Real Estate Broker Commissions Under Fire
Boston Real Estate for Sale
Real Estate Broker Commissions Under Fire
HomeServices of America, the Berkshire Hathaway -affiliated real estate brokerage, said Friday it agreed to pay $250 million to settle high-profile litigation over real estate agent commissions.
HomeServices of America was among the large brokerages found guilty of following rules that kept commissions higher than they would have been otherwise in a $1.8 billion Missouri jury decision late last year. Other defendants, including the National Association of Realtors, Anywhere Real Estate, Re/Max Holdings, and Keller Williams, have previously settled.
A federal judge earlier this week gave preliminary approval for the National Association of Realtors’ settlement, in which it will pay $418 million over four years and make changes to its rules. HomeServices of America separately will pay $250 million over a four-year period. The judge’s approval clears the way for changes to start this summer in the way buyers and sellers work with their agents.
“The financial terms of the settlement represent a sole obligation of HomeServices, with no participation by any parent entity, to effectively conclude our involvement in the antitrust litigation,” spokesperson Chris Kelly said in a statement emailed to Barron’s. The settlement covers not only the Missouri case, but similar seller commission lawsuits nationwide.
The company settled “to eliminate the uncertainty brought by the protracted appellate and litigation process,” Kelly added. “This resolution allows us to concentrate on our primary goal: delivering unparalleled value in the real estate market and serving home buyers and sellers with the highest standards of service.”
At the heart of the litigation was the way real estate agents advertise their fees. Under the old rules, agents were required to advertise the fee sellers were willing to pay to a buyers’ agent when listing on the Multiple Listings Service—a rule that the Missouri jury decided kept commissions higher than they would be otherwise. Barron’s wrote about the potential implications of the litigation in a February cover story.
That rule is changing as part of the National Association of Realtors settlement: sellers’ agents will be banned from making offers to buyers’ agents on Realtor-controlled listing services, though they can still make offers of compensation outside of the services. And buyers’ agents will enter into contracts with house hunters outlining their services and costs, a move that advocates say will add to transparency around transaction costs.
“The long-entrenched mandatory compensation rule is finally dead,” Michael Ketchmark, an attorney for the plaintiffs in the Missouri case, said in a statement. “A jury of ordinary Missourians spoke, and the industry heard their voice. ”
Benjamin D. Brown, managing partner of law firm Cohen Milstein, which represents plaintiffs in a similar class-action suit, said in a statement that “this is another significant settlement for American home sellers who have been saddled with paying billions in unnecessary commission costs.“
Real Estate Broker Commissions Under Fire
In this clip from The Real Word podcast, Byron and Nicole discuss The Justice Department backing out of a proposed settlement with the National Association of Realtors to take a fresh look at the notoriously high commissions consumers pay real-estate agents Subscribe to The Real Word Channel → https://www.youtube.com/channel/UCTTM… Racket 1: The Justice Department backed out last week of a proposed settlement with the National Association of Realtors. What does this move mean for the housing industry?
Consumer advocates have long criticized traditional real estate commissions as confusing and too high. Now, those commissions are coming under increasing legal pressure.
Boston Real Estate for Sale
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Real Estate Commission Lawsuit
The suit takes aim at the way that brokers who represent homebuyers are paid. Typically, people seeking to sell their home agree to pay a listing agent a commission — usually 5% to 6% of the sale price — to place it on a listing service maintained by local Realtor groups and to market the home. The seller agrees that the listing agent will offer to split the commission — say, a 2.5% share — with the agent representing the buyer. (Agents may share part of their commissions with their brokerages.)
The suit argues, the home seller is paying an inflated commission that is covering the buyer’s share as well. By that analysis, a seller paying a 5% commission on the sale of a $500,000 home is overpaying by about $12,500.
Consumer advocates and some analysts say the practice pushes up home prices because the commission for the buyer’s agent ends up being added to the asking price of the home so the seller can get a particular net price.
Name in the real estate lawsuit
The brokerages named in the suit are Realogy, the parent of Century 21, Coldwell Banker and others; HomeServices of America, a Berkshire Hathaway affiliate; RE/MAX; and Keller Williams. HomeServices and Keller Williams declined to comment. RE/MAX said it would “continue to vigorously defend” itself against a “baseless” suit. Realogy said in a statement that the case was “without merit.”
Source: Seattle Time
