Everyone (and I mean EVERYONE) has been in a tizzy over NAR’s settlement of the Sitzer/Burnett (Broker Commission) case.
But – it may actually be good news for many brokers and agents – and I will explain why below.
As 99% of my readers know, NAR settled for $418 million. This settlement is unique because it is nationwide, and it ostensibly will limit the commissions of buyers’ agents. Per the media, NAR will no longer be able to “force” sellers to pay buyers’ agent commissions, and this will be a huge “boon” for the housing market, as it will bring down prices (a laughable proposition).
Here are some of the many criticisms I saw surface again over the last few days:
- Who really benefits? Trial lawyers will of course benefit the most, but tech, Wall Street, and Silicon Valley also benefit when they move into the space vacated by Realtors;
- NAR capitulated too fast. They effectively admitted wrongdoing when there probably was none, opening up grounds for even more lawsuits;
- Commission has never been 6%. Commissions have never averaged 6% and have always been negotiable, making the grounds for the lawsuit nonsense;
- Discount brokerages have been failing for years. If consumers wanted discounts so badly, why have discount brokerages been failing for years?
- Fintech/iBuyers charge more than brokers. Ibuyers like Opendoor often pay less for homes and end up charging more overall in total fees in any case;
- Other countries charge less but provide WAY less. Our MLS system provides way more info and transparency than buyers can ever get in other countries – where commissions are lower but trying to find a house is vastly more difficult.
But – Here Is the Good News! (Before I share the bad news below)
Rob Hahn actually READ the entire settlement and shares his take on his excellent Substack account. Mr. Hahn is a real estate strategist, blogger, entrepreneur, fashion consultant (this is key 😊) and, most importantly, a lawyer, per his X profile.
Mr. Hahn’s take is behind a paywall, so I can only share excerpts. But – I highly encourage readers to subscribe, like I did yesterday, as his takes are exceptionally informative because of his diligence and legal background.
In any case, Mr. Hahn makes it abundantly clear that buyers’ agents’ commissions will very likely not go by the wayside and that business will continue as usual – for most agents: “Yep, compensation is not only allowed, it has now received official blessing of the federal courts. It just has to be done off-MLS. You think that eliminates compensation? I think the exact opposite is true.”
Mr. Hahn quotes the passages in the settlement that point out how buyers’ agents’ commissions can no longer be shown in the MLS. But, he also delves into the language to show that there is nothing in the settlement that prevents listing agents or brokerages from negotiating buyers’ agents’ commissions just like they have always done.
While listing agents cannot show buyers’ agents’ commissions on the MLS, they can show them on their internal websites. So, buyers’ agents merely need to check websites or call listing agents before showing properties to know what the commission might be.
Mr. Hahn further discusses how buyers’ agents will show houses with fair or higher commissions more aggressively than they will show houses with very low commissions – just the way things have always been.
Hence, listing agents will still want to encourage sellers to agree to healthy commissions in order to attract more buyers (and ultimately a higher price).
Mr. Hahn calls this a “Total Victory for NAR.”
The Bad News – That Civil War Thing
Mr. Hahn followed up the Substack I referenced above with this one: Second Take: NAR Settlement, Big Brokerages and Non-REALTOR MLS (Now that I read the appendices…)
Long story short: The settlement is not $418 million; it is closer to $3 billion! And it will be all of the big brokerages that will be on the hook.
“Big” means any brokerage doing over $2 billion in total transaction volume. NAR threw them all under the bus by effectively making them agree to pay settlement fees based on their transaction volume.
Brokerages doing $2 billion in volume will have to pay about $5 million – while brokerages doing under $2 billion will pay nothing.
But, the big guys will pay hundreds of millions. Compass, for example, will be on the hook for $570 million.
So, yes, NAR threw brokerages under the bus; the big guys will not take this lying down; and there will be a “civil war.”
