Will a National Lawsuit Affect Northern Michigan Real Estate?
Local realtors say transparency and good faith are critical moving forward
By Ren Brabenec | Feb. 10, 2024
A recent $1.8 billion real estate lawsuit made national headlines, raising the question of whether the way real estate transactions are carried out may change.
Though the suit is being appealed, the initial judgment in Sitzer v. The National Association of REALTORS® (NAR) ruled in favor of home sellers against NAR, the nation’s largest trade organization of 1.5 million members. The jury found that some members of NAR, Keller Williams Realty, Anywhere Real Estate, RE/MAX, and HomeServices of America conspired to artificially inflate agent commissions.
The basis of the lawsuit centered on the brokerages’ commission-sharing program. Typically, the seller of a property pays a 5-6 percent commission, which is split between the listing agent (seller’s agent) and the buyer’s agent. The lawsuit alleged that some brokerages had artificially inflated commissions and had essentially created a form of antitrust.
The result? If the initial ruling holds, a different fee structure could be implemented for agents. For example, one option would be for a decoupling of sorts, with sellers paying their agent and buyers paying theirs. Other proposed ideas involve a fee-for-service model (for example, $100 per home showing) or a referral fee model, in which the listing agent would offer a referral fee to the buyer’s agent for introducing the buyer to the property.
Here’s what local real estate experts have to say about the impact of the lawsuit on northern Michigan.
What Changes Could We See?
If indeed a switch is made in the fee structure, some models could have drawbacks of their own.
“Barriers to entry are already high for new home buyers, and if buyers are required to pay a fee to retain a buyer’s agent, that will make it more challenging for potential buyers to enter an already competitive market,” says Tommy Corbett, team leader of Brick & Corbett in Traverse City. “Such a model would push some potential buyers out, and sellers want more buyers in the market, not fewer, to keep competition and demand high.”
Kim Pontius, CEO for Aspire North REALTORS® in Traverse City, says as long as agents and brokers are transparent with their clients, inform them of compensation structures, and remind clients that everything is negotiable, the existing commission-sharing model should (and probably will) remain in place.
“NAR did not prevail in that lawsuit, but that doesn’t mean we’ll see industry-wide changes,” says Pontius. “What we will see, however, is a continued and increased effort to ensure our members are operating within our codes and policies. NAR has a strict code of ethics that calls for realtors to put their clients’ interests first. NAR also establishes guidelines for local MLS broker marketplaces to support pro-consumer and pro-business competitive real estate markets. When our members follow the guidelines and put their clients first, everyone wins, and the current model works.”
But, if brokerages and agents are operating in good faith and with full transparency, why the lawsuit?
According to The New York Times, more than 156,000 people joined NAR in 2020 and 2021, nearly 60 percent more than in the two years prior. The glut of new agents jumping into a hot real estate market muddied the waters, according to Pontius, and mistakes were made.
“There’s a difference between hiring an agent who started in 2020 and hiring one who started in 2012 or 2007 or the 90s,” says Pontius. “Our industry was overwhelmed by new folks becoming agents, which resulted in higher incidence rates of mistakes, some of which were egregious and violated our mandates on transparency.”
Conversely, in the last year, almost 100,000 agents have left the industry. “One can imagine that many of those leaving are the same ones who joined when the market was hot, potentially the same ones who made some mistakes, weren’t transparent, or tried to cut corners,” says Pontius.
Who Will Be Affected?
According to Pontius and Corbett, the lawsuit is unlikely to have a significant effect on northern Michigan real estate. If changes in agent fee structures occur, it will be a few years out, at least. Pontius and Corbett hope the commission-based compensation system stays in place to prevent an excessive cost-related burden from being shifted onto buyers.
Are any changes or recommendations coming down from the top due to the lawsuit?
“Absolutely,” says Pontius. “Realtors are being advised to do their best to inform their clients on every detail of the real estate process, including compensation. Our agents must inform their clients and be as transparent as possible. We’re also doubling down on ensuring our members are operating within the bounds of NAR codes and regulations.”
Corbett seconded the importance of transparency. “Even if a buyer or seller does not ask how compensation with their agent works, we’re telling our agents to bring it up and discuss it with them on day one,” he says. “That way, questions can be asked, answers can be provided, and consumers are reminded they have the option to negotiate. Everything is negotiable, and good faith negotiations are easy and fluid when agents operate with full transparency from day one.”
According to Pontius and Corbett, finding the right agents is, at its basic level, the most important component of entering the real estate space. “Find a good agent who you can trust—interview several—and build a relationship with them,” says Pontius.
That goes for both sides of the selling spectrum—both buyers and sellers should properly vet their agents and look into the fine print of their agreements.
“Make sure you’re talking to a professional,” says Corbett. “Make sure you understand your options. Don’t work with someone who is inexperienced and not transparent. The real—and beneficial—outcome of the lawsuit is that there will be fewer agents in the field, because many of the agents who jumped in when the market was at its hottest will likely jump out soon if they haven’t already. Talk to the agents who stay on, interview them, talk to others who have worked with them. Negotiate as much as you need to create an arrangement that works for you.”