Defending Realtor Commissions In Response to a Massive Class Action Lawsuit
TURNING DOWN LISTINGS
Years ago, I worked closely with an extremely successful real estate agent who would sometimes turn down listing opportunities because he could not make enough money off of them.
This is because he put so much time and money into the marketing and selling of the listings – particularly when the market was slow.
Observers outside of the industry often miss those very real time and money expenses entirely, and only focus on the gross commission agents receive.
Outside observers also don’t understand how skilled many agents are when it comes to contacts, connections, marketing, negotiating, legal protection, and estimating values (for both listings and offers).
CLASS ACTION LAWSUIT AGAINST HUGE BROKERAGES FOR PRICE FIXING
The agent I referenced above worked for RE/MAX, ironically, as it is one of the huge brokerages named in a giant class action suit against numerous large brokerages for price fixing or violation of the Sherman Anti-Trust Act.
Among other things the suit claims it is unfair to force sellers to pay both the buyer’s agent’s commission and the listing agent’s commission.
The National Real Estate Post (NREP) recently posted a great video about this joke of a lawsuit because the judge just “certified the class,” and I recommend watching the short video HERE.
The NREP hosts address the primary tenets of the Sherman Act: Price Fixing, Limiting Output, and Excluding Competition.
- Price Fixing: This is comical because we see commissions vary constantly, depending on market conditions and there is ample data to back that up. Further, as mentioned above, the focus is on gross commissions, and not on net commissions after splits and expenses.
- Intentionally Limiting Output: This is what OPEC does, for example, to keep oil prices higher. But, when it comes to real estate agents, this is again comical because every successful agent on the planet does everything they can to maximize output.
- Intentionally Excluding Competition: This too seems absurd given the sheer number of real estate agents in the country. NREP also mentions the fact that iBuyers like Opendoor are allowed to compete within the MLS system as further proof that competition is not even close to limited.
BUYERS OFTEN CAN’T AFFORD TO PAY COMMISSIONS!
This was an excellent point made by the NREP hosts: Most first-time buyers can’t begin to afford to pay commissions, particularly FHA and low-down-payment conforming loan buyers. They can barely scrape together tiny down payments and closing costs – so having to pay even a small portion of a commission would keep many of them out of the market.
WHO BENEFITS FROM THIS LAWSUIT?
The NREP folks think it is iBuyers who will benefit the most, and they loudly point out the irony of the iBuyers being part of the suit too – as iBuyers typically charge MORE than traditional real estate agents.
But – the biggest beneficiaries will of course be the trial lawyers, as they can potentially earn tens of millions in fees – while the “harmed” consumers will only get a few bucks, if anything, like what happens with so many class action suits.
WHY IS A MORTGAGE GUY DEFENDING REAL ESTATE AGENTS?
There are two reasons why I am writing this blog:
- I genuinely want buyers and sellers who think they might be paying too much for an agent’s services to see this. As a largely disinterested party who has no dog in the fight, I am hoping that my opinion will have a bit more clout. The NREP hosts are both also from outside the real estate industry too, I might add.
- We face the same misconception in the mortgage industry. When we sell a $500,000 loan for a $510,000 or a $10,000 premium, outsiders see that and think… “holy smokes, you made $10k for just processing a loan?” What those outsiders miss though is that it often costs lenders MORE THAN $10,000 to originate and process a loan. Running a mortgage company is extremely costly, and far more difficult than it looks.
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