Real Estate
April 2, 2024

Buyer’s agent commissions and the Sitzer/Burnett lawsuit

Overview from our founder (a Brokerage Owner), Dan Cooper.

Buyer’s agent commissions and the Sitzer/Burnett lawsuit

Overview from our founder (a Brokerage Owner), Dan Cooper.

On October 31st of last year, an 8-person jury in Missouri issued a verdict of epic proportions that shook the real estate industry and likely forever changed how buyer’s agent commissions will be handled. The Sitzer/Burnett lawsuit, one that was designated as a class action by the court, was the first in a handful of antitrust cases to be heard and the result was an award to the plaintiffs in the amount of $1.785 billion in damages, a number that will increase 3x to over $5 billion in damages under antitrust law.

So what is the gist of the dispute? The plaintiffs argued that the defendants—who included the National Association of Realtors (NAR) and a handful of large real estate brokerages--colluded to inflate commissions in transactions via their cooperative compensation policy (aka ’Participation Rule’), requiring listing agents to offer compensation to buyer’s agents and to be paid by the seller at closing. The plaintiffs argued that the practice negatively impacts the affordability of real estate and alleged the policy and resulting commission environment was a violation of the Sherman Antitrust Act. The court ultimately agreed with the plaintiffs, setting off a journey through unchartered territory for Realtors across the country.

As the real estate industry looks to find new footing amidst uncertainty, buyers’ agents are increasingly concerned that their essential services will become marginalized, and the real issues related to the affordability of representation for buyers will be negatively impacted forever. While the short-term impacts will lead to more states requiring representation agreements to be signed between buyers and their agents, the long-term impacts almost certainly will change how agents representing buyers are compensated.

While the Sitzer/Burnett verdict will be appealed by some of the defendants and other cases such as the Moehrl vs NAR have still yet to be heard, Gitcha isn’t waiting for everything to shake out and has created the first of its kind, buyer’s agent ‘requested commission’ feature. Because Gitcha gives buyers and their agents a place to state what they are looking for, we thought it would be a great time to allow for professionals to advocate for the compensation of their services at the same time. Through all our focus panels with professionals, giving buyers’ agents a place to state their compensation request was first on the wish list, and we obliged by designing this into the platform.

How does it work? When you post any want-ad listing for your clients, as part of it you’ll be asked to state your requested compensation and it will be disclosed in your listing once posted. While your stated rate doesn’t give you a legal right to it, it does provide you a place to proactively communicate to sellers and their agents what you’re seeking to be paid as part of representing the buyer side of the transaction, and they can decide if what they are willing to pay aligns with what you are requesting. Or, they can negotiate with you at the appropriate time. It’s that simple!

Buyers’ agents and the qualified buyers they represent have extreme worth to sellers so while the environment may be changing, we are committed to supporting the role and value of buyers’ agents.

Explanation of buyer's agent commissions and the Sitzer/Burnett lawsuit

Buyer's agent commissions (Real Estate Commissions) play a significant role in the real estate industry as they determine the compensation received by the buyer's agent when representing a client in a real estate transaction. In most cases, the buyer's agent commission is typically paid by the seller's agent and is based on a percentage of the final sale price of the property.

The Sitzer/Burnett lawsuit is a notable case that challenged the buyer's agent commission structure. In this lawsuit, which was filed in 2019, the plaintiffs, supported by the Department of Justice, argued that the traditional buyer's agent commissions were anti-competitive and resulted in inflated home prices. The lawsuit accuses the National Association of Realtors (NAR) and several major real estate brokerages of violating antitrust laws through the long-standing practice of offering buyer's agent commissions.

This case attracted significant attention as it potentially had the power to reshape the way buyer's agent commissions are structured in the real estate industry. The lawsuit aimed to bring attention to the lack of price competition among real estate agents and the potential harm it had on consumers. While the outcome of the Sitzer/Burnett lawsuit is yet to be determined, it highlights the ongoing debate surrounding the transparency and fairness of buyer's agent commissions in the real estate industry.

Background

The Sitzer/Burnett case revolves around allegations of conspiracy to inflate commissions in the real estate industry. The plaintiffs argued that the National Association of Realtors (NAR) and certain real estate franchisors engaged in anti-competitive practices to fix and control the commissions charged by real estate agents.

According to the plaintiffs, the defendants engaged in a conspiracy to set a price floor for commissions, preventing agents from negotiating lower rates with their clients. They claimed that the defendants' actions violated the Sherman Antitrust Act, which prohibits anti-competitive behavior and promotes fair competition.

On the other hand, the defendants, including the NAR and real estate franchisors, defended their practices as lawful and argued that they were committed to promoting fair competition. They claimed that their policies, such as setting a minimum commission rate, were necessary to maintain high service standards and protect consumers from inadequate representation.

Both parties are seeking an appeal because the case has significant implications for the real estate industry. If the plaintiffs succeed, it could potentially lead to reforms in commission structures and open up greater negotiation flexibility for agents. On the other hand, if the defendants succeed, it would solidify the current commission practices and reaffirm the defendants' commitment to a fair and competitive real estate market.

Brief overview of the real estate industry and the role of buyers’ agents

The real estate industry is a vast and dynamic sector that deals with the buying, selling, and renting of properties. Within this industry, buyers’ agents play a crucial role in helping individuals and families find and purchase their ideal homes. These agents work exclusively on behalf of the buyer and are responsible for a range of tasks throughout the buying process.

One of the primary responsibilities of a buyer's agent is to act as a guide and advocate for their clients. They conduct market research, assist with property searches, arrange property viewings, and provide valuable insights and advice on various neighborhoods and housing options. Buyers’ agents also help negotiate the best price and terms on behalf of their clients, ensuring they get the most favorable deal possible.

In terms of compensation, buyers’ agents are typically paid through commission. This means that they receive a percentage of the final sale price of a property once the transaction is complete. The commission structure may vary depending on the specific agreement between the buyer's agent and their client. However, it is common for the seller to cover the commissions of both the listing agent and the buyer's agent.

Buyer agency agreements play a significant role in formalizing the relationship between a buyer and their agent. These agreements outline the responsibilities and obligations of both parties, including the scope and duration of the agent's representation. They also address the issue of commission and provide clarity on how the agent will be compensated for their services.

Recent trends in the real estate industry suggest potential changes to commission structures, such as the buyer assuming a larger portion of the commission fee. This could be due to various factors, including increased competition among agents and the desire for more transparent pricing. As these changes unfold, buyers’ agents will need to adapt to evolving commission structures while continuing to fulfill their responsibilities and provide exceptional service to their clients.

Explanation of how buyers’ agents are compensated through commissions

Buyers’ agents play a crucial role in the real estate industry, representing the interests of individuals looking to purchase property. However, it is important to understand how these agents are compensated for their services. 

In most cases, buyers’ agents are paid through commissions, which are a percentage of the final sale price of the property. This means that the agent's compensation is directly tied to the success of the transaction. If the sale does not go through, the buyer's agent won't receive a commission. The amount of commission can vary, typically ranging between 2% to 3% of the sale price. It is important to note that the buyers’ agent's commission is usually paid by the seller, as it is usually included in the overall commission that the seller pays to the listing agent. This arrangement allows buyers to receive representation and guidance throughout the home buying process without incurring any additional costs.

Commission rates

Commission rates vary depending on the products and services being offered. When it comes to sales, commission rates are typically a percentage of the total value of the product being sold. The specific rate may differ based on the industry and company policy. For example, in the retail sector, commission rates may be around 3-5% for sales of clothing items, whereas for high-value items like electronics, the rates may be higher, ranging from 5-10%.

Referral commission rates are slightly different, as they involve recommending a product or service to someone else. In these cases, the rates may be lower than sales commissions, typically around 1-3% of the referred customer's total purchase value. Referral commissions are often offered as an incentive to customers who spread the word about a product or service.

Partnerships can also have their own commission rates, which can vary widely. Instead of involving individual sales or referrals, partnerships usually involve ongoing business relationships. The commission rates for partnerships can be more flexible, depending on the terms of the agreement. These rates can range anywhere from 10-50% and may be based on factors like sales volume, revenue sharing, or other negotiated terms.

Overall, commission rates are designed to incentivize sales, referrals, and partnerships. Companies may use different rates for different products and services to reflect their value and profitability. These rates play a crucial role in motivating individuals and businesses to actively promote and sell products or services.

Discussion on typical commission rates for buyer's agents in the industry

Commission rates for buyers’ agents in the real estate industry can vary widely depending on various factors, such as location, market conditions, and the specific services offered by the agent. In this discussion, we will explore the typical commission rates that buyer's agents charge their clients. These rates are an essential consideration for both buyers and agents, as they directly impact the overall cost of purchasing a property. Understanding the typical commission rates in the industry can help buyers negotiate with their agents and ensure transparency in the financial aspects of the home-buying process. By examining the prevailing commission rates, we can gain insights into the standards followed by buyers’ agents, enabling prospective homebuyers to make more informed decisions.

Major brokerages

There have been several major brokerages involved in class-action lawsuits, including Anywhere Real Estate and RE/MAX. These lawsuits have resulted in significant settlements for both brokerages.

Anywhere Real Estate reached a settlement totaling $83.5 million. This settlement was a result of allegations that the brokerage had engaged in anti-competitive practices, including price-fixing and collusion. The settlement was intended to compensate those who had been affected by these practices.

Similarly, RE/MAX settled a class-action lawsuit for $55 million. The suit alleged that RE/MAX had violated anti-trust laws by conspiring to fix commission rates and engaging in other anti-competitive behaviors. The settlement aimed to provide compensation to those who had been harmed by these actions.

In the real estate industry, the listing broker plays a crucial role in helping sellers make strategic decisions regarding the commission structure. The listing broker is responsible for determining the commission rate charged to sellers and negotiating this rate with potential buyers' brokers. They provide guidance and recommendations to sellers based on market conditions, the property's value, and other relevant factors. The listing broker's expertise and knowledge of the local market help sellers make informed decisions about their commission structure, ensuring that it aligns with their financial goals and the current market conditions.

Overview of major brokerages and their commission structures for buyers’ agents

When it comes to major brokerages and their commission structures for buyers’ agents, there are a few key players to consider: Keller Williams, RE/MAX, and Coldwell Banker.

Keller Williams operates on a commission split model, which means that the buyer's agent and listing broker split the commission earned from a transaction. The commission amount can vary depending on the sale price of the property, but typically ranges from 2% to 3% of the sale price. The buyer's agent typically receives around 50% to 70% of the total commission, while the listing broker takes the remaining percentage.

RE/MAX follows a similar commission split model. However, RE/MAX agents have the opportunity to negotiate their commission splits with their brokerage, allowing for more flexibility and potential for higher earnings. The commission amount for buyer's agents at RE/MAX usually falls within the range of 2% to 3% of the sale price, with the buyer's agent receiving a percentage between 60% to 80% of the total commission.

Coldwell Banker, on the other hand, operates on a tiered commission structure. The commission percentage for buyers’ agents can range from 2% to 3% of the sale price. However, agents who achieve higher sales volumes can qualify for a higher commission split, often reaching up to 90% of the total commission earned.

It's important to note that commission structures can vary even within these major brokerages, as agents can negotiate their splits and brokerages may have different policies depending on market conditions. Additionally, some brokerages may offer additional incentives or bonuses based on performance, further adding to the potential earnings of buyer's agents.

The Sitzer/Burnett Lawsuit

The Sitzer/Burnett Lawsuit has garnered significant attention in recent years due to its implications for both the medical and legal communities. Stemming from an unfortunate medical incident, this lawsuit offers a unique perspective on the often-complicated relationship between healthcare providers, patients, and legal recourse. This gripping legal battle raises questions about medical negligence, patient autonomy, and the responsibilities of healthcare professionals. As we delve into the details of the Sitzer/Burnett Lawsuit, we will explore the events leading up to the lawsuit, the underlying legal concerns, the subsequent outcomes, and the broader implications for medical practice and patient safety. This case has not only captured public interest but has also prompted crucial discussions and potential reforms in how medical errors are handled and their impact on the lives of those affected.

Parties involved

The case at hand involves multiple parties, including the National Association of Realtors (NAR), HomeServices of America, Keller Williams, Anywhere Real Estate (formerly Realogy), and RE/MAX. These entities are prominent players in the real estate industry and have been engaged in a legal dispute.

However, it is important to note that Realogy and RE/MAX have already settled prior to the trial. Thus, their involvement in the ongoing legal proceedings is not applicable. However, it is worth mentioning their prior role in the case to provide a comprehensive overview.

The remaining parties, which include NAR, HomeServices of America, Keller Williams, and Anywhere Real Estate, are still actively involved in the litigation. Each party represents distinct interests in the real estate industry, with NAR being the largest trade association for real estate professionals, HomeServices of America and Keller Williams as major real estate brokerage companies, and Anywhere Real Estate as a company that was formerly known as Realogy.

These parties are engaged in legal proceedings to resolve the disputes and controversies that have arisen, although the details of their grievances and the nature of their involvement in the case have not been specified within the given instructions. Nonetheless, it is evident that the case involves significant entities within the real estate industry, and the outcome of the trial could potentially impact the landscape of the sector.

Allegations

The National Association of Realtors (NAR) has faced allegations regarding its rules on compensation and negotiation, which have significant implications for the real estate industry. The plaintiffs claim that NAR's practices restrict competition and artificially inflate commission rates.

Specifically, the lawsuit alleges that NAR's requirement for all residential properties listed on multiple listing services to offer a commission to buyer brokers at a specified percentage of the sales price disincentivizes buyer brokers from negotiating lower commissions. The plaintiffs argue that this lack of price competition leads to inflated commission rates and ultimately higher home prices for consumers.

Additionally, the lawsuit challenges NAR's rule that prohibits buyer brokers from disclosing to their clients how much they will be compensated by the seller. This lack of transparency, according to the plaintiffs, prevents buyers from making fully informed decisions and negotiating better terms.

These allegations against NAR are significant because they challenge long-standing practices in the real estate industry. If successful, the lawsuit could disrupt the traditional commission structure and bring about more transparent and competitive practices. It could also empower consumers to negotiate better deals and potentially lower costs associated with buying or selling a home. Ultimately, the outcome of this case may have far-reaching implications for both real estate professionals and consumers alike.

Details of the allegations made by Sitzer and Burnett regarding buyer's agent commissions

In a groundbreaking lawsuit that could potentially impact buyer agents and real estate transactions, a pair of home sellers, Sitzer and Burnett, have alleged that the buyer’s agent commissions system is anti-competitive and violates antitrust laws.

According to the allegations, the current practice of buyer agents being compensated by a percentage of the sales price, typically through the seller's agent, discourages buyer agents from negotiating for lower commissions on behalf of buyers. This allegedly results in inflated commissions that are ultimately paid by the sellers.

The Sitzer/Burnett trial, which is currently being litigated, has caught the attention of the real estate industry due to its potential implications. The National Association of Realtors (NAR), the largest trade association representing real estate agents in the United States, is also a defendant in this case. The NAR sets guidelines for its members, including buyer agents, which have been challenged for promoting anti-competitive practices.

If the allegations are found to be true and the plaintiffs prevail in the trial, there will likely be significant repercussions for buyer agents and real estate transactions. It could lead to changes in how buyer agents are compensated, potentially shifting from a percentage-based system to a flat fee or an hourly rate. This could impact the income of buyer agents and potentially reduce the overall cost of the home-buying process for consumers.

In conclusion, the Sitzer and Burnett allegations claim that buyer’s agent commissions violate antitrust laws by inflating fees. This trial, with the involvement of the NAR, has the potential to bring about significant changes to the industry, impacting buyer agents and potentially leading to alternative compensation models in real estate transactions.

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