For the first time, real estate giant Realogy is publicly calling for the National Association of Realtors to end a requirement that listing brokers offer commissions to buyer brokers in order to submit listings to Realtor-affiliated multiple listing services.
The company’s position was revealed in an unsealed legal filing on Thursday. Realogy — along with the National Association of Realtors, RE/MAX, Keller Williams and HomeServices of America — is a defendant in multiple antitrust lawsuits from homesellers and a homebuyer that seek to have homebuyers pay their broker directly, rather than have listing brokers pay buyer brokers from what the seller pays the listing broker. That change could upend the U.S. real estate industry by effectively forcing changes in how buyer’s agents are traditionally compensated.
At issue in the suits is NAR’s Participation Rule, also called the Buyer Broker Commission Rule or the NAR Cooperative Compensation Rule, which requires listing brokers to offer commissions to buyer brokers in order to participate in Realtor-affiliated multiple listing services.
The seller suits, known as Moehrl and Sitzer after their lead plaintiffs, are currently in discovery and in the midst of seeking class certification. Realogy submitted the now-unsealed filing in the Sitzer case.
In the filing, M. Ryan Gorman, president and CEO of Realogy Brokerage Group and CEO of Coldwell Banker, told the court, “[I]t is the position of Realogy that the mandatory nature of the NAR Cooperative Compensation Rule should be rescinded.”
In a phone interview with Inman Thursday, Gorman clarified that Realogy was not pushing to rescind the commission rule, but rather to make offers of compensation optional rather than mandatory.
“The best thing for a seller in every case that I can imagine is to offer compensation for the good work that buyers’ agents will do to bring a buyer in to facilitate the transaction,” Gorman said.
“I think that there’s tremendous evidence supporting that and the market will continue to support that. There’s no reason why an offer of compensation needs to be a mandatory requirement for a home to be listed in the MLS. So it’s really just the mandatory component for listing a home in the MLS that we’re saying is unnecessary.”
Gorman went on to say that MLSs should continue to offer a data field for compensation, but should not require that it be filled out for a home to be listed. He said Realogy was not calling for the rule to be made optional for MLSs, which would allow MLSs to continue to make offering buyer broker commissions a requirement at their discretion.
“I don’t believe that MLSs should make it a requirement,” Gorman said.
In the legal filing, Gorman said that the only set of NAR rules or guidelines that it requires its company-owned brokerages and franchisees to follow is the NAR Code of Ethics. Gorman told Inman that Realogy does not require its brokerage or franchisees to join Realtor associations and that the code is freely available for anyone to follow.
Asked for comment on Realogy’s position, Mantill Williams, NAR’s vice president of communications, told Inman in an emailed statement, “NAR is committed to transparent and efficient markets for buying and selling homes. We recently updated our rules to further reinforce transparency by requiring MLSs to include the listing broker’s offer of compensation for each active listing displayed on its consumer-facing website. Our rules have always provided that listing brokers in consultation with their clients determine how much commission to offer the buyer broker.
“NAR continues to believe that the guidance regarding cooperative compensation that appears in its Handbook on Multiple Listing Policy serves the best interests of both consumers and brokers. It gives them freedom to choose how much commission to offer the buyer broker, including as little as one penny.
“This payment approach also gives first-time and low/middle-income homebuyers a better shot at affording a home and professional representation. For many, saving for a down payment is already difficult enough. If buyers had to pay commissions directly on top of their closing costs, it would increase their out-of-pocket expenses in a way that would freeze out many from an already competitive market.”
NAR’s MLS policy handbook defines an MLS, in part, as “a means by which authorized participants make blanket unilateral offers of compensation to other participants.”
NAR Policy Statement 7.23 says, “In filing property with the multiple listing service, participants make blanket unilateral offers of compensation to the other MLS participants and shall therefore specify on each listing led with the service the compensation being offered by the listing broker to the other MLS participants. This is necessary because cooperating participants have the right to know what their compensation will be prior to commencing their efforts to sell.”
The handbook goes on to say that “Multiple listing services shall not publish listings that do not include an offer of compensation expressed as a percentage of the gross selling price or as a definite dollar amount, nor shall they include general invitations by listing brokers to other participants to discuss terms and conditions of possible cooperative relationships.”
When the Moehrl and Sitzer antitrust lawsuits were first filed, some in the industry opined that offers of compensation are essential to what an MLS is and that if the lawsuits prevailed, it would mean the demise of MLSs. Gorman said he understood, but ultimately disagreed with, the viewpoint that the commission rule was necessary because of the value of cooperation between buyer agents and listing agents in transactions.
“I think cooperation is extremely beneficial and has been for unlocking homeownership for literally tens of millions of Americans for ensuring adequate representation and trusted advisors are working on both sides of the transactions,” he said.
“I personally think that the value is extremely high and there’s not a need for a mandatory requirement. But I certainly understand the view that certain rules around cooperation can be really helpful for ensuring the market operates efficiently so all players know how things work. So I appreciate the perspective, but I personally think the value is extremely high and will continue to stay high.”
In an email sent to Realogy’s broker-owners on Thursday, Realogy said removing the commission-sharing requirement would offer flexibility “for all concerned” when listing a home.
“Make no mistake, we wholeheartedly believe in and support the economics that provide for the sharing of the commission with the buyer’s agent; however, we do not believe a listing broker should be required to make an offer of compensation to a buyer broker in order to participate in and list properties on the MLS,” the company said.
“We strongly believe consumers and brokers should be able to exercise their judgment to best serve the needs of the seller and the nature of the transaction, but we anticipate that, frankly, brokers will continue to offer compensation for the high-quality buyer agent work.”
Gorman added, “I personally believe the market is going to continue to prevail and the tremendous value created by buyers agents being brought to the transaction will encourage everyone to continue doing what’s done today, which is offering compensation to the buyers’ agents. But there is at least that flexibility. The thing we stand behind is meeting consumers where they are and meeting their requirements for their listing.”
In its email, Realogy pointed to broker-owned Northwest MLS, which in 2019 removed a requirement that a seller offer a buyer broker commission when listing a property for sale. More than two years later, “there has been no meaningful change to buyer broker compensation practices,” Realogy’s email said.
Asked whether Realogy’s statement was accurate and how many NWMLS listings have not offered buyer broker compensation since then, NWMLS CEO Tom Hurdelbrink told Inman, “NWMLS does not monitor compensation rates and does not know the effect that these changes have had on offers of compensation.
“However, NWMLS is aware that since these rules revisions, its database has included listings that do not offer compensation to a buyer’s broker. Anecdotally, NWMLS believes that these changes have resulted in a greater consumer understanding of broker compensation and lead to more frequent and meaningful conversations about broker compensation with consumers. NWMLS will continue to explore rule changes that further promote competition, innovation, and consumer choice.”
Asked why Realogy decided to go public with its stance on the commission rule now, Gorman said he thought the unsealing of the legal filing “warrants some explanation.”
“We like to share our views and advocate with those who can make some changes that could be helpful to the industry,” he said. “Not everything has to be done immediately, publicly. We think it aligns closely with our overall view and increasingly vocal stance on the value of transparency within the industry.”
While Realogy has made its positions on other industry rules public before, most recently in a letter to NAR’s Multiple Listing Issues and Policies Committee regarding listing broker and agent attribution, Realogy has not submitted any proposed language for a commission rule change to NAR at this point.
Gorman declined to say whether Realogy had had any conversations with NAR about its stance on the commission rule. Asked whether Realogy was planning to send a letter to NAR’s MLS committee about the rule in advance of NAR’s midyear conference in May, Gorman said, “I’m not sure. I think we’re obviously taking a public position on this today and I’m sure there’ll be good discussion and debate around it — already has been prior to us ever saying anything — and we’ll see how that conversation evolves.”
Inman has reached out to a lead attorney for the Sitzer plaintiffs and to the Council of Multiple Listing Services (CMLS) for comment and will update this story if and when we hear back.