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Reflections on the Realtor® Antitrust Cases

On October 31, 2023, a Missouri federal court jury returned a guilty verdict in Sitzer/Burnett v. National Association of Realtors (NAR) et al.  At issue is NAR's policy of the "Mandatory Offer of Cooperation and Compensation" (otherwise known as the Participation Rule) in their MLS systems which was found to be an Sherman antitrust violation by this Kansas City jury. They awarded the home seller plaintiffs $1.785 billion in damages which would have been tripled to over $5 Billion.

On March 15, 2024, NAR and several large real estate brokerages agreed to forfeit upwards of $2 Billion to settle the case and also agreed to rule changes to neutralize some of the antitrust activities of which they were accused and found guilty.  Of the rule changes, one is of particular interest: the elimination of the Mandatory Offer of Compensation in the Realtor-owned Multiple Listing Services (known as the Participation Rule).  This was the primary vehicle that Realtors used to keep commissions high, by requiring the seller to offer a "usual and customary" commission to agents working with buyers.  Using the threat of "steering" listing agents could say that if you don't offer a high-enough commission to the listing agent and to the buyer side agents, the buyer side agents won't show the buyers the house.  

I know this to be the case. In the early 2000s, my company at the time, Houses.com, Inc., used a unique fee-based service to list and sell houses.  In order to post the property for sale in the Greater Milwaukee Association of Realtors' MetroMLS system, I required our seller clients to offer 2.4% of the sale price (the customary co-broke commission: a 40% split on the usual 6% Realtor commission) to agents working with buyers.  Our fee to the seller was separate and was not commission-based, but if we didn't offer the standard 2.4% commission rate on all of our listings, we would get blackballed by the Realtors and have difficulty selling the house.  So I had to take steering into account over 25 years ago.

One thing about the Mandatory Offer of Compensation that no one talks about is the tandem policy of "procuring cause."  In order to get paid the commission offered by the listing agent, the buyer-side agent had to show "procuring cause" which is generally defined as "an unbroken series of events leading from first introduction of the property to the buyer to the final consummation of the sale."  It means that the buyer's agent has to be in front of the client for every step of the transaction in order to be paid the commission.  Listing brokers are not required to disclose a procuring cause dispute with the buyer-side broker prior to closing. If the listing agent has the buyer's name on a sign-up sheet from an open house, that’s all they need to have the agent work the entire transaction and find there is no commission available to them at closing.  The listing agent can and would withhold payment at closing subject to an arbitration hearing before a panel made up of other Realtors. 

Many listing agents are very militant about procuring cause since they use it to make sure they don't have to put any effort into the sale.  They sluff off most of the work to the other agent and then give them less than half the commission.  If they can take the whole commission based on a procuring cause dispute, they absolutely will. There is a well-known agent in our market that posts in the private remarks of his MLS listings "Notice is Given That: Selling/Cooperating Agent/Broker (YOU) Must Be Present For All Showings and Any/All (ENTIRE) Inspections!" He has used this kind of intimidating language for many years and he has no problems holding back commission payments to other agents and making them go to arbitration.  It is all a corrupt and underhanded system designed to reduce the amount of effort on the listing agent's part while keeping the majority if not all of their excessive commissions.

Fortunately, no Mandatory Offer of Compensation means no procuring cause.  That's one of the biggest changes going forward.  My fee-based buyer agency service is superior since we are not required to tag along with the buyer to every house they look at.  The buyer agent should never inspect a house where their client is not submitting an offer.  The listing agents are paid to show and sell the house.  That's what they have reportedly been trained and are being paid to do.  We represent the buyer's interest in the transaction and negotiate on their behalf.  We are not there to sell or show houses.  That's the listing agent's job.  It's much more efficient, more economical and it makes sense.  

There are many other court cases currently being tried against Realtors, with one in particular:  Lutz v. HomeServices of America, Inc., et al, which is seeking class action status on behalf of homebuyers using a Realtor going back to 1996.  This case is of particular interest to me because the buyer agency service I am now offering I originally made available back in the 1990s but could not provide due to procuring cause as well as Realtors claiming their services were "free."  I have discussed procuring cause but the notion of "free" services is particularly corrupt since the Mandatory Offer acts to increase costs to the buyer within the prices that they pay for the house. Only in the past few years have agents been prevented from misleading home buyers by no longer being able to say they work for "free." 

I had been a member of the Realtors® for over 30 years and I always had a contentious relationship with them, from former NAR Vice President William Malkasian’s nationwide slander of my business in the Washington Post to Wisconsin Realtors® Association permanent board member Donald Hornung’s (Wauwatosa Realty/Shorewest Realtors) unvarnished dismissal of my service in his support of his 6% commission in the Milwaukee Journal Sentinel, to fines and penalties from the Greater Milwaukee Association of Realtors® for not toeing their “full commission” line, I have swallowed hard and kept paying for membership because there was no alternative.  About 15 years ago I stopped offering brokerage services altogether and worked strictly as an appraiser.  I thought my failure to gain traction was my fault.  I was competing against companies that were superior “marketing firms” and they were better than me.  They were not better. They were corrupt.

The guilty verdict in Sitzer/Burnett v. NAR et al proves Realtors® stacked the deck against buyers, sellers, and non-commission service providers.  The policy of mandatory commission-based compensation to Realtors® working with buyers corrupted my fee-based services. We know that mandatory compensation is an antitrust violation.  Sitzer/Burnett proved that.  It acts as a surcharge to buyers in the market.  It increases prices when there is no countervailing force to limit brokers from pushing their clients to purchase more expensive houses offering higher commissions.   

 

A broker or agent with a fiduciary relationship with a client has five duties: Loyalty, Care, Confidentiality, Obedience, and Accounting.  Without Loyalty, it is not a fiduciary relationship.  The steering that has been documented proves there is no loyalty with commission-driven brokers and agents.  The practice of buyer agency instituted by Realtors® about 30 years ago is simply seller sub-agency that allows the agent to say negative things about a property. Realtor® buyer agency is akin to putting a saddle on a pig and calling it a horse. How much of the real estate crash of 2008 can be laid at the feet of the Realtors® and their push for more and more commission income?   Significant losses in our financial sector are driven by this.  Taxpayers supporting government sponsored enterprises (GSEs) have been harmed by the past failure of the GSE institutions.  Realtors® have never been called to account for the damage they have inflicted on our economy and our citizens.

Realtors® claim to be the "Voice of Private Property Rights."  They have no more right to advocate for private property rights than used car salesmen have to advocate for transportation policy.  Private property owners have plenty of advocates, they are called "the wealthy" and they do just fine on their own without used house agents and their corrupt rules tipping the balance with their anti-tax lobbying and tainted endorsements.

Realtors® say the Participation Rule “serves the best interests of consumers, supports market-driven pricing and advances business competition.”  This is not true.  It stifles competition, corrupts the real estate market, and fosters inequality.  They are only beginning to learn how disastrous their rules are.  We fully understand and we are ready now to right 100 years of wrongs.

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