Several months ago, we wrote about the potential impact of the lawsuit against the National Association of REALTORS. At that time, the federal court in Missouri ruled the organization and most real estate brokerages violated the Sherman Anti-trust Act.
At that time, we cautioned that a final ruling was still a long way from concluding with appeals and other court mechanisms.
However, as has been widely reported, the case was settled last week with national implications for the real estate industry. As attorneys, we’re looking to see the full settlement case to fully understand all the implications as a result.
We’re also cautioning our clients that the settlement has not been approved by the courts and still could change. That won’t take place until May.
But one thing seems clear, the way home buyers will utilize agents for representation will change as the costs of their services have shifted from the proceeds of the sale to the buyer themselves.
While having a personal agent work with you on finding your dream home can be very beneficial, with this ruling, utilizing the services of a proven residential real estate attorney can be a way to offset the costs of buying a home.
The attorneys at The Orlando Law Group understand this type of transaction as we are also licensed real estate agents. We work with local real estate agents and their teams on a wide range of services, including contracts and closings, but also with individuals who need assistance and are here for you.
A Recap: The Basics of the Class Action Suit
As we reported in November, back in 2019, a group of people who sold homes in Missouri sued the National Association of REALTORS® and the real estate companies, saying the group has agreed to “adopt, promote, and implement anticompetitive rules through the association’s governance.”
By having an association that prevents members from allowing their associates to compete with one another for commissions, and by agreeing to follow and enforce these anticompetitive rules, the National Association of REALTORS® acted to further its implementation and enforcement.
The main arguments from the plaintiffs included:
- The MLS is controlled by local associations, and access to the MLS is conditioned on brokers agreeing to follow all mandatory rules set forth by the National Association of REALTORS®.
- The National Association of REALTORS®’ policies restrain competition in the real estate market. This restraint forces the sellers to pay the buyer’s agent commission that, in a competitive market and were it not for the association’s anticompetitive restraint, would, or could, be paid by the buyer.
- The “Adversary Commission Rule” which is a policy of the National Association of REALTORS®, effectively requires the seller to predesignate a commission for the buyer’s agent, and further limits the ability to negotiate that commission amount.
- Since the MLS requires the seller to list a commission percentage, this provides the buyer’s agents the opportunities to selectively show clients properties the agent deems to be” worth their time.” This places sellers who choose to pay less in commission in a disadvantageous position, as the buyer’s agent usually gives priority to showing homes that pay a higher commission, and selling brokers are incentivized to provide a higher buyer broker commission to comply with NAR’s mandatory rule.
- Failure to abide by the MLS and association rules can lead to expulsion from the National Association of REALTORS® and access to the MLS, which restricts real estate agents who are not REALTORS® from listing properties on the centralized database.
Overall, the plaintiffs argued if these rules didn’t exist, buyers and sellers would be free to negotiate amongst themselves regarding the amount of commission paid. This would make the market more competitive and would likely drive down the prices paid to agents to lower commissions.
Additionally, it would cease the requirement that the seller pay the buyer’s agent’s commission.
Essentially, the association’s policies contribute to fixed commission prices, regardless of the individual factors of each sale at levels that would not exist in a competitive marketplace.
How is a buyer’s agent compensated?
Historically, a buyer’s agent was compensated by the seller’s agent by splitting commissions between the buyer and the seller. On a $400,000 sale price, this could mean a commission for the seller’s and buyer’s agents of more than $10,000.
For most buyers, this seemed like a good arrangement. The money that was paid to the agent was taken out of the sale proceeds, so the buyer never truly saw any additional costs, other than what was in the sale price.
However, this part of the settlement focused on one of the issues listed above.
Since the MLS requires the seller to list a commission percentage, this provides the buyer’s agents the opportunities to selectively show clients properties the agent deems to be” worth their time.” This places sellers who choose to pay less in commission in a disadvantageous position, as the buyer’s agent usually gives priority to showing homes that pay a higher commission, and selling brokers are incentivized to provide a higher buyer broker commission to comply with NAR’s mandatory rule.
Basically, the lawsuit alleged that buyers’ agents were motivated by higher commissions and not for the best interest of the buyer. That’s a severe allegation and the real estate agents we know and work with were always looking for their buyer’s best interests.
If the settlement is approved, however, the buyer will now be on the hook for thousands of dollars in addition to the home price. Of course, the offer to buy a house could be lower, but The Orlando Law Group provides a different option.
What are a home buyer’s options now?
For most buyers, the options seem to be limited now. We think buyers can:
- Agree to pay the agent directly for a preset cost,
- Negotiate with the seller to cover the buyer’s agent fee, similar to credits for closing costs,
- Hire an experienced real estate attorney, or
- Try to negotiate the purchase of real estate unrepresented.
We hope that no one tries to negotiate without representation. The process of buying a home should be trusted to a professional and an experienced real estate attorney may be your best bet.
No, a real estate attorney will not scour the internet looking for your perfect home. Most of the buyers we know are already doing that, looking at listing services for homes they like.
A real estate attorney can, however, negotiate the terms of your sale. They can help ensure you are covered for unforeseen circumstances in the sale contract. They can perform all the duties required at closing, that you will be paying for anyway.
The best part? The fees paid to an experienced real estate attorney, like those found at The Orlando Law Group, are a fraction of what would be paid to a real estate agent.
The attorneys at The Orlando Law Group can help homebuyers in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on March 20, 2024 by The Orlando Law Group
