A Look Inside the NAR Law Suit and What it Means

Recently, the NAR or National Association of Realtors®, a 115 year old institution for the advocacy of Realtors® and consumers alike was sued. 

The lawsuit, known as Sitzer/Burnett, centered around the NAR’s participation rule and the practice of agent commission sharing. Under the rule, in order to advertise a property on a listing site, the seller’s agent must offer compensation to buyer agents. The aim is to attract more people interested in purchasing a home.

When it sells, the listing agent’s commission, which typically averages between 5% and 6% of the sales price and is paid from the proceeds, is split with the buyer’s agent. But the plaintiffs in the lawsuit alleged — and the jury agreed — that this practice unnecessarily increased the real estate transaction cost for sellers.  I would argue a few points to the contrary.

First, it is a free market and a free market should be left alone to take care of itself, however it sees fit.  Attorneys looking to intervene may win a lawsuit here and there but they will not nor cannot change the ultimate course of a free market. 

Second, the statement "under the rule, in order to advertise a property on a listing site, the seller's agent must offer compensation to the buyer's agent" is true, but what they don't tell you is that amount can simply be $1.00 and I don't know any seller that would argue that amount.

Third, all of this really has nothing to do with the seller, it's not the seller paying the buyer's agent after all.  The listing agent charges a fee for their service, and in an effort to drive as much traffic to the house and maximize the sales price for the seller, the listing agent offers a portion of their overall compensation to the buyer's agent.  So, in fact, this is an expense incurred by the listing agent and not by the seller.  If the seller does not see the value in this compensation to the listing agent, they are free to seek other avenues of getting their house sold. 

Fourth, all listing agents charge different fees and yes, those fees are absolutely negotiable by the seller.  Some agents will charge 4% and offer 3% of that to the buyer's agent, others will charge 5% and offer 2.5% of that to the buyer's agent and others may charge 7% and offer 3% or 4% to the buyer's agent.  So there is no specific amount that a listing agent will charge. 

Fifth, the seller has no requirement to hire an agent and pay any fees at all.  If a seller does not see the value in hiring and compensating that listing agent, they are free to sell the house on their own (for sale by owner) and not cooperate with any buyer's agents either, but they chose to hire an agent because they see the financial benefit.

At the end of the day and if this lawsuit actually sticks, the people that it will hurt the most are the lower and middle class and first time home buyers.  In a time where housing affordability is at an all time low, this will only compound the problem by forcing the buyer to either enter into a contract without representation which would prove to be disastrous for both the buyer and seller or force the buyer to compensate the buyer's agent themselves on top of the already crippling down payment and closing cost expense. And let's not forget the seller, if buyers can no longer afford to buy a house because of the added expense in doing so, how does that help the seller maximize their profits, it doesn't.  

Compensating a buyer's agent may be looked at as an added expense to the selling side of a transaction but it also contributes the maximizing the profits of the sale of the home.

I think those sellers that filed the class action lawsuit get together again, file another class action lawsuit against the attorneys that charge 30%, 40% or even 50% for their services.

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