The Sitzer v. NAR antitrust lawsuit has the potential to turn an industry-accepted compensation construct on its head. At stake in this case is whether four commission-sharing rules within the National Association of REALTORS® Handbook and Code of Ethics subscribed to by all REALTORS® amount to price-fixing. While I won’t get into all of the details of the case (you can read about it here if you are so inclined), anyone whose business relies, in some shape or form, on agents earning cooperative commissions is smart to consider the possible outcomes of this case.
How buyer agent commissions work today
In current practice, the listing agent is typically promised a commission from the seller of a home, and then lists the home on the MLS for other agents to see. A key detail here is that the NAR Handbook, Section 2-G-1, requires that a listing on the MLS must come with a blanket offer of compensation to any agent who secures a buyer for the home. Meaning: a portion of the commission paid by the seller of the home to their agent also compensates any agent who represents the buyer of the home without discrimination as to how well that agent performed their services to the buyer. A high-performing buyer’s agent who provides great service to their clients earns the same on a home sale as a buyer’s agent who opens the door and fills out a contract once, never to be heard from again.
How could the Sitzer suit change commissions?
In the event of a negative verdict for NAR, there’s a possibility of no real impact on the industry. Fine print gets added to listing agreements, some sales objection scripts are slightly updated, but business continues as normal while cooperative commissions continue to be offered most of the time. Northwest MLS in Washington has already taken a step in that direction. However, there’s also a possibility that consumer advocacy groups like CAARE (or, just, people on social media interested in home buying) see an opportunity to drastically change the way the game is played. And that’s where preparation becomes important for anyone in the industry.
Some agents and brokers are rightfully concerned about how the result of the NAR antitrust lawsuit could shake up their business. At real estate industry events and in online networking groups, I hear chatter about how detrimental a change to cooperative compensation policies might be to agents, especially those who work primarily with buyers. A recent comment about this case in a group I’m in read “It will destroy our industry as we know it. Also many people will never get the opportunity to buy a home.” But I can’t help but think that reaction is a little… dramatic.
This wouldn’t be the first industry to face such a change
A while back I was looking for a personal financial advisor and found myself researching the difference between two options: Do I want a fee-based advisor, or a fee-only fiduciary, and what is the difference? Since at least 1983, financial consumers have had the ability to make this choice when determining whose service was best for them. In many ways, the fee-based advisor model is analogous to the current model of buyer broker compensation. For both, commissions are received by the agent/broker from a party that is not their client as a reward for consummating the sale of something, without regard to their skills, experience, service level, or performance. In contrast, a fee-only fiduciary is paid directly by their client, and usually the compensation model rewards good performance or is directly correlated with hours worked on a client’s behalf.
But it wasn’t an industry-ending change
Since 2006, the number of FINRA-registered investment brokers (typically fee-based advisors) has only fallen 1% overall; the biggest portion of that decrease occurred during the 2009 financial crisis. With 600,000+ investment brokers in the US, evidently there is still plenty of business to go around even with fee-only fiduciaries as their supposed competition.
How agents and brokers should prepare for a potential change to commissions
So what should real estate agents and brokers do to prepare for a potential outcome of the lawsuit that results in a change to who is the source of their paycheck? Clearly, the most important thing here is to provide real value to their clients. While everyone in the industry knows how hard most buyer’s agents work, having that work enhance the client’s direct experience will become ever more important.
Look at it from another perspective
Agents would begin to more frequently consider how asking a client to print, sign, and scan a contract might be an annoyance to their client over an e-sign program. And it can be those little things that make or break the decision for a client to want to pay for a particular buyer agent’s services.
One of the reasons we built Zenlist was to provide agents with a tool that would streamline the home buying experience between agents and their clients. We find that most agents using Zenlist are enthusiastic about how much the platform improves their ability to efficiently organize listings with their buyers, communicate information, schedule showings, and set up touring schedules in a shared, collaborative space. But I do wonder how many of them recognize why it is that their buyers are opening the Zenlist app more than twice per day and looking at over 30 listings a week. What is the buyer experiencing and how has this tool, provided by their agent, helped them with the tedious process of searching for a home?
One of the outcomes to the Stitzer v. NAR antitrust lawsuit could be that agents will always be evaluating the buying process from a second set of eyes: their client’s perspective. The client could become the one signing the paycheck after all. Of course there is always some resistance to change, but like most other industries in the US, value served equals value pays out.