Commission Splits, Antitrust, and You

Written by Posted On Friday, 20 November 2020 21:55

On November 17, I asked in a social media post on Commission Splits:

"At what point in the transaction do you explain to the buyer how commissions are paid, and split in a real estate transaction?

What do you say to explain commission splits...what is your 'script'?"

Some who replied to this post asked why it is necessary to talk about commissions to the buyer, since the buyer does not pay the commission. 

Here is why the questions I posed are important if you list and sell homes:

On Thursday, November 19, 2020:

The Justice Department Filed an Antitrust Case and Simultaneous Settlement, requiring the National Association of Realtors "To Repeal and Modify Certain Anticompetitive Rules"  

The Case centers on Anti-Competitive MLS Practices around Commission Transparency and the Buyers ability, or lack of ability based on industry practice, to participate in the negotiation of the commission when purchasing a home.

This new action by DOJ is separate from the Moehrl litigation, filed in 2019.

The current effort by the DOJ may sound familiar, but it is not the Moehrl Litigation, which challenges the MLS "Buyer Broker Commission Rule." The “Buyer Broker Commission Rule”, “requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation” to participate in MLS.  

Back to the new complaint against NAR

According to the complaint, NAR’s anticompetitive rules, policies, and practices include: 

1. prohibiting MLSs that are affiliated with NAR from disclosing to prospective buyers the commission that the buyer broker will earn.
2. allowing buyer brokers to misrepresent to buyers that a buyer broker’s services are free; enabling buyer brokers to filter MLS listings based on the level of buyer broker
3. commissions offered; and
4. limiting access to the lockboxes that provide licensed brokers with access to homes for sale to brokers who work for a NAR-affiliated MLS. These NAR rules, policies, practices have been widely adopted by NAR-affiliated MLSs resulting in decreased competition among real estate brokers.

Among other things, the proposed settlement will require that commission paid to Selling Brokers (The Broker representing the Buyer) be included in data feeds and allowed to be made visible to consumers.

Commission Transparency

Imaging you are a buyer shopping on a portal such as Zillow or REALTOR dot com, looking through the fields that describe the properties. Now imagine that one of those fields is "Commission Paid to Selling Broker." You notice that the commissions are always the same, or you notice that they are different, something never made public in the past. Now imagine that the agent working with buyers must explain that field to buyers early in the development of the relationship between the buyer and the agent.

An Important note:

NAR does not own or operate an MLS. Each MLS is a separate corporate entity, owned by local associations, groups of local associations, or by brokers. NAR has created MLS policies and procedures to, among other things, help avoid and to protect MLSs from antitrust litigation (which has proven to be, over the years, a moving target). 

If local MLSs adopt the policies in NAR’s Handbook on Multiple Listing Policy, NAR will provide Errors and Omission Insurance to protect the local MLS in the event the local MLS is sued by the DOJ.

Litigation and the DOJ have forced rule changes in the past

Part of the reason MLS is the beast it is today is that it has been changed over the years to satisfy the DOJ on several different antitrust cases. Litigation drives policy and procedure as MLS is a group of competitors acting together, fertile ground for anti-competitive accusations.

Why is this Important to you?

Knowledge is power. Knowing how to make this clear to buyers (and seller) will become the new standard. Knowing what is about to happen in the industry will give you the capability to demonstrate expertise and build trust and confidence with your clients before many of your competitors know what is going on.

NAR’s Summary:

2020 NAR-DOJ Agreement Regarding MLS Rules

We’ve only just begun. Stay tuned.

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