The commission-sharing system is under fire, but not every broker is worried
The very nature of the real estate landscape could be irretrievably altered by a pair of high profile-lawsuits, but not all brokers are opposed to the scrutiny.
The litigation centers on the commission-sharing system between buyers’ and sellers’ agents by which each divvy up around 5% to 6% for their fees. A pair of class action lawsuits is challenging that long-held arrangement, alleging (among other things) that the commissions further increase the price of a home.
The lawsuits have put a target on the National Association of Realtors (NAR) in particular given its status as the industry’s lobbying group with a robust membership base. “We are confident we will prevail in proving the lawfulness of the rules being questioned in the trial of Burnett v. NAR, et al.” a NAR spokesman told Mortgage Professional America last week in reference to one of the lawsuits.
Not all brokers are alarmed
While some of her counterparts are dismayed by the scrutiny, California-based broker Paige Hernandez (pictured), of Heritage MTG, takes a more philosophical stance: “This is business,” she told MPA succinctly. “Business is never fair.”
Beyond that, Hernandez said she welcomes the scrutiny resulting from the litigation, suggesting it was a healthy process to keep the system honest. “Our industry should be scrutinized, and a lot,” she said. “It keeps people honest and has the potential of bringing about a better way of doing business.”
In her long career in the mortgage industry – including having lived through the Great Recession of 2008 – Hernandez has worked in the fast-paced corporate world through to the family business where she works today.
She cut her teeth in the business in 2006 while working as a wholesale account executive for lender Impac Mortgage Holdings Inc. before embarking on a string of jobs at a veritable who’s who of wholesale lenders – Nation Direct Mortgage, Trust One Mortgage Corp., Stearns Lending LLC and others – before joining the family-run business her mother had launched.
She suggested that sense of community may help inform her stance on the scrutiny now being placed on long-held practices. While she sees nothing inherently wrong with the commission-sharing template, she noted the industry’s constant evolution could yield change.
“Fair or not, it is how the industry works,” she said of the commission-sharing aspect of transactions. “If changed, the market will evolve to something new. My fear is that first-time homebuyers and underserved communities get priced out because they don’t have the ability to pay representation and a down payment. Either way, ours is innovative and meets its challenges accordingly.”
NAR last week answered MPA’s questions about litigation targeting the association over the commission-sharing part of the homebuying process. Since then, NAR also has prepared something of a primer for media following developments that it’s dubbed a “litigation overview.”
A copy of this overview was provided to MPA:
Burnett vs. NAR litigation overview – what to know
Lawsuit background
- NAR and four corporate (brokerage) defendants were sued in lawsuits filed in Missouri (plaintiff “Burnett”) alleging commission rates are too high, buyer brokers are being paid too much, and NAR’s Code of Conduct and MLS Handbook along with the corporate defendants’ practices lead to set pricing.
- NAR and the corporate defendants adamantly disagree: NAR’s rules are very intentionally pro-consumer and promote business competition they suggest.
NAR’s position
“We fundamentally disagree with how class-action attorneys are characterizing our rules,” the association stated. “At the heart of all this is that very much because of NAR’s rules and how well local MLS broker marketplace’s function, consumers are better off and business competition is able to thrive. The very reason NAR exists is because there was a need 100 years ago for a higher level of ethical practice in real estate. Realtors look out for their clients above all else.
- Compensation is set between brokers and their clients and is negotiable at any time.
- The free market and business competition are encouraged by NAR.
- There’s incredible value in using a real estate agent, especially a REALTOR®, when you buy or sell your home.
Article 1 of the NAR Code of Ethics requires a REALTOR® to ‘protect and promote the interests of the client’. NAR also has rules that prohibit anti-trust behavior.”
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