Monday, November 13, 2023

More on Realtor's contracts and practices, and the recent court decision

 Here are some further articles with some details about the recent court decision that real estate contracts are anticompetitive. Both are from the Washington Post:

Jury awards $1.8B in realty case that could shake up brokerage commissions. A Kansas City jury unanimously found that the National Association of Realtors and other organizations conspired to artificially inflate home sale commissions   By Julian Mark 

"The plaintiffs pointed to an NAR rule that required sellers to make a nonnegotiable commission offer before listing homes on the property database, the Multiple Listing Service, or MLS, which feeds widely used real estate sites including Zillow. That commission hovers around 5 to 6 percent of the sale price and is paid by the home seller to the sellers’ agent and the buyers’ agent. If sellers do not agree to the commission terms, they go virtually unseen in the market, Ketchmark said.

"The rule has stifled competition and has resulted in higher prices, the plaintiffs alleged. They argued that if the rule were not in place, buyers would pay commissions to their own agents while buyers’ agents would have to compete by offering lower rates. The lawsuit pointed to countries whose total real estate commissions average 1 to 3 percent, such as the United Kingdom, Singapore, the Netherlands, Australia and Belgium.


Real estate industry trembles over commissions on home sales. After jurors recently found that there was a scheme to inflate commissions, experts say changes could shake up the business  By Julian Mark

"The judge overseeing the case has the power to issue an injunction that could break up the century-old “bundled” or “cooperative” commissions system, in which sellers’ and buyers’ agents split a commission that typically ranges between 5 and 6 percent of the home sale price. 


"The cooperative compensation structure was established in 1913, when National Association of Real Estate Exchanges, the precursor to NAR, said its member agents should share commissions with agents that produced buyers, according to a 2015 study by economists Panle Jia Barwick and Maisy Wong. The commissions rate hit 5 percent in 1940 and has remained virtually unchanged ever since, according to the study.

"Commissions work differently in countries such as the United Kingdom, where sellers pay typically less than 2 percent, and buyers pay their own agents, according to the study."


And here's the cited paper:

Barwick, Panle Jia, Parag A. Pathak, and Maisy Wong. 2017. "Conflicts of Interest and Steering in Residential Brokerage." American Economic Journal: Applied Economics9 (3): 191-222.

Abstract: This paper documents uniformity in real estate commission rates offered to buyers' agents using 653,475 residential listings in eastern Massachusetts from 1998–2011. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5 percent less likely to sell and take 12 percent longer to sell. These adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering), rather than heterogeneous seller preferences or reduced effort of listing agents. Offices with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns over steering.

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