In 2019, two class action lawsuits that challenged organized real estate were filed against the National Association of REALTORS® (NAR) as well as some major real estate companies: these lawsuits were Moehrl v. National Association of REALTORS®, et al. litigation and Sitzer and Winger v. NAR et al. The crux of the lawsuits was that NAR’s rule for the seller to pay the buyer’s broker’s compensation has led to artificially fixed and inflated commissions, higher buyer costs and higher home prices.
Just last month, two of the companies in the lawsuit settled the claims. However, the remaining companies and NAR continue to fight and defend the pro-competitive, pro-consumer MLS. The outcome is unknown at this time, but it will likely take years for a final resolution.
Antitrust basics
The practice of real estate is unique in the fact that real estate licensees compete against each other to gain business from the public but simultaneously agree to cooperate with one another in the transaction. Due to the nature of this healthy competition and cooperation of the profession, real estate licensees can become caught in antitrust controversies.
Federal and state antitrust laws are designed to protect competition as well as the opportunity of competitors to engage in business free of artificial restrictions on competition. Such restrictions include price-fixing agreements, group boycotts, “tying” arrangements and market allocation arrangements.
But what does this really mean for you as a Wisconsin licensee?
As you know, commissions and commission splits are negotiable. The free market establishes real estate broker commission costs within markets based on influences such as service, consumer preference and what the market can bear. A variety of commission models and business models exist in marketplaces throughout Wisconsin.
It’s important to note: not all states are the same.
Wisconsin’s state-approved WB forms currently provide a great deal of transparency and flexibility for consumers about the commission and the payment of commission.
The WB forms provide an open-ended space for firms to include the commission and do not make any representation there is a standard commission charged. For example, in the WB listing contract forms, the commission language provides a blank line to be completed; see lines 27-28 of the WB-1 Residential Listing Contract — Exclusive Right to Sell (WB-1). Additionally, the WB listing contracts include “Compensation to Others,” which communicates and documents to the seller what the firm will offer to cooperating firms as well as any exceptions. See lines 52-53 of the WB-1. Anecdotally, it sounds like many states do not include such consumer-transparent provisions.
Additionally, some states do not have a written buyer agency agreement such as Wisconsin’s WB-36 and WB-38 buyer agency agreements. And for states that do have a written buyer agency agreement for use, the form does not include language like Wisconsin’s where the commission language provides for blank lines, such as on lines 32-33 of the WB-36 Buyer Agency Agreement; discussion of other compensation like lines 43-46 of the WB-36; as well as the payment by owner or owner’s agent language on lines 47-50 of the WB-36.
Remember the basics: Commissions and commission splits are negotiated and established between the listing firm and the seller-client in the listing contract and the buyer’s firm and the buyer-client in the buyer agency agreement. The listing contract provides for the agreed compensation paid by the seller to the listing firm. At the time of the listing, the listing firm should discuss the commission with the seller, including what the listing firm will offer as cooperative commission, for example, in the MLS.
The buyer agency agreement provides the agreed upon compensation paid by the buyer to the buyer’s firm and considers alternative methods of the buyer paying the buyers’ firm, as noted at lines 50-53 of the WB-36:
“… payment of commission from the owner (e.g., seller) or the owner’s agent (e.g., listing firm) provided that all parties to the transaction give prior written consent. Buyer shall pay the Firm’s compensation, reduced by any amounts the Firm receives from the owner or the owner’s agent.”
Addendum C — Further enhancing existing consumer transparency
In consultation with outside legal counsel and NAR, the WRA legal team created the Addendum C to boost consumer transparency as it relates to commission in the listing contract, buyer agency and tenant representation agreements.
The WRA legal team is encouraging the inclusion of Addendum C in all listing contracts, buyer agency and tenant representation agreements.