissed by the courts, which leaves us with Moehrl v. NAR and Sitzer v. NAR.
Earlier this month NAR moved to have both lawsuits dismissed based on the fact the lawsuits misrepresent the NAR MLS Policy and Code of Ethics.
You can read both lawsuits and read NAR’s comments as well.
Here is a quick overview:
Plaintiffs maintain the MLS rule of Listing Broker offering cooperation and some kind of compensation to buyer’s broker constitutes an anti-trust violation and they maintain the commission amount is fixed at 2.5% to 3%.
Clearly, neither plaintiff has attended a pre-licensing class, CE class, meeting of REALTORS or attended a risk management forum. How many times have we been cautioned to never speak of compensation amounts or percentages when more than one REALTOR from different brokerages is present? In fact, I have addressed this issue in my broker pre-licensing classes and member calls. Most of the time these calls and questions center around a broker or future broker being concerned they cannot speak about compensation amounts or percentages as part of their own brokerage policy and procedures or during their agent meetings. A broker’s attorney will help them construct policies and procedures and properly engage in the compensation conversation with their brokerage employed agents.
NAR addresses the issue in the Code of Ethics as well. No, REALTORS from different brokerages may not discuss compensation policies for purposes of comparison or information. In fact, NAR routinely advises brokers and agents from different brokerages to never discuss compensation. The AAR forms in which compensation is addressed always leave method and amounts blank with lots of blank lines so the two parties to the agreement may create the compensation agreement best suited to them.
The MLS rules say brokers must offer cooperation and compensation to the co-operating broker and that the offer of compensation must be honored. Clearly the plaintiffs have never viewed co-broke offerings in the MLS. Those offerings can range from a flat fee to a percentage of the sales or lease price. I have seen lease co-broke offerings in which the tenant’s broker received an initial compensation amount and a small commission upon renewal. I have seen compensation offerings on sales as low as $1.00, because the listing agent was not able to be paid very much from the distressed seller and was not able to share very much of his or her compensation. By the same token I have seen offers of sales compensation to the buyer’s broker in the percentage double digits, and everything in between.
The lawsuit’s “Nature of Action” describes a fundamental misunderstanding, or misrepresentation, of a listing agent’s job and considerations sellers and agents discuss at the listing table. To begin with, the net sheet and the seller’s future goals dictate terms and pricing along with broker compensation. After all brokers and agents should be paid for their work and sellers need to net a minimum amount in order to sell and still proceed with their plans.
In a diverse marketplace, listing agents will ask for a compensation amount sufficient to meet their broker’s policies and indicative of the amount of work the listing represents. As we all know, short sales are usually more work than traditional sales. Probate, luxury homes, mixed use, REO and other unique niche sales can be equally challenging, expensive and time consuming for the listing agent. A listing agreement must encompass enough compensation to warrant a broker and agent’s work, time and talent.
I have seen listing brokers agree to no compensation at close of escrow in the name of netting the seller all they need in order to move forward. Instead, these brokers accepted a note with payment plans clearly delineated.
Listing agents outline the compensation they ask for, if they will or will not be sharing with another broker (in fact that election is contained in the listing agreement), and the market place ramifications of a listing broker sharing part of their compensation with the buyer’s broker to their client. It is a conversation and decision at the listing table between the two parties to the listing employment agreement, broker and seller. And we all know these compensation agreements are amended by the two parties frequently as market conditions or specific offers arrive for seller consideration. By definition fluid and amendable broker compensation agreements cannot be accused of being “fixed”.
Add to this the difference in brokerage models including models that are listing only brokerages or buyer only brokerages and it is clear broker compensation depends on the needs of the two parties to the employment agreement: the client needs and brokerage needs.
Buyer/Broker agreements are not mandatory and as near as I can tell about 50% of REALTORS® use them on a regular basis and 50% do not. They are essentially a buyer listing agreement enabling the buyer to hire the professional of their choice under a fiduciary standard and allowing a broker and their agent to feel somewhat confident that compensation for work will happen no matter the type of buyer home purchase.
Let’s start with the plaintiff’s premise that every type of real estate sale must contain buyer’s broker compensation from the seller. First of all, sellers do not pay the buyer’s broker. One of three things happen: The buyer pays the buyer’s broker, the seller’s broker shares enough of their compensation so that the buyer’s broker does not require additional compensation, or the listing broker shares a small amount of their compensation and the buyer pays the remainder of the buyer’s broker compensation as agreed to in writing between the buyer and their broker.
Frequently, the buyer will be the only party to compensate the buyer’s broker. Think about a buyer wanting to purchase from a wholesaler, offering on a short sale, offering on a HUD Home or other distressed property, and don’t forget FSBO’s.
As NAR points out, over the decades the MLS has sustained agency and court scrutiny and been confirmed as a way to create efficient and vibrant markets while providing consumers with a vast array of necessary information.
While we all know commissions and compensation are negotiable between the broker and their client, apparently some people do not understand the marketplace. NAR has talking points you can share with your clients. Think about including them as part of your buyer and seller presentations.
You can listen to a podcast on this and other topics at www.weservgad.org.