Federal investigations, civil lawsuits challenge real estate industry practices
By Daily Report Staff
9/21/2021
Investigations and efforts from the Justice Department and the Federal Trade Commission to address unfair or exclusionary practices in the real estate industry, on top of several civil lawsuits filed this year, pose a challenge to traditional residential real estate commissions and brokerage rules, according to The Wall Street Journal.
The politically powerful real estate industry has survived past challenges to its commission structure, but consumer advocates say rising home prices have exacerbated concerns about excessive fees.
While no changes or new rules are on the table yet, at issue are the commissions real estate agents earn for the sale of a home, typically around 5% to 6% of the sale price. For a home sale at the recent national median price of about $375,000, a 5% commission would be $18,750—or for a $1 million home, it would be $50,000.
The National Association of Realtors says a tight sales market and rising prices have made real estate agents more important than ever, and it says that commissions are fully negotiable and declining. NAR also says the practice encourages competition. However, The Justice Department says Americans paid more than $85 billion in home sale commissions last year, and that industry practices “may harm home sellers and homebuyers.” Read the full story.
r/RealEstate – Real-Estate Agents Gear Up for Fight to Save Their Commissions
By Clarice Smith
9/21/2021
Here’s a tremendous instance of how expertise is elevating shopper consciousness and hopefully enhancing an antiquated business mannequin. (I’m not in the actual property trade – only a California house owner who has purchased and offered a number of occasions and sees the % fee construction as inappropriate for a market during which properties typically present and promote themselves.)
Article hyperlink
https://www.wsj.com/articles/realtors-face-federal-scrutiny-of-broker-commissions-11632135601
Here’s textual content contained beneath behind the paywall:
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WASHINGTON—The residential real-estate trade is bracing for a problem to the commissions charged by its gross sales brokers, one that would put downward strain on the charges paid by dwelling consumers and sellers.
Tel: 551-580-4856 | Email: F.WINNIE.S@GMAIL.COM
The Justice Department is investigating dwelling sale commissions, and in a wide-ranging govt order President Biden requested the Federal Trade Commission to undertake guidelines to deal with unfair or exclusionary practices within the real-estate trade.
Several civil lawsuits difficult trade guidelines and practices round commissions have survived preliminary procedural challenges and drawn assist from the Justice Department, placing added strain on conventional dealer charges.
The politically highly effective real-estate trade has survived previous challenges to its fee construction, however shopper advocates say rising dwelling costs have exacerbated considerations about extreme charges.
“The litigation and the government attention that the industry is getting now is unprecedented,” stated Stephen Brobeck, a senior fellow on the Consumer Federation of America and a longtime critic of the trade.
At challenge are the commissions real-estate brokers earn for the sale of a house, sometimes round 5% to six% of the sale worth. For a house sale on the latest nationwide median worth of about $375,000, a 5% fee can be $18,750—or for a $1 million dwelling, it could be $50,000.
Very high-end properties are likely to have considerably decrease fee charges.
Home consumers find yourself contributing to those commissions as a part of the acquisition worth, however usually have little room to barter since it’s the dwelling sellers who typically set the commissions for brokers on each side of the deal.
Consumer advocates say this contributes to extreme commissions and level to the National Association of Realtors’ guidelines as the largest roadblock to vary. Those guidelines require sellers to supply commissions to would-be consumers’ brokers, which shopper teams say encourages sellers to supply excessive charges for purchaser brokers as a method to entice extra potential consumers.
Industry critics additionally say that the charges are opaque to most consumers, and say the appearance of on-line dwelling engines like google has diminished the standard function consumers’ brokers play in connecting consumers and sellers.
The National Association of Realtors says a good gross sales market and rising costs have made real-estate brokers extra essential than ever, and it says that commissions are totally negotiable and declining. The common nationwide fee charge is at present within the vary of 4.9% to 4.94%, based on trade information and analysis web site RealTraits, down from 5.40% in 2012.
The NAR says that the present fee construction additionally encourages extra competitors by giving all individuals in native multiple-listing companies equal entry to info on obtainable properties. It additionally helps make properties extra inexpensive to first-time and lower-income consumers, the commerce group says, as a result of they don’t should pay their very own brokers up entrance.
“NAR remains committed to advancing and defending independent, local broker organizations that provide for greater economic opportunity and equity for small businesses and consumers, including first-time, low- and middle-income home buyers,” stated NAR normal counsel Katie Johnson.
News Corp, proprietor of The Wall Street Journal, operates Realtor.com beneath license from the National Association of Realtors.
Under the Trump administration, the Justice Department and the National Association of Realtors reached a deal to offer extra disclosure on dealer charges and make them extra aggressive. But this summer season, the Justice Department beneath President Biden stated it was withdrawing from the settlement in order that it may pursue a broader investigation into dealer commissions.
The Justice Department stated that Americans paid greater than $85 billion in dwelling sale commissions final yr, and that trade practices “may harm home sellers and home buyers.” Last week, the NAR challenged the division’s withdrawal, saying it could battle a Justice Department civil subpoena.
The civil subpoena issued by the Justice Department in July largely focuses on NAR and trade insurance policies that could possibly be shaping the fee construction, based on court docket information. For instance, the subpoena requires NAR to “submit all documents relating to any policy, guideline, rule, or practice: a. requiring listing brokers to make an offer of compensation to buyer brokers to list a home” on a multiple-listing service.
The subpoena additionally probes practices that would limit advertising and marketing of non-MLS listings—one other topic of latest personal lawsuits.
In an extra signal of the mounting dangers to the trade, the Justice Department has taken sides in opposition to NAR and different trade defendants, submitting statements in a number of civil lawsuits. The Justice Department statements typically dispute the NAR’s competition {that a} 2008 settlement with the division gave the federal government’s blessing to the present fee construction.
Mr. Biden additionally has pushed the Federal Trade Commission to launch its personal assessment. The president stated in a latest govt order concentrating on competitors issues that the FTC ought to contemplate guidelines to curb “unfair tying practices or exclusionary practices in the brokerage or listing of real estate.”
The FTC didn’t reply to a request for remark.
The Justice Department investigation may result in an antitrust swimsuit and eventual sanctions on the trade. The prospect of FTC motion is extra distant, given the procedural hurdles that the company faces in adopting new guidelines.
The present Justice Department investigation started earlier this yr. After the change in administrations, the division was desperate to pursue a broader take a look at the trade and unilaterally withdrew from the settlement pact with NAR.
The division is worried that an array of practices creates a closed market for the shopping for and promoting of properties, locking in increased charges and stopping maverick companies and brokers from efficiently providing lower-cost fashions.
These considerations are very true at a time of probably disruptive change within the trade, accelerated by the Covid-19 pandemic, which for instance noticed a growth in digital fashions for touring properties and navigating the real-estate market.
Several civil fits in opposition to the trade in search of class-action standing have been filed by personal regulation companies, together with one by Cohen Milstein and Susman Godfrey filed in U.S. District Court in Chicago that survived preliminary procedural challenges however hasn’t but been granted class-action standing.
The lawsuit contends NAR guidelines stifle competitors, which Ms. Johnson disputes. Realtors “already are competing on commission, from offering varied commission models to flat fees,” she stated.
U.S. District Judge Andrea Wood in Illinois sided with the plaintiff dwelling sellers in denying the defendants’ movement to dismiss the case.
“Plaintiffs’ allegations plausibly show that the Buyer-Broker Commission Rules prevent effective negotiation over commission rates and cause an artificial inflation of buyer-broker commission rates,” the decide wrote final yr. “But-for Defendants’ conspiracy, each Plaintiff would have paid ‘substantially lower commissions.’”
—Brent Kendall contributed to this text.
