How does this affect your real estate journey?! 😱
Ok, let’s break this down. What is it about? What happens next? And, what’s the impact in California real estate?
Tell me more about the lawsuit…
The National Association of Realtors and several brokerages were ordered to pay $1.8 Billion in damages to home sellers who said they were forced to pay excessive fees to real estate agents…Sellers in Missouri sued NAR and a few big brokerages, saying that they colluded to charge sellers fixed commissions.
See…traditionally, sellers pay the commission for their agent AND the buyer’s agent. Sellers say that they were led to believe that they had no choice in paying the buyer’s agent or in the amount of the fee. The fact is that the commission amount has always been and is currently negotiable – different agents will work for different amounts (just like many service providers!) – but, these sellers in Missouri said that they didn’t know that it was negotiable and that they were forced (by the brokerages) into paying the commission to the buyer’s agent.
Backing up a second… Why would the seller pay for the commission of the buy-side agent? That does seem a little confusing…well, let me tell you! Back about 30 years ago, only the seller had an agent. The seller’s agent also “represented” the buyer (dual agency) in that they wrote the contract, but no one looked out for the buyer’s best interests or negotiated on their behalf or helped them through the confusing process…buyers didn’t like this, and there was a big lawsuit that buyers weren’t fairly represented and they won.
(Side note: Dual agency is ILLEGAL in about 7 states. And 90% of real estate lawsuits come out of dual agent transactions as it’s impossible to have a “fiduciary responsibility” to both buyers and sellers. Basically everyones pissed in these deals) But, the challenge was that buyers had to have a lot of cash to buy a home – down payment, closing costs, movers, new furniture, etc.. And, the lenders wouldn’t let them incorporate a buyer agent FEE into their loan. So, what happened? Sellers back then agreed that they would pay the agent who brought and represented the buyer…win-win!
Ok, so going back to the lawsuit…I’m going to warn you…this is YEARS from over and not the last time you’ll hear about this. This is going to be appealed. And, depending on how that goes, this will likely go state-by-state through the courts. More lawsuits have already been filed.
Soooo, what about in CA?
Full disclosure…CA is probably the last place that will be sued, if at all. Mostly, because it is and has been a very consumer-friendly state. We are light years ahead of other states in our contracts and disclosures. For every 1 legal document in real estate deals in Missouri, there are like 15 documents in CA. Our contract to purchase a property is 27 pages long and has a bunch of subsequent addendums that go with it…CA is all about disclosing EVERYTHING, including that commissions are not set by law and are negotiable. It has been and continues to be listed in big, bold letters in the listing agreement that we sign with all of our sellers. Lawyers be lawyers, so I’m sure there will be a lawsuit, but we will see if it sticks in California…
So, what happens now?
As of now, there is nothing. No money is being paid back to sellers, in Missouri or elsewhere. Lawyers are doing their thing, contesting the damages, appealing, and filing more lawsuits…it’s going to be awhile before anything sticks.
Again, this lawsuit is all about people feeling misled and forced to pay a specific amount…Redfin is named in the suit and they have the lowest fees in the business! So, the main focus now is on agents being crystal clear about who pays what. We will continue to disclose everything to try to eliminate any confusion or feeling of being misled in any way. (You can read this as MORE PAPERWORK! Thank you lawyers!!!)
At the end of the day, regardless of the details of the lawsuit…we feel that big news like this can be a good way to shake up a very old-school process, in favor of doing right by our clients. So, there will, inevitably, be some changes – not sure how or what yet. Probably mostly – at least in the foreseeable future – in the semantics of how we do things. But, we are all about continuing to challenge the status quo and ensure that we’re providing the best service possible (offering value!!!) for our buyers and our sellers.