A recent legal settlement agreed to by the National Association of Realtors leaves Missouri realtors unsure of what the future holds.
The association, which represents about 1.5 million realtors nationally, announced March 15 that it will settle several antitrust lawsuits, pending court approval.
The industry group denied any wrongdoing, but it will pay out $418 million over approximately four years, remove compensation offers from multiple listing services, and require multiple listing service participants to enter written agreements with buyers.
A multiple listing service, commonly referred to as an MLS, is a private database used by real estate professionals to assist clients in buying and selling properties.
The settlement comes after a Kansas City jury in October ordered the National Association of Realtors and major real estate brokers to pay approximately $1.8 billion, finding they had used anti-competitive trade practices that resulted in inflated costs for Missourians selling their homes.
After this month’s settlement, people in the industry are waiting to determine what their next steps should be, according to Brian Toohey, CEO of the Columbia Board of Realtors.
“It’s really just wait and see where the settlement goes when the judge or the court approves it,” Toohey said, “and then seeing what changes we might potentially have to make at that point.”
Settlement terms
The settlement will prohibit offers of broker compensation from being communicated on multiple listing services.
Historically, an MLS shows compensation, which allows users to know what is being paid out to buyers’ agents for homes listed on the database.
Jessica Simpson, a Columbia realtor, said the terms of the settlement address the potential ethical violation of some buyers’ agents using MLS postings to consider possible commissions before alerting clients to available houses.
Michael Ketchmark, the lead trial attorney for the plaintiffs in the Kansas City case against the National Association of Realtors, said the elimination of broker compensation from the MLS is a victory for consumers.
“We think it’s going to result in a tremendous benefit to home sellers and home buyers by lowering the amounts of commissions and costs of buying and selling a home,” Ketchmark said.
The association has emphasized that commission rates have been negotiable. However, some say agents have implied that rates are fixed at 6%. Simpson said that contributed to the lawsuits in the first place.
Ketchmark argued in the Kansas City case that large interests within the industry made efforts to present commissions as fixed.
“We put on evidence, live witness testimony, internal training videos and documents that showed … there actually had been collusion at the highest corporate levels to fix commissions at 6%,” Ketchmark said.
Another change under the settlement is that multiple listing service participants working with buyers must enter into written agreements specifying what services they will provide and at what cost.
In the past, brokers could wait until an offer was made to enter into this agreement. Starting in July, they will be required to do so before touring a home.
Industry impact
Some believe the changes within the industry could affect the overall housing market by contributing to houses sitting on the market longer.
“We’re just going to have to explore this and see how things go,” Simpson said. “I think that if sellers begin paying drastically less in commissions, it’s going to impact the sale of their home.”
Lower commissions may also turn away some agents, Simpson said. Agents must account for the costs they incur, and that could result in hesitancy to take on clients who want lower commissions.
To avoid commissions altogether, some home buyers do not use an agent. Simpson said that can be dangerous to those unfamiliar with the practice due to the gravity of the purchase.
“Purchasing a home is huge,” Simpson said. “A lot of times it’s the biggest purchase they have ever made in their life.”
Residential real estate is facing changes to the way business has been conducted for decades, Ketchmark said.
“There’s a hundred-year history of stabilizing the prices there …” he said. “The industry has used MLS and has used the (association’s) rules to stabilize prices, and they’re no longer able to do that.”
While these changes are still months away, their implementation will introduce uncertainty for the industry to navigate.
“I think this is all going to get messy before it gets smoothed out,” Simpson said. “But, it’s hard to say exactly what will happen, and we’re just going to have to wait and see.”
This story originally appeared in the Columbia Missourian.
