Over the past year the National Association of Realtors NAR has been making headlines regarding a number of lawsuits filed by homeowners, and also a U.S. Department of Justice inquiry over allegations of price fixing. Conspiring to set commissions is illegal and a violation of what’s generally referred to as the Sherman Anti-Trust Act. The Act is designed to promote competition while preventing businesses from secretly agreeing to set or “fix” prices. In the real estate world that means commissions paid by sellers and buyers are supposed to be negotiable, and there cannot be any set rate or “that’s what all the agents charge.”
As part of a proposed settlement to dismiss the lawsuit Realtor has agreed to direct Multiple Listing Services to prohibit offers of compensation on the Multiple Listing Service (MLS). Instead, buyer agents will need to enter into a Contract before representing a buyer in a real estate transaction (in the past many buyer agents operated under what was generally referred to as “a blanket offer of compensation). And by implication they will need to stop representing or even suggesting their services are free or available to a buyer at no cost when that is not the case.
At issue is many buyer agents tell buyers they should be represented in a real estate transaction. Good point. However, if the buyer asks how the buyer agent is going to be paid it would not be uncommon for the buyer agent to mislead the buyer by stating things like, “the seller will pay,” or “the seller agent will pay.” But many times, these statements would be made when in fact the buyer agent had never negotiated terms of compensation with either the seller or the seller agent. Obviously, this is not good, but it happens all the time.
If the above referenced settlement is ratified by the judge, then those less than honest buyer agents are not going to be able to make these sorts of representations because the buyer agent will need to either sign a contract with the buyer, or sign a contract with the seller or sign a contract with the seller agent. And they will need to do so for each transaction. And each contract will need to clearly articulate how the buyer agent gets paid.
But what if the buyer agent does not have a contract? Well, they risk not getting paid! Furthermore, their real estate license will be at risk for participating in a real estate transaction wherein they do not have a contract.
What all of this means is the professional real estate agents will be able to continue doing what they do best; to represent their seller or buyer. And the less then professional real estate agents will likely be looking for a new job. This is all very good news for the consumer.
But this issue is far from over because in another case a U.S. Court of Appeals recently ruled the U.S. Department of Justice can reopen its investigation into claims of price-fixing by Realtors. DOJ Realtor Investigation This is roughly the same issue but a different plaintiff. And again, that likely means the DOJ inquiry will likely result in increased consumer protection from less than desirable real estate practices.
At Mad River Valley Real Estate, we are hopeful these lawsuits and investigations will raise the professionalism of the real estate agents we often work with. And an overall higher level of professionalism in the industry will not only benefit the consumer, it will also support our ability to provide the highest level of professional service in order for clients and customers to make informed real estate and financial decisions.
Dion lives in Waitsfield and is a partner in Mad River Valley Real Estate.
