Regardless of how the judge rules following last week’s verdict in Sitzer et al. v. National Association of Realtors et al., it’s clear that the residential real estate industry is in for disruption. And the brokers and agents who are already moving to adapt will likely be the winners.
To recap, while the jury found NAR and its co-defendants had broken anti-trust law and awarded the plaintiffs $1.79 billion in damages, Judge Stephen R. Bough has a range of options available when crafting his order to address the policy changes sought in the lawsuit.
In the least extreme case, he could simply strengthen buyers’ and sellers’ ability to negotiate commissions while keeping current practices largely intact. In the most extreme scenario, he could ban NAR and other brokerages from enforcing any kind of standard commission practice, opening up the possibility that more buyers will elect to forgo representation and force buyers’ agents to work harder to prove their worth.
Some have speculated such a process will drive down commission rates substantially.
And while it’s important to remember that this case doesn’t cover Massachusetts, it could lead to a nationwide settlement if NAR or its co-defendant brokerages decide it’s better off settling the case before the judge issues his final ruling. The speed with which the jury reached its verdict does not bode well for their chances on appeal.
But regardless of the final judgement or settlement, it appears likely that substantial space is opening for brokerages and even individual agents to disrupt the two-decade-old standard compensation structure. Now that the old rules are in question, it feels like anything is fair game.
Many have rightly noted that while compensation standards are in flux, agents need to immediately make sure they’re having their buyers sign compensation agreements from the get-go, which any broker worth their salt needs to standardize within their office.
But in the medium term, they’ll also need leadership from their brokerages. And any office leader who hasn’t been preparing for this day – whether through myopia, excessive optimism or a low-to-no services model – will surely find themselves left behind as agents, teams and maybe even whole offices start looking for certainty, doubly so if these commission lawsuits make it hard for new agents to make a living.
There’s also a moral element to these threats to brokers’ business models. Every homebuyer deserves representation in what’s one of the two or three biggest financial decisions of their entire lives, not just wealthy families who can afford to retain an agent out of their own pocket. It’s now on brokerage leaders’ shoulders to provide the structure to make sure that’s financially feasible without steering buyers and sellers based on how agents are compensated during individual home sales – a thorny issue federal regulators and Judge Bough must keep top of mind.
By keeping this ethical imperative top of mind, brokers will also be sure to attract and retain good agents, who nearly uniformly put their clients’ well-being first, and want to work for leaders who do the same.
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