Understanding Realogy’s stance on commissions

Adding to the lack of clarity about whether Gorman’s statement is especially important for real estate, or even for the lawsuit it comes from, is that almost none of Realogy’s competitors either denounced Gorman or supported him.

That silence comes amid multiple lawsuits alleging an antitrust conspiracy between brokerages and the NAR, plus a U.S. Justice Department antitrust inquiry into NAR.

Filed with the court on Nov. 11, Gorman’s declaration comes in a proposed class action lawsuit filed by housing consumers against NAR, Realogy, HomeServices of America, RE/MAX, and Keller Williams Realty.

The lawsuit, in part, challenges a rule first put forth by the National Association of Real Estate Exchanges, NAR’s forerunner, in 1913, that a member agent representing a home seller, “Always be ready and willing to divide the regular commission equally with any member of the Association who can produce a buyer for any client.”

More than 100 years later, NAR’s cooperative compensation policy reads similarly, stating that the seller’s agent specifies what commission they shall provide the buyer’s agent.

The way it works is that a real estate agent belonging to NAR agrees with a seller that, for example, the agent will receive 6% of a home’s final sales price. The agent then, obligated to make an offer of compensation to the buyer’s agent — with the dueling incentives of both getting as much money as possible but attracting home-buying agents, decides to split their commission. So, on the local Multiple Listings Service, the seller’s agent posts that the buyer’s agent is due for a 3% commission.

Plaintiffs in the Missouri case and other pending lawsuits argue the policy artificially inflates commissions, discourages consumer’s right to negotiate on commission, and prompts buyer’s agents to steer clients toward homes where they can receive a higher commission.

Gorman’s declaration on behalf of Realogy Brokerage Group does not actually disagree with the cooperative compensation policy. But it argues, “The mandatory nature of the NAR cooperative compensation rule should be rescinded.”

Gorman goes somewhat further, stating Realogy agents are not required to abide by any NAR rule, except the code of ethics. Also, if there is a stated buyer’s agent commission, consumers should know about it, Gorman argued. That position has since become NAR law.  

Agents on well-frequented Facebook groups including Lab Coat Agents have reacted with trepidation and anger, suggesting that Gorman’s position undermines buyer’s agents. Meanwhile, Norman Miller, a professor at the University of California San Diego who has spent a generation covering real estate commissions and believes they are too high, said that the loosening of the cooperative compensation policy, “Gives agents more flexibility and more opportunities to compete on price more.”

“I have seen seller’s agents commissions go down in the last 10 years,” Miller said. “This could help trigger buyer’s agents fees to drop.”

But it’s not clear if Gorman’s views will gain traction. NAR affirmed it stands by its policy. And the other lawsuit defendants — Home Services of America, RE/MAX, and Keller Williams — declined to comment, each stating they have a company policy to not comment on pending litigation.

Another top national brokerage, eXp, also declined to comment, and multiple messages left this week with Compass and Zillow went unreturned.

Asked about whether Realogy’s position would gain industry support, a company spokesperson said, “We cannot speak for other brokerages,” noting, “There are rumors and speculation about our position that are generating misinformation and confusion across the industry.”

The one brokerage that did take a position is Redfin, whose agent compensation model includes employee salaries and also commission rebates for homebuyers.

“Redfin supports making offers of compensation optional rather than a mandatory,” said a spokesperson. “We supported NWMLS when it made this change in 2019. That market is a good example that mandating offers of compensation is not necessary for competition and cooperation to flourish in the real estate marketplace.” 

Redfin is referring to the Northwest Multiple Listings Services, the Seattle-based MLS that is also a pioneer in making buyer’s agent’s expected compensation known to consumers. But for some real estate observers, including Steve Murray of RealTrends, the NWMLS’s recent experiments serve as an example that industry reforms do not necessarily change consumer behavior or lower commissions.

Max Besbris, a professor at the University of Wisconsin-Madison, also wonders if what is being argued about is a bit tangential to the lawsuit plaintiffs’ aims to increase consumers’ bargaining power and choices.

The end of cooperative compensation seems instead, “An attempt to give listing agents even more power in determining commissions. What would make more sense are new laws requiring listing agents to more actively inform sellers that commissions are negotiable,” Besbris said.

Messages left with the lawyers for plaintiffs in the lawsuit went unreturned. The Missouri case remains in the fact-finding phase with no timetable yet for major court decisions.