Local real estate agents say transparency and honesty are key going forward.
Written by Len Brabenec | February 10, 2024
A recent $1.8 billion real estate lawsuit made headlines across the country and raised questions about whether it would change the way real estate transactions are done.
The case is on appeal, but the initial ruling was Sitzer v. Realtor® NAR, the nation's largest trade association with 1.5 million members, has ruled in favor of home sellers. The jury found that certain members of NAR, Keller Williams Realty, Anywhere Real Estate, RE/MAX, and HomeServices of America conspired to artificially inflate agent fees.
The basis of the lawsuit centered on the brokerage firm's fee sharing program. Typically, a real estate seller pays him a commission of 5 to 6 percent, and this commission is split 50-50 between the listing agent (seller's agent) and the buyer's agent. The lawsuit alleges that some intermediaries have artificially inflated fees, essentially creating a form of antitrust law.
result? If the first ruling stands, a different fee structure could be introduced for agents. For example, some sort of separation, where the seller pays the agent and the buyer pays the agent, is an option. Other ideas that have been proposed include a fee-for-service model (for example, $100 per home showing) and a referral fee model in which listing agents offer buyers' agents a referral fee for introducing buyers to properties. It is included.
Here's what local real estate experts have to say about the lawsuit's impact on Northern Michigan.
What changes will you see?
If the pricing structure actually changes, some models may have their own drawbacks.
“Barriers to entry are already high for new home buyers, and if buyers are required to pay a fee to hire an agent, it will become even more difficult for potential buyers to enter an already competitive market. '' said team leader Tommy Corbett. of Brick & Corbett in Traverse City. “Such models push out some potential buyers, and sellers are seeking more buyers, not fewer, in the market to maintain competition and high demand.”
Kim Pontius, CEO of Aspire North REALTORS® in Traverse City, believes that as long as agents and brokers are transparent with their clients, inform them of their compensation structure and remind clients that everything is negotiable, states that the fee-sharing model of (presumably) should remain in place.
“NAR didn’t win that case, but that doesn’t mean we’re going to see industry-wide change,” Pontius says. “What we are seeing, however, is a continued and enhanced effort to ensure that our members are acting in accordance with our standards and policies. NAR also establishes guidelines for the local MLS broker market to support a competitive real estate market for consumers and businesses. If our members follow the guidelines and put our clients first, we all benefit and the current model works.”
But if your broker or agent is operating with integrity and complete transparency, why sue?
according to new york times, more than 156,000 people joined NAR in 2020 and 2021, an increase of nearly 60 percent over the previous two years. Pontius said the glut of new agents entering the active real estate market muddied the landscape and led to mistakes.
“Hiring an agent who joined us in 2020 is different than hiring an agent who joined us in 2012 or 2007 or the 1990s,” Pontius said. “Our industry has been overwhelmed with new agents, resulting in a high rate of mistakes, some of which are egregious and violate our transparency obligations.”
Conversely, around 100,000 agents left the industry last year. “Many of those leaving are the same people who joined when the market was active, and may be the same people who made mistakes, were not transparent, or tried to cut corners. You can imagine it,” Pontius said.
Who is affected?
Pontius and Corbett said the lawsuit is unlikely to have a major impact on northern Michigan real estate. Changes to agent fee structures, if any, will take at least a few years. Mr Pontius and Mr Corbett would like to see the commission-based remuneration system maintained to prevent excessive cost-related burdens from being passed on to buyers.
Will the lawsuit lead to any changes or recommendations from above?
“That's right,” says Pontius. “Real estate agents are advised to do their best to keep their clients informed of every detail of the real estate process, including compensation. Our agents must keep their clients informed and as transparent as possible. We are also committed to making sure our members are operating within the NAR Code and regulations.”
Mr. Corbett emphasized the importance of transparency. “Even if the buyer or seller doesn’t ask what the compensation will be with the agent, we tell the agent to bring it up and discuss it on day one,” he says. “That way, questions can be asked, answers provided, and consumers can be reminded that they have the option to negotiate. Everything is negotiable and agents can have complete transparency from day one. Good faith negotiation is easy and fluid if you do the work.”
According to Pontius and Corbett, finding the right agent is the most important factor in entering the real estate field at a fundamental level. “Find a good agent that you trust, interview a few, and build a relationship with them,” Pontius says.
This applies to both sides of the sale. Both buyers and sellers should properly vet the agent and review the details of the contract.
“Always consult a professional,” says Corbett. “Make sure you understand your options. Don't work with someone who is inexperienced and non-transparent. The real and beneficial outcome of this case will be for agents who jumped in when the market was at its hottest. Many are likely to jump ship soon if they haven't already, which means there will be fewer agents in the field. Talk to the remaining agents, interview them, talk to other agents you've worked with. Negotiate as much as you need to get a deal that works for you.”
