4 commission charts that explain both sides of the Moehrl conflict
It’s the fifth feature in a week-long series examining the high stakes and potential impact of two closely watched federal lawsuits that directly target how homebuyers pay commissions. Check back later today for the series conclusion, and be sure to check it out First part, Part II and Part III and Part IV.
At their core, the bomb lawsuits home sellers have filed against the National Association of Realtors and major real estate franchisors boil down to one thing: money. Money sellers pay agents, but also the money agents pay their brokers, franchisors, and trading groups.
Plaintiffs in the so-called Moehrl and Sitzer/Burnett lawsuits argue that NAR, Realogy, Keller Williams, RE/MAX and HomeServices of America have conspired for decades to keep the amount agents and brokers receive high because it fills their coffers respective. . Defendants claim that these commissions are negotiable and set by the market, not by them, for the value provided by the agents.
To make these arguments, both sides in the larger of the two antitrust cases, Moehrl, use commission data from the 20 nationwide multiple listings services that the lawsuit singles out in its application for class action status, as well as other data sets on each side. see fit to compare these data. Below are four charts illustrating each side’s position on the conflict, two on each side. We hope to show the need for change; the other why the status quo works very well.
If the court allows Moehrl to become a class action, it would potentially allow millions of home sellers across the country to seek billions of dollars in damages for commissions they paid buyer’s agents between 2015 and 2020. .
“Commissions have risen sharply”
In their 1,286-page motion for collective certification, the plaintiffs point out that MLSs affiliated with real estate agents require listing brokers to offer buyer’s brokers the same predefined commission in order to list a property, regardless of the qualifications of the property. buyer’s agent or the services. this agent proposes.
“In a competitive market, economics predicts that the price of a service should be related to the costs of providing that service as well as the value of that service to its consumers,” said the Harvard law professor. Einer Elhauge written in an expert report for the plaintiffs.
“Furthermore, economics would predict that if technological advancements reduce costs in the face of a decline in the value of that service to consumers, it would cause high-cost providers to be replaced by more efficient, low-cost innovators. In this market, this has not happened due to NAR’s anti-competitive restraints Instead, buyer-broker commissions have risen sharply, even though the value and cost of providing buyer-broker services have increased. dropped, and low-cost innovators faltered because of these anti-competitive restraints.
Elhauge pointed out that, adjusted for inflation in 2020 dollars, average buyer-broker commissions in the 20 covered MLSs increased 32% over the seven years between 2013 and 2020, from $7,323 to $9,676. .
This increase has occurred despite technology and the growth of aggregator websites allowing homebuyers to participate more in the home-finding process and therefore diminishing the importance of the buyer’s broker’s role, according to Elhauge.
“This contrasts with the more typical and more competitive impact of the technological revolution on fees that can be seen in trends in other fee-based industries that were not subject to the kind of anti-competitive restraints that are challenged in this case,” Elhauge wrote, citing the travel agent and stockbroker industries.
He also noted that the number of NAR members increased by approximately 100% between 1993 and 2020, to 1.4 million, even though the US population increased by approximately 27% and sales of houses increased by approximately 47% during this period. In a competitive market, this disproportionate increase in agents should lead to downward pressure on commissions, according to Elhauge.
“Instead, given the anti-competitive effects of the contested restrictions, this increase in the number of brokers indicates that the supercompetitive commissions attracted new real estate agents, but that the contested restrictions and the anti-competitive balance they maintained and prolonged led to intensified, inefficient non-price competition among these agents, rather than direct price competition that would benefit consumers through lower prices,” Elhauge wrote.
This “non-price competition” refers to competing through marketing to get listings rather than by lowering commission fees. This resulted in a researcher, Chang Tai Hsiehcalls “the tragedy of the commission,” which actually ends up improving neither agents nor consumers, according to the Elhauge report.
“Because the ratio of agents to buyers and sellers has increased, agents have to work harder to find customers and therefore spend less time closing deals,” the report said.
“In this way, more agents dissipate increased profit opportunities by incurring additional expense to close deals. Furthermore, this theory suggests that because agents compete for profits by incurring additional expenses to provide these services, rather than reducing their commission rates, they are operating at high and inefficient cost levels.
This inefficient increase in the number of agents “has generally reduced the quality of these agents because each agent handles fewer door-to-door transactions each year and therefore takes longer to acquire (or fails to maintain) relevant experience and expertise. “, added Elhauge.
Agent income has kept pace with overall income statewide
Meanwhile, the defendants’ expert, an independent consultant Dr Lauren Stirohcountered that the growth in commissions is not indicative of anti-competitive pricing, as agent income has kept pace with median income statewide.
“If, as Professor Elhauge asserts, there has been an alleged anti-competitive “real increase” in MLS broker compensation in recent years, the average income earned by real estate agents would have increased relative to income levels average of the market over the same time period, as agent income is largely dependent on commissions,” Stiroh wrote.
“However, …the median real estate agent income has remained relatively constant compared to the statewide median income from 2001 to 2020. This is a better measure than just looking at the amounts of commissions, because it demonstrates that the income of the real estate agent is not high compared to other professions.”
Moreover, she wrote, Elhauge has not provided economic evidence that technology has diminished the value of buyer’s broker services.
Much higher commissions in the US
Another expert for plaintiffs, professor of economics at NYU Nicolas Economidesargued that the decline in buying broker commission rates and usage in some comparable benchmark countries — Australia, the Netherlands and the United Kingdom — confirms that the rules at issue in the case inflate commissions buying brokers.
In the 20 MLSs covered, the median buyer-broker rate has clustered around a certain percentage, between 2.4% and 3%, for an overall median of 2.7%.
This is much higher than the median rates for buying brokers in these benchmark countries – 2.19% in Australia, around 1.3% in the Netherlands and around 1.42% in the UK – which reach a median overall 1.55%.
Commissions did not change after the requirement was removed
For defendants, however, a much better benchmark is available nationally: Northwest MLS, based in Washington. In 2019, NWMLS, which is broker-owned and not affiliated with NAR, eliminated the requirement that listing brokers offer buying brokers a commission for submitting a listing to MLS.
Despite this change, 99.2% of NWMLS listings continued to offer a buyer’s broker commission (fixed from 99.3% before the rule was eliminated). Almost all of them, 94.5%, offered a cooperative commission above 2%.
“Unlike the international markets considered by Economides, Northwest MLS is part of the American real estate tradition,” wrote attorneys for the defendants.
“And, contrary to Elhauge’s guesses about what might happen, Northwest MLS shows what happened when a U.S. MLS made compensation offers optional. Almost all listing brokers continued to offer compensation. Almost all the offers were higher than the 1.55% proposed by Economides.
“Plaintiffs’ experts cannot simply ignore evidence inconsistent with their theories, but they did just that.”
Email Andrea V. Brambila.