Missouri lawsuit charges National Association of Realtors conspired to inflate commissions on home sales
In the wake of a class action suit ruling on real estate broker commissions, the president of the NH Association of Realtors (NHAR) had this advice to his members: “Disclose, disclose, disclose.”
“Keep disclosing, as we’re supposed to out there,” Ben Cushing, the NHAR president said in a video posted Nov. 2 in which he discusses the lawsuit with NHAR legal counsel Matt Johnson.
The class action lawsuit — which was filed, heard and decided in Missouri — argued that the National Association of Realtors (NAR) and some of the country’s largest brokerages conspired to inflate commissions on home sales to an artificially high level.
The standard practice of setting commissions between 5% and 6%, with sellers paying not only their agents but their buyers’ agents, was called into question. A consumer group that brought the lawsuit on behalf of sellers claimed that arrangement forces them to pay excessive fees to the brokers.
The ruling, if upheld, could mean sellers would no longer be required to pay their buyers’ agents. Also, brokers would be free to establish their own commission criteria. The NAR is appealing.
In advising NH agents, Johnson said in his video discussion with Cushing about the lawsuit: “So make sure and take the time to do the proper discussion with the buyers and the sellers. Continue to do what you’re doing, but just be mindful to ensure that everybody knows it is all negotiable, and it is all transaction specific. And if you do that, then keep doing what you’re doing; nothing needs to change.”
In a follow-up statement, Cushing said there can be different kinds of commissions. He cited an “entry only,” in which a broker enters the property for sale into the Multiple Listing Service (MLS) and does not provide any other services to the seller. And he cited a discount arrangement in which the discount is on the listing fee, but the buyer agent still gets a commission of 2.5-3%.
“It’s important to understand that there is no ‘standard’ commission rate, that each transaction is independent and negotiable,” said Cushing. “New Hampshire Realtors forms are designed to be transparent, so everyone understands up front what the costs are, and that model fosters competition. Buyers and sellers are counseled to understand the commission statements, and both have to sign off before the transaction moves forward. If the terms aren’t acceptable, they are welcome to negotiate.”
Common practice
The Missouri class action suit argues that agreement artificially drives up home prices and deprives sellers of profit, a violation of antitrust laws.
In New Hampshire, as elsewhere, having the seller bear the cost of commissions to both their agent and the buyer’s agent is the most common practice, according to interviews with other brokers.
The seller’s agent (“listing agent”) is the person who represents the interests of the seller in a real estate transaction. The property owner (seller) is the client. The agent’s duties to the seller, per the NAR code of ethics, are undivided loyalty, obedience, diligence, disclosure, confidentiality, accounting and reasonable skill and care. By law, these duties by the listing agent are owed exclusively to the seller, not to the buyer. It is the seller’s agent who bears the cost and responsibility for marketing the property, scheduling visits and open houses, and the other duties.
The percentage of that commission is negotiable, according to local interviews, and usually the commission is split 50/50 between the seller’s agent and the buyer’s agent.
As an example, the median price of a single-family residence that sold in New Hampshire in October was $477,000, according to NHAR data. A 6% commission would reap $28,620, paid by the seller, with 3% or $14,310 going to the seller’s agent and $14,310 going to the buyer’s agent. So that’s $28,620 that comes out of whatever profit the seller is getting for their house.
There are cases in other states, like in Maine where some New Hampshire brokers are licensed, that have a 60/40 split with 60% going to the seller’s broker and 40% going to the buyer’s broker.
“I have to stress this is the very beginning of this dispute,” Johnson said in the video. “I don’t know if you want to use a baseball analogy, I would say it’s probably the third inning.”
Rulings made by the trial judge will most probably be appealed, likely all the way to the U.S. Supreme Court, said Johnson.
“You’re realistically probably talking three to five years out before there’s any actual final judgment, and the final judgment may not look anything like what the current jury verdict is,” he said.
