In wake of lawsuit, NH Realtor president advises: Be transparent about commissions

Missouri lawsuit charges National Association of Realtors conspired to inflate commissions on home sales

In the wake of a class action suit ruling on real estate broker commissions, the president of the New Hampshire Association of Realtors (NHAR) had this advice to his members: “Disclose, disclose, disclose.”

“Keep disclosing, as we’re supposed to out there,” Ben Cushing, the NHAR president said in a video posted Nov. 2 in which he discusses the lawsuit with NHAR legal counsel Matt Johnson.

The class action lawsuit — which was filed, heard and decided in Missouri — argued that the National Association of Realtors (NAR) and some of the country’s largest brokerages conspired to inflate commissions on home sales to an artificially high level.

The standard practice of setting commissions between 5% and 6%, with sellers paying not only their agents but their buyers’ agents, was called into question. A consumer group that brought the lawsuit on behalf of sellers claimed that arrangement forces them to pay excessive fees to the brokers.

The ruling, if ultimately upheld, could mean sellers would no longer be required to pay their buyers’ agents. Also, brokers would be free to establish their own commission criteria. The NAR is appealing.

In advising New Hampshire agents, Johnson said in his video discussion with Cushing about the lawsuit: “So make sure and take the time to do the proper discussion with the buyers and the sellers. Continue to do what you’re doing, but just be mindful to ensure that everybody knows it is all negotiable, and it is all transaction specific. And if you do that, then keep doing what you’re doing; nothing needs to change.”

“The rule is pro consumer but it’s pro consumer when it’s used the right way and reinforced the right way,” Johnson said.

In a follow-up statement to NH Business Review after posting the video, Cushing said there can be different kinds of commissions. He cited an “entry only,” in which a broker enters the property for sale into the Multiple Listing Service (MLS) and does not provide any other services to the seller. And he cited a discount arrangement in which the discount is on the listing fee, but the buyer agent still gets a commission of 2.5-3%.

“It’s important to understand that there is no ‘standard’ commission rate, that each transaction is independent and negotiable,” said Cushing. “New Hampshire Realtors forms are designed to be transparent, so everyone understands up front what the costs are, and that model fosters competition. Buyers and sellers are counseled to understand the commission statements, and both have to sign off before the transaction moves forward. If the terms aren’t acceptable, they are welcome to negotiate.”

The NAR owns and maintains the MLS. Nearly all the homes for sale in the country are on the MLS and it is the primary tool to match sellers and buyers. NAR-member brokers who list their clients’ properties in its databases must also agree to share their commissions with other MLS participants.

Common practice

The Missouri class action suit argues that agreement artificially drives up home prices and deprives sellers of profit, a violation of antitrust laws.

In New Hampshire, as elsewhere, having the seller bear the cost of commissions to both their agent and the buyer’s agent is the most common practice, according to interviews with other brokers.

The seller’s agent — or “listing agent” in real estate parlance — is the person who represents the interests of the seller in a real estate transaction. The property owner — or seller — is the client. The agent’s duties to the seller, per the NAR code of ethics, are undivided loyalty, obedience, diligence, disclosure, confidentiality, accounting and reasonable skill and care. By law, these duties by the listing agent are owed exclusively to the seller, not to the buyer.

It is the seller’s agent who bears the cost and responsibility for marketing the property, scheduling visits and open houses, and the other duties.

The percentage of that commission is negotiable, according to local interviews, and usually the commission is split 50/50 between the seller’s agent and the buyer’s agent.

As an example, the median price of a single-family residence that sold in New Hampshire in October was $477,000, according to NHAR data. A 6% commission would reap $28,620, paid by the seller, with 3% or $14,310 going to the seller’s agent and $14,310 going to the buyer’s agent. So that’s $28,620 that comes out of whatever profit the seller is getting for their house.

There are cases in other states, particularly in bordering Maine where some New Hampshire brokers are licensed, that have a 60/40 split with 60% going to the seller’s broker and 40% going to the buyer’s broker.

The Missouri case, decided on Oct. 31, is far from settled, according to Johnson.

“I have to stress this is the very beginning of this dispute,” he said in the video. “I don’t know if you want to use a baseball analogy, I would say it’s probably the third inning.”

Rulings made by the trial judge will most probably be appealed, likely all the way to the U.S. Supreme Court, said Johnson.

“This would be the type of case, given the amount of money involved, and the industry involved, and the sweeping impact of it, that I would be surprised if the Supreme Court didn’t take up the matter on appeal,” he said. “So you’re realistically probably talking three to five years out before there’s any actual final judgment, and the final judgment may not look anything like what the current jury verdict is.”

The jury found against the NAR and two corporate brokerage companies: Homeservices of America and Keller Williams Realty.

The NAR and brokerages were ordered to pay damages of nearly $1.8 billion. But the court can issue treble damages, which means the damages could climb to more than $5 billion.

Two other firms were initially named as part of the lawsuit — Re/Max and Anywhere Real Estate, formerly known as Realogy, the parent company of Coldwell Banker, Century 21, Sotheby’s International Realty and Corcoran. They settled out of court for a combined $140 million. As a term of the settlement, they said they would make changes in their business practices. Among the changes is not requiring agents to be members of NAR.

“This matter is not close to being final. We will appeal the liability finding, because we stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition,” Tracy Kasper, NAR president, said in a statement after the verdict. “We remain optimistic we will ultimately prevail.  In the interim, we will ask the court to reduce the damages awarded by the jury.”