‘Stop sharing broker commissions’ to steer clear of trouble 

It's not steering, but the fear of steering that is the real threat to the real estate industry — both in the courtroom and in the court of public opinion.

That was the message from T3 Sixty President Jack Miller and California Regional Multiple Listing Service General Counsel Ed Zorn in a webinar this week about the commissions lawsuit settlements and the rule changes they will bring this summer.

"There's either minimal steering or no steering. That's my position," said Miller. "It doesn't matter. It's not steering, it's the fear of steering. … It's the threat of steering which the DOJ and the claimants in these lawsuits are saying is keeping prices propped up."

The pair advocated what they called a "consumer-centric" approach to buy-side commissions and cautioned that trying to cling to a broker-driven sharing model will invite scrutiny from the Department of Justice, and more litigation from buyers and sellers.

They also touted the consumer-centric model as ultimately more fair because buyer agents with experience and skills can command higher fees than agents with brand new licenses.

What the DOJ is thinking

But the switch away from a shared commission model is driven primarily by the court cases and the Department of Justice.

Miller read from the DOJ's letter of interest in the MLS PIN case: "As long as sellers can make buyer-broker commission offers, they will continue to offer 'customary' commissions out of fear that buyer brokers will direct buyers away from listings with lower commissions — a well-documented phenomenon known as steering," the filing reads.

"This is a great snapshot of what they think," Zorn said. "They think the problem is broker sharing. That is the heart and the reason that there are problems, so why share? You don't need it."

Miller was even more blunt. "Stop sharing broker commissions," he said. "You can get everything accomplished with a seller concession that you need to get accomplished, but the seller concession is more transparent to the buyer, more transparent to the seller."

Concessions should stay on the MLS

Miller added that if MLS rules allow it, you can market seller concessions on the MLS, and some MLSs are already supporting that, "or at least being able to say they're open to seller concessions in the listing if they're not going to support an amount."

But he cautioned that offers to share commission made outside of an MLS can't be tracked or guaranteed, and he imagined a scenario where compensation was offered on individual websites — but later retracted.

"The buyer agent submits an offer and says, 'I took the number from the website,' and the listing broker says, 'Well, we've changed it this morning, and what you thought it was is not what it is today.'" 

That potentially leaves the buyer agent out in the cold. "There's no recourse there," he warned.

Under the consumer-centric model Miller and Zorn described, buyer agents would negotiate a fee with their clients in a written agreement before showing a single house. Then the buyer can include the fee in any purchase offer as a concession, allowing them to finance it as part of their mortgage.

What listing agents need to know

Listing agents, meanwhile, need to explain to sellers that they will likely be asked to give concessions to pay for the buyer-side fees. But crucially, they won't set the fees paid to buyer agents. If they offer concessions up front that are higher than the fee agreed to by the buyer's agent, that money should go to the buyer, Zorn said.

And if a buyer isn't represented, listing agents should negotiate a higher fee since that makes the deal more difficult, Zorn noted.

Whether or not buyer agent fees are covered in the form of a concession offered on the listing, listing agents hold the key to ending the perception that steering is happening in the industry.

"If you're in someone's living room and someone utters the words 'If you don't put a least X in [as a concession] … they won't show your home' — if those kinds of words are still flowing in listing presentations, then we are right back where we were before," Zorn said.

The NAR Code of Ethics requires Realtors to eliminate practices that may discredit or bring dishonor to the real estate profession, Zorn said.

"I would suggest to you the concept of commission sharing between brokers is such an element," he said. 

"You've stripped it of its benefits once you took it off the MLS. So let's just not do it. And let's just embrace the consumer-centric model and move on with a better perspective in the eyes of the regulators and of the consumers that we serve."