Looming Commission Lawsuit Trial Spurs Talks of Improved Transparency

Since real estate is a relationship business, it stands to reason that trust is an essential cog in an agent’s game plan. As it pertains to the consumer experience, that trust hinges—to some degree—on the level of transparency the agent can provide as far as the intricacies of the transaction process and the work that gets done on the agent’s part. That may prove truer than ever as the real estate industry braces itself for looming trials for two of the most prominent class action lawsuits targeting the agent commission structure and MLS policies created by the National Association of REALTORS® (NAR). 

While many in real estate view these lawsuits as existential threats to the industry and their livelihood, some pundits are looking at the glass half full as the issues raised in the suits pose an opportunity for agents and brokers to improve their businesses amid the adversity. 

“Regardless of the outcome, these lawsuits are and will spur the change … around transparency, acceptance and even appreciation of brokers, broker agent’s role in the transaction,” says Katie Johnson, NAR’s chief legal and membership experience officer.

Barring any final-hour changes, the Burnett/Sitzer class action lawsuit is slated for a three-week trial in October, while the Moehrl lawsuit still doesn’t have a set date for a trial.  

Much of the fuss in both cases is with the setup of the commission structure and NAR’s Participation Rule, which requires listing brokers to offer buyer brokers a commission to list a property in NAR-affiliated multiple listing services (MLSs).  

Specifically, plaintiffs in both lawsuits take issue with sellers paying their agents a commission, which is then split with the buyer’s broker, alleging that the business practice and the MLS policies illegally inflate prices.  

Despite rebuking the allegations made in the lawsuit, Johnson and other pundits within real estate tell RISMedia that the lawsuits could catalyze effective and meaningful change in how practitioners can guide consumers in the future.

Communication is key

Communication is already a critical aspect of every agent’s relationship with consumers. However, in light of the allegations in both lawsuits, agents stand to benefit from sprucing up some of the talking points they are implementing with their consumers. 

As such, Johnson, along with NAR and other industry leaders, have harped on the need for clarifying and promoting the agent value proposition to consumers. 

“The more frequent we get at explaining this incredible value and service that we provide to buyers, the more they will appreciate it,” she says. 

According to Johnson, agents and brokers should employ a tactical and experiential route to increase transparency with their clients moving forward. 

That should include taking stock of the information offered during client intake conversations. 

From the topics that must be covered to the timing of the conversations, she recommends that agents start with some form of audit or “perfunctory checklist” of their consultative process with consumers. 

“Then part of that would also be evaluating the experience felt by the consumer,” Johnson says, urging agents to put themselves in their client’s shoes as they develop or revamp their approach to their conversations.

Craig Cheatham, president and CEO of The Realty Alliance, echoed similar sentiments. 

“We may always have room for improvement in our communication with the public, and these cases could be viewed as opportunities for agents to claim the credit they deserve in the process of giving consumers greater insight,” he says. 

Cheatham points out that while industry-wide changes are inevitable, they won’t happen overnight. However, he claims that more immediate changes will likely be implemented at the brokerage and MLS levels as the legal battle heats up and unfolds.

“If consumers actually were calling en masse for change, the adjustments would come more quickly and be more significant, but this is about practitioners proactively hedging their bets and taking steps toward new mandates they expect might come down from the courts,” Cheatham says. 

Organizations like the California Association of REALTORS® and Northwest MLS have tweaked things like purchase agreements in recent years to improve transparency.  

Notably, the latter announced several changes a little over a year ago focused on providing “greater flexibility for consumers and brokers when listing and purchasing real estate.” 

That included prominently stating the compensation the seller offers to buyer brokers on the first page of the NWMLS purchase and sales agreement and making the compensation offered a direct offer determined by the seller. 

The ‘commission’ chat

Undoubtedly, the Moehrl and Burnett/Sitzer lawsuits will influence how business is conducted for swaths of agents and brokers. Real estate professionals will also need to have a more upfront conversation about commissions with consumers. 

At least, that’s what Kendall Bonner, leader of the Kendall Bonner Team at eXp Realty, thinks. 

“Agents try to hide the ball so often because we feel insecure about our commission rate or just the dollar amount,” she explains. “We often are so afraid to talk about it with our customers, especially on the buy side, because buyer’s agents are not trained to talk about it how their listing agents are trained to talk about commissions.”

Bonner tells RISMedia that treating buyer agency the way the industry treats listing agency could provide a significant first step in improving that aspect. 

From how listing agents stand out and the practices they implement to get hired, she thinks buyer’s agents will need to match that model for their clients. 

“The way that a listing agent will have a consultation coming to the table with market knowledge, systems, strategies and tools on the buy side,” she says. “If the listing agent has to provide a marketing plan, a buyer agent should have to provide a strategic search plan and explain how we are strategically going to find your next home and get the best deal possible.”

According to Cheatham, providing more detailed information to consumers about the work they are performing on their behalf can also help showcase an agent’s value proposition while justifying the payment they receive. 

“As hard as REALTORS® work for their clients, providing more backup information on our service fees should help the public better appreciate our value, not be a change to worry about,” he says. 

Cheatham also notes that real estate companies and individual agents can use information like the “179 Ways” resource NAR created for its members to use when navigating buyers and sellers. 

“Real estate companies and individual agents can utilize information like this in individual conversations and in blasts to large audiences to help shift the conversation from questioning their pay to understanding the impressive amount of effort and expertise agents apply to their work,” Cheatham says. 

He also thinks it would benefit NAR and the MLS community to boost their external communication efforts to help the public and regulators understand “the unique concept of the multiple listing service” and how the MLS benefits consumers.

Johnson notes that buyer agreements could help agents set themselves apart from the competition when the market’s demand for transparency is mounting. 

While buyer’s agreements are only required in select states and rules vary, she claims that the agreements could be the “most effective and impactful tactic” for agents to improve transparency while differentiating themselves in the market.

“If you’re using the buyer representation agreement, it will be your guide for the conversation because it will explain the services provided,” she continues. “It will explain the compensation and open space for questions, if not negotiation, around all of that. And, it will conclude with a written signature of consent and, therefore, hopefully, a happy buyer who has willingly entered into this arrangement.”