Real estate commissions are negotiable, no matter what any lawsuit says

Minnesota home seller, Christopher Moehrl, has filed an class action anti-trust lawsuit [in April], alleging a “conspiracy” to price fix broker compensation in the 2.5-3% range, naming the National Association of Realtors (NAR), Realogy, HomeServices of America, RE/MAX, and Keller Williams (with more to be named, inevitably).

The complaint intimates that by requiring brokers to offer buyer broker compensation when listing a property on the MLS, fees are “fixed” and inflated, violating anti-trust laws. In short, they believe buyer’s agents shouldn’t be paid because buyers can find their home online now.

The class action suit claims that because the seller has to pay the buyer’s agent, commissions are inflated. The truth is that although it is NAR’s rule to require compensation, it could be as little as one cent, and Associations support all compensation models (flat-fee, discount, rebates, traditional 3% per side, and even higher on luxury listings).

Let’s take a look at some of the court documents directly:

“8. Defendants’ conspiracy has kept buyer broker commissions in the 2.5 to 3.0 percent range for many years despite the diminishing role of buyer brokers.”

This point continues to outline how buyers agents are essentially useless in an era where homebuyers have direct access to listings and can find their own home online. That claim is similar to claims made by anti-Realtor bloggers in the early 2000s, and is wildly uninformed. All agents, no matter which side they represent have a fiduciary duty to their client, negotiate on their behalf, and walk them through (and oversee) a complex financial process.

Beyond that, buyer’s agents are often the person that has to inform a buyer that their dream home they found on Zillow (or other sites that use non-MLS data) actually sold several days ago, or was not real to begin with.

They’re the individuals that have to not only be educated on real estate law and contracts, lending options and processes, but be experts in a certain geographical area and be informed of architectural styles, smart home features, green home features, and so on.

The indication that a buyers agent’s sole value is to pair a homebuyer with a home is ludicrous and objectively false.

“17. In that sales transaction, Mr. Moehrl was represented by a RE/MAX franchisee, and the buyer was represented by a Keller Williams franchisee. As part of the sales transaction, Mr. Moehrl paid a total broker commission of six percent, and 2.7 percentage points of the six percentage points were paid to the buyer broker.”

It is important to note that it is not illegal to buy or sell a home without representation. It happens every day across this nation. If there was a legal requirement to hire a real estate professional, this lawsuit might have merit. But there is not.

Further, the fact that the buyer broker was only given 2.7 percent indicates that Moehrl negotiated against the supposed 3.0 percent standard the lawsuit is so aggressively fighting against.

Obviously this home seller knew he could negotiate commissions.

Not only did the Plaintiff not have to hire a Realtor, he didn’t have to allow any negotiation of the compensation, given that the buyer side earned 2.7 percent, and his own Realtor earned 3.3 percent.

“38. As required by the Buyer Broker Commission Rule, the seller broker makes a blanket, non-negotiable offer of a three percent commission to the buyer’s broker when it lists the home on the local MLS.”

The Plaintiff’s attorneys have clearly not done any homework. Compensation is required, that is factual, but there are no bylaws that dictate the amount. It can be as little as one cent. Or as high as 100%, it is all negotiable. All of it.

63. For years, buyer broker commissions have remained steady at two-and-a-half to three percent in the areas in which the Covered MLSs operate despite both an increase in home prices (increasing the dollar amount of the commission) and the diminishing role of buyer brokers described above.

NAR does not track or store broker commission data, and while brokerages individually do, they don’t uniformly or openly share that information with any competing brokers. There is no conspiracy regarding commissions.

The responsibilities of a buyer broker have actually increased over time, not diminished. Ask a broker in 1980 if they had to be well versed in modern marketing, social media strategies, analytics, paperless contract technologies, know the privacy laws regarding the collection and dissemination of information online, and so forth.

To repeatedly argue that anything other than market conditions have determined commission levels is dead wrong. In fact, some would argue that commissions on both sides of the transaction should be higher (and therefore, some brokerages offer services at higher commission levels than 3%).

The takeaway is that all commissions in real estate are negotiable, it’s not a legal requirement to hire a real estate professional when buying or selling a home, and that buyer agent responsibilities and values have actually increased over time.

Anyone in America who doesn’t like a Realtor’s services offered at a specific commission level can negotiate or hire a different Realtor – there is no conspiracy here. This lawsuit has a variety of factually inaccurate statements regarding commissions, and is laughable.

This story was first published in April of 2019.