Realtors alter rules after feds file suit
The National Association of Realtors has reached an agreement with the Department of Justice, promising to change its commission system rules to make it clear that real estate agent services provided to prospective homebuyers are not free and make it easier to for the public to see commissions, among other changes.
The local boards of the national association, including the Houston Association of Realtors, will share the new rules no later than March 2021.
An antitrust suit filed Thursday by the Department of Justice alleged the National Association of Realtors’ rules oncommissions artificially inflated fees paid to real estate agents byhomeowners. The association denied the characterization of its rules, but agreed to make changes to its policies.
At the heart of the lawsuit was how buyer’s agents are compensated.
If the changes succeed in lowering fees, as the Department of Justice argues, they could potentially save individual home sellers thousands of dollars in commissions. Theywould also cut the earnings of roughly1.4 million real estate agents across the country — including some 37,000 in the Houston area — and putmorepressure ontraditional brokerages, already contending with a host of discount and online competitors.
If the changes have no impact, the National Association of Realtors will be validated in arguing its rules do not discourage competitive pricing.
When the Department of Justice filed suit, it also suggesteda series of actions the NA R could take to rectify the situation. The association agreed to the suggestions, and on Friday morning U.S. District Judge Timothy J. Kelly formally ordered the association to carry out the steps.
They include removing rules that would:
• allowreal estate agents to characterize their services as “free” to homebuyers (in fact, the real estate agent fees arebepaidoutof the sum the buyer provides at closing);
• recommend concealing how
large of a commission a buyer’s agent willmake upon the sale of a home;
• allow buyer’s agents to filter listings by the size of the commission they’ll be paid; and
• limit real estate agents who are not association members from accessing lockboxes.
Homesellers in the United States currently pay both the listing agent and the buyer’s agent. And when listing agents add homes into the National Association of Realtors’ listing services — which hold the majority of listings and often syndicate them to other real estate search sites such as Zillow and Realtor.com— theymust say upfront howmuch they’re offering to pay the agent whose client buys the home. Agents can negotiate that offer as the transaction progresses.
The commission on the sale of a home is usually 6 percent, which is traditionally split between the agents for the buyer and seller. As a result, the Department of Justice alleged buyers’ agents have little motivation to sell their clients on homes that will offer them lower commissions.
The ability of buyer agents to filter the homes they see online by the size of the commission offered also makes it easy for them to choose not to show certain listings to buyers, and the inability of buyers to see the difference in commission prevents them from detecting such steering, the suit alleged.
The National Association of Realtors has until Jan. 4 to submit any rule changes it proposes to make to the Department of Justice for approval. Within 60 days after the rules have been approved or the court issues a final judgment, all local associations will communicate the rule changes to all agents who share and view homes on their listing services.
Man till Williams, NAR’s vice president of communications, said in an email the changes will “more explicitly state what is already the spirit and intent of NAR’s Code of Ethics and MLS Policies regarding providing information about commissions and MLS participation.”
The lawsuit brought to the fore the arguments discount brokerages have been making for years.
“No one knows better than Redfin howhard it is for an agent to offer home buyers a better deal when the fees brokerages charge are a secret,” Redfin Chief Executive Glenn Kelman said in an emailed statement. While Redfin will reduce the cost of a buyer’s agent by refunding a portion of the commission to the homebuyer, Kelman said many homebuyers met the offer with confusion and protests that the buyer’s agent is free.
The discount brokerage REX, which charges only 2 percent to sell a home, emailed a letter to multiple listing services across the nation Friday demanding access to lockboxes. REX’s price is made possible by not paying the buyer’s agent — buyers have the option of having a salaried REX agent guide them through the transaction for free or paying for an outside agent themselves.
But not paying the buyer’s agent also means REX cannot be a member of a multiple listing service, such as HAR.com and Realtor.com. As a result, REX has had difficulty operating in markets, including Houston, where the company’s real estate agents have been denied access to lockboxes needed to show buyers ahome, said the company’s chief executive, Jack Ryan.
“As the tech company founded to up set the old real estate industry in the U.S. by offering much lower fees and better experiences for homeowners, REX and our customers have firsthand experience with the predatory real estate broker behavior that the DOJ’s action today addresses,” he said.