What Realtors® Should Expect After the Sitzer-Burnett Verdict

The following is a Q&A with Curtis Bullock, CEO of the Salt Lake Board of Realtors®, on the Sitzer/Burnett class action verdict against the National Association of Realtors® and other brokerages and what it means to Realtors®.

Now that the verdict is in, what’s next? The ruling will be appealed. There are no immediate changes Realtors® are required to make as of today. I expect the fight to preserve our tried and tested orderly system of exchanging real estate to continue. Having said that, we can sharpen the saw and get better at certain things.

Is there a problem with a seller agreeing to pay a commission to a listing agent and the listing agent splitting that commission with a buyer’s agent?

This is the crux of the lawsuit. In practice, this approach has stood the test of time. Moreover, there is nothing wrong about a broker offering to share a portion of that commission with the buyer’s broker in a transparent manner at an amount both parties agree upon. Some critics argue that this system creates an inherent conflict because the seller and buyer have differing interests. While I agree there is some transactional conflict – i.e., seller wants the most money possible and the buyer wants to pay the least amount possible – there is one overarching common goal all parties (including the buyer, seller and their agents) share: that is to successfully close the transaction. This brilliant system of putting fierce competitors together to pursue a common goal simply works and we will continue to advocate for it. It has incentivized competitors to work with each other and do it in the spirit of collaboration for decades. Who wins? The consumer.

What should Realtors® do going forward?

As of today, Realtors® will continue conducting business as they always have. They will not need to necessarily provide more value to their clients because they already do. They simply need to be better at articulating their value, especially as buyer agents. The way buyer agents are paid will not immediately change because of this verdict. The fight will likely go on for years. Whatever changes eventually come, Realtors® will adapt.

Does the verdict affect buyer-broker agreements?

Realtors® must continue to use and properly explain the Buyer Broker agreement, how compensation is earned, and how it is paid as described in that agreement. After properly explaining this, most buyers (and sellers) will understand and agree to it because it simply makes sense. Whether the agreement changes in the future remains to be seen. Either way, Realtors® will continue to provide professional services and be paid for those services.

In the future, what if buyers are required to hire and pay for their own agents?

Most buyers won’t be willing to pay for an agent. They are not going to be represented. It would be a step backward. Ultimately, with a class action verdict like this, the attorneys win, the consumer loses. If the attorneys had it their way, low- and moderate-income buyers would have a much more difficult time obtaining professional representation on the largest investment of their life. The NAR has already started lobbying months ago to have buyer-agent commissions be financed as part of the real estate transaction if that is needed. There are many details that will have to be worked out. That is one possible solution to the offer of compensation issue that was attacked by this court ruling.

What about commissions?

Realtors® may collect any commission amount they choose. There are no set fees. Never have been, never will be contrary to the misconceptions by the plaintiffs. Realtors® may negotiate brokerage fees as they always have. There are several business models for brokerages. Some charge flat-rate fees, set commissions, or discounted commissions. Individual brokerages can select what fees they wish to charge. That does not change.

Is the MLS model threatened?

The MLS system is in my view one of the greatest business inventions of all time. In the spirit of cooperation and compensation, it has allowed millions of satisfied consumers realize the American dream of homeownership. No Realtor® should complain about our local MLS system (UtahRealEstate.com). It’s easy to know what a market without an MLS like ours – that embraces cooperation and compensation – would look like and why it doesn’t work. It already exists in most places in the world. Yet we are the example they look to. Our MLS system is the envy of the rest of the world. Yes it can always be improved on features and services, but the MLS system we use every day is inexpensive and more effective than anything else. We are very fortunate to have had a regional MLS created years ago at a low cost per member for so many years. Never take it for granted. Are there better ways of selling real estate in other countries?

I hear talk that other countries have average commission rates of 1.5% or 2%. Why is it higher in the U.S.? My first reaction to that question is, we are not trying to do what other countries do because we know it hasn’t worked well. Selling or buying real estate in many other countries is uncertain and chaotic. Ultimately the consumer is hurt because of it. For example, imagine wanting to sell a property in another country. You place an ad on WhatsApp to share the listing. Whoever brings you a buyer the fastest might get paid a commission. There really aren’t any agency relationships created. Or you hire an auctioneer who tries to sell the home. A buyer is finally found and it sits in escrow for 10 months. After you go under contract, the price can change all the way up to closing. These are examples of what happens in other areas of the world. Those who are accustomed to the U.S. model don’t appreciate how well it works for both buyers and sellers. If we woke up tomorrow and there was no Board or MLS, the real estate industry would be utter chaos.