Dear Colleagues in Real Estate, there appears to be substantial evidence indicating that certain media platforms, like Inman News, may be selectively presenting information or even suppressing pro-NAR studies that contradict allegations put forth in the class-action lawsuits concerning real estate commissions. We urge all agents to share these counternarratives extensively in a bid to uphold a more balanced and factual representation of our profession.
Introduction
The world of real estate is as complex and multifaceted as it is dynamic, subject to the constant ebb and flow of market forces, technological advancements, and regulatory shifts. The Realtor’s role, in particular, is a testament to this complexity, embodying the interplay of business acumen, entrepreneurship, negotiation skill, and an unwavering commitment to client service. To cast this intricate industry in a simplified, reductionist light is not just misleading—it is detrimental to the professionals who form its backbone and the consumers who rely on their expertise. In this report, we expose claims asserted by multiple parties, including The Consumer Federation of America and contributors of The Danger Report, resulting in the basis of the many challenges currently facing Realtors. See The Phillips Report | Burnett v. The National Association Of Realtors | Missouri.
The Danger Report
Within this context, we present The Phillips Report—an in-depth critique and rebuttal of the controversial Danger Report and class-action assertions against The National Association Of Realtors. The Danger Report made a series of sweeping assumptions and predictions that, upon examination, were found to be inaccurate and alarmingly so.
From the accusation of a vast sea of underperforming agents tarnishing the industry’s reputation, to the dangerously misleading conflation of real estate fees with rates, to the shockingly unfounded claim about the industry’s supposed technological inadequacy, The Danger Report has proven itself to be less an insightful analysis of the industry and more a hasty collection of ill-considered assumptions.
In The Phillips Report, we systematically dissect and refute these allegations. We delve deep into the intricate realities of the real estate industry, drawing from a wealth of data, empirical evidence, and seasoned industry insight. We shed light on the innovative, adaptable, and technologically adept professionals who define our industry and the robust structures that support their efforts.
Above all, we affirm Realtors’ dedication and professionalism, reinforcing their crucial role in navigating the complex terrain of real estate transactions. By doing so, we aim to present a balanced, informed, and accurate perspective of the real estate industry—an antidote to the skewed portrayal in The Danger Report.
The National Association Of Realtors Contributed To The Danger Report
In a surprising revelation, the National Association of Realtors (NAR) initiated and contributed to this study with the alleged intent of providing a “voice” to specific forces within the industry. This objective was pursued by conducting “confidential interviews” with notable minds from within and outside the organized real estate sector.
These “confidential interviews” found their way into a widely circulated study, creating what can be likened to a catastrophic threat for Realtors. The content drawn from these interviews has been repeatedly echoed in class-action lawsuits, marketing efforts by alternate brokerage models disparaging Realtors, and the critical lens of The Department of Justice.
Fortuitously, the assertions and projections presented in the study are so inherently faulty that they lend themselves to compelling refutations.
The Sherman Act | Listing Concealment | Massive Steering
The Sherman Act, a U.S. antitrust law, does not prohibit all alliances or agreements among competitors. Instead, it seeks to limit arrangements that restrain trade or inhibit competition unduly. Indeed, pro-competitive alliances are generally considered to be beneficial and thus not in violation of the Sherman Act. Pro-competitive alliances are arrangements that promote competition, innovation, consumer welfare, and market efficiency.
Real estate professionals who are Realtors and MLS member agents are not a monolithic entity. In fact, there is fierce competition among these agents as they strive to secure clients. Their competitive efforts lead to a vibrant and dynamic real estate market, which directly benefits consumers through a multitude of choices and varied service offerings. One of the most significant consumer benefits offered by Realtors and MLS member agents is their access to comprehensive, accurate, and timely real estate data. This is primarily facilitated through the Multiple Listing Service (MLS) – an innovative platform that has proven its value time and again in bolstering consumer welfare.
The MLS is responsible for significant real estate innovations that have reshaped the industry and enhanced the consumer experience. Some noteworthy examples include:
- Syndication at scale: The MLS collates and distributes real estate listings far and wide, ensuring that consumers have access to an extensive property information database, simplifying their search for properties that meet their unique needs.
- Enhanced transparency: MLS systems promote transparency by providing all pertinent details about a property, which aids buyers in making informed decisions.
- Introduction of advanced search features: The MLS systems have pioneered various advanced search features that allow buyers to search for properties based on specific criteria, further refining their search process.
- Facilitating cooperation between agents: The MLS promotes a high level of cooperation between buyer and seller agents, which is fundamental to the smooth completion of real estate transactions.
These innovations not only benefit consumers but also creates significant efficiencies in the market. This is confirmed by Clever Real Estate’s statement indicating that “Home buying websites syndicate MLS listings, but the information is more likely to be incomplete, out-of-date, or outright inaccurate compared to an official website. Further, many home-buying websites get some or all of their data from third-party companies — not directly from the MLS. This limits how quickly the websites can update their listing information.”
The MLS, therefore, ensures the provision of accurate, up-to-date information directly from the source, allowing for faster updates and improved reliability of the data. Consequently, the consumer’s decision-making process becomes more informed, efficient, and effective.
Clear Cooperation Policy
The Clear Cooperation Policy promotes transparency and fairness within the real estate industry by requiring that all listings be submitted to the MLS within one business day of public marketing. This policy ensures that all potential buyers can access information about available properties, fostering a fair and competitive environment. The policy directly addresses pocket listings, which can harm consumers due to limited exposure, discrimination and Fair Housing concerns, lack of transparency, and reduced competition. By requiring all listings to be submitted to the MLS, the Clear Cooperation Policy promotes an equitable, transparent, and competitive real estate market, benefiting Consumers by providing greater access to information, fostering competition, and ensuring fair and ethical transactions.
One touted benefit of “pocket listings” is allowing sellers to experiment with property prices. This presents significant consumer protection concerns. Suppose a $1,000,000 property is advertised as a pocket listing for a year without attracting a buyer. An informed buyer could use the lengthy listing duration to justify a substantially lower offer, while an uninformed buyer might pay the asking price.
Investopedia concurs: “Some homeowners believe a pocket listing can generate a higher selling price due to its perceived exclusivity. However, if a property is publicly listed and remains unsold for over 30 days, it becomes increasingly susceptible to lower offers from potential buyers. Sellers are less likely to face reduced offers without the public ‘days on the market’s record.”
Such tactics directly violate the National Association of Realtors Code of Ethics, Article 1, which mandates the honest treatment of all parties. Furthermore, state regulations necessitate disclosing significant or “material” information. Material information, by definition, is data of such importance that it can influence decision-making or significantly affect property value. The above scenario constitutes a prime example of non-disclosure of material information.
In a brief moment of clarity, The Consumer Federation Of America Agreed in an opinion published on 11/13/19. In summary- “CFA’s new analysis of pocket listings explains why pocket listings harm both home Sellers and Buyers and threaten a free, efficient, non-discriminatory housing market. Pocket listings occur when an agent keeps a particular real estate sale listing within their company rather than putting it on the Multiple Listing Service. CFA applauds the National Association of Realtors (NAR) for voting earlier this week to limit real estate agents’ use of anti-consumer pocket listings.“
Barriers To Entry | MLS | National Association Of Realtors Membership Fees
It is important to emphasize that the barriers to joining the Multiple Listing Service (MLS) are neither excessive nor cost-prohibitive. This contrasts sharply with the narrative presented by some parties who are motivated by self-interest as they desire the benefits offered by the MLS without bearing the costs. This selective approach undermines the fairness and reciprocity that are at the core of such services.
Just like in the vast majority of professional domains, including the legal sector, practitioners typically acquire local licenses and become part of local associations. These are often linked with national bodies, for example, the American Bar Association. This prevalent and legitimate procedure guarantees that service providers comply with the norms and regulations pertinent to their respective fields. The real estate sector operates under the same principles.
The cost of joining an MLS, while dependent on the market, is typically less than $1,000 annually. Given the range and scale of services that the MLS provides, this is far from excessive. MLS listings are syndicated widely, offering agents significant exposure and streamlining the process of buying and selling properties.
In contrast, when looking at alternative methods of lead generation and marketing, such as Google Ads, the cost-effectiveness of MLS membership becomes even more apparent. For example, AnswerTheWeb states that bidding on the phrase “Will Zillow buy my house” costs an astounding $37.68 per click. To put this into perspective, this means that an agent would get a mere 26.53 clicks for the same $1,000 annual fee that they would pay for MLS membership. This stark difference demonstrates the tremendous value provided by the MLS, reinforcing why it is a staple in the real estate industry.
In conclusion, Realtors and MLS member agents’ intense competition, coupled with the MLS’s consumer-focused innovations, is a testament to the pro-consumer and pro-competition nature of the U.S. real estate industry, and a clear alignment with the principles and objectives of the Sherman Act.
MLS | Promoting Competition
It’s pivotal to underscore the role and function of the Multiple Listing Service (MLS) within the realm of real estate transactions. This system syndicates properties to an expansive network of national real estate platforms, providing unparalleled access to property listings for Consumers. Importantly, these platforms do not filter out properties based on the commission offered, thereby ensuring a level playing field for all properties, irrespective of commission structure.
THE MLS PREVENTS MASSIVE STEERING.
As of September 2021, the reach of major platforms such as Zillow Group’s websites, including Zillow and Trulia, averaged about 200 million unique monthly users. Realtor.com catered to approximately 73 million monthly unique users, while Redfin enjoyed around 39 million monthly users. Accounting for other such websites and considering possible overlaps, it’s reasonable to estimate a cumulative 250-300 million unique monthly users solely for the most prominent real estate portals.
Including the numerous smaller websites, each attracting a few hundred to several thousand visitors each month, the numbers grow exponentially, with an additional 50-100 million monthly visitors estimated. This data culminates in an awe-inspiring range of 300-400 million unique monthly visitors across all platforms, potentially receiving MLS listing syndication. The total population capable of transacting in the US (over 18) is 258,327,312. Claims of listing concealment are patently absurd. Allegations of anti-trust violations against the National Association of Realtors (NAR) seem to fundamentally misinterpret the inherent pro-consumer nature of the current real estate structure. Proptech brokerages that selectively choose markets to serve and impose minimum fees essentially engage in a practice akin to “steering.”
Moreover, Redfin’s recent 10k stated, “Competition in each of our lines of business is intense.”
“Competition in each of our lines of business is intense. Many of our competitors across each of our businesses have substantial competitive advantages, such as longer operating histories, stronger brand recognition, greater financial resources, more management, sales, marketing and other resources, superior local referral networks, perceived local knowledge and expertise, and extensive relationships with participants in the residential real estate industry, including third-party data providers such as multiple listing services (“MLSs”). Consequently, these competitors may have an advantage in recruiting and retaining agents, attracting consumers, and growing their businesses. They may also be able to provide Consumers with offerings that are different from or superior to those we provide. The success of our competitors could result in our loss of market share and harm our business.”
Comparable Foreign Markets | The Basis Of Attempting To Assert Damages
The Danger Report’s alleged utilization of an outdated 2002 study titled “International Residential Real Estate Brokerage Fees and Implications for the U.S. Brokerage Industry” calls into question the author’s intent and validity of the entire report. Conflating fees with rates while neglecting critical variables such as average home values, the range of services provided, and the unique considerations related to the buyer’s side fees fundamentally misconstrues the reality of the U.S. residential real estate industry.
Firstly, applying an outdated study as the primary basis to predict contemporary conclusions is patently unacademic. Market dynamics, technology utilization, and consumer behavior have evolved significantly since 2002, rendering this data largely irrelevant.
Secondly, the glaring intent to conflate fees and rates is misleading and deceptive. While the report attempts to draw parallels between international and U.S. brokerage fees, it completely neglects the crucial aspect of average home values in the comparative markets. To illustrate this point, let us consider Singapore, where the report suggests that brokerage fees are significantly lower than in the U.S. The average value of a cluster house in Singapore is approximately $2,504,215 when converted to U.S. dollars. In California, arguably the most expensive real estate market in the U.S., the average value of a comparable townhome is approximately $610,000—roughly -4.1 times lower than in Singapore. A 2% commission in Singapore would yield a $50,084 fee, while a 5% commission in California would result in a $30,500 fee. This comparison demonstrates that a simple rate comparison is misleading and can be downright false in representing the financial realities of real estate transactions across different markets.
Lastly, the author oversimplifies the real estate transaction process by ignoring buy-side fees. Failing to account for these fees in the overall commission and net proceeds structure paints an incomplete picture of the brokerage landscape. Comparable “foreign markets” cited by Plaintiffs typically impose a stamp duty tax on buyers, including a 4% fee in Australia. Moreover, Buyers that transact without an agent typically retain legal counsel. These fees reduce the purchasing power of buyers, directly harming sellers.
The DANGER report’s negligence in presenting an analysis without relevant metrics, using outdated data, and overlooking critical factors such as buy-side fees is disappointing and harmful to Realtors as current class-action lawsuits filed against Realtors regurgitate these same defective claims.
Agent Quality
A contributor to the Danger Report claimed: “There are too many real estate agents that are simply not qualified to the level they should be. Furthermore, there are no meaningful educational initiatives on the table to raise the national bar for real estate agents across the board. And while this lack of agent knowledge is a significant danger in itself, when combined with a lack of basic competency, it could be destructive and harmful to both the industry and the consumer.”
The DANGER Report’s assertion that masses of marginal agents can harm the reputation of the entire profession necessitates a closer look, as it neglects three critical realities:
- Consumer Diligence: Firstly, the report overlooks that Consumers typically interview multiple real estate firms before selecting an agent. They assess the firm’s reputation, evaluate marketing collateral, and conduct consultations. The process is rigorous and selective, with clients often choosing experienced and professional agents who best meet their needs.
- Supervision and Mentorship: The report fails to acknowledge the structure of real estate brokerage firms. Much like the relationship between Junior Associates and Senior Partners in the legal field, real estate agents perform their duties under the supervision of experienced brokers. This provides a consumer safety net and helps ensure quality control in the services provided.
- Pareto Principle: Recognizing the Pareto principle, or the 80/20 rule, within the real estate industry is essential. A smaller percentage of agents – those who are more experienced and professional – often handle the majority of transactions. The report author’s Wikipedia page substantiates this: “More than half of all licensed Agents had no listings or sales during the previous year.” Hence, suggesting a widespread issue of unqualified Agents detrimentally impacting the industry seems overblown.
Agents | Technologicly Inferior To New Brokerage Models
Per Danger: “Technology innovation has occurred alarmingly rapidly, but brokerage companies aren’t technology companies, nor are they structured to grow at this rate. Even many of the large brokerage companies and national franchises, with more capital than most in the industry, are unable or unwilling to invest the financial and human resources needed to compete with publicly funded technology.”
Claiming “technology innovation has occurred alarmingly rapidly, but brokerage companies aren’t technology companies, nor are they structured to grow at this rate” is startlingly shortsighted and, frankly, negligent in its oversimplification. It displays a total disregard for the dynamic, adaptable, and entrepreneurial nature of the real estate agent’s role and the brokerage industry at large.
First, the claim ignores real estate agents’ individual agency and technological prowess, reducing them to mere functionaries within a larger system. It is essential to recognize that real estate agents, particularly those at the top of their game, consistently adapt and leverage advanced technologies to bolster their service offerings. They are entrepreneurial in spirit, always seeking innovative ways to market properties, streamline processes, and enhance client interactions. In fact, agents and brokerages have been at the forefront of employing various advanced marketing techniques and technologies to boost their competitiveness and improve client experiences. Here are just a few:
- Virtual Reality (V.R.) and Augmented Reality (A.R.): Used for virtual staging and immersive virtual tours, transcending geographical boundaries.
- CRM Systems: Leveraged to automate communications, segment client databases, and personalize interactions.
- Machine Learning: Employed in predictive analytics to identify potential buyers or sellers and forecast market trends.
- Drones: Used for aerial photography and video tours, providing unique perspectives of properties.
- Social Media Advertising: Enables hyper-targeted ad campaigns to reach potential clients based on demographics, interests, and behaviors.
- Search Engine Optimization (SEO): Ensures the agent’s listings and website appear prominently in online search results.
- Big Data: Used to understand market trends and buyer behavior and accurately price properties.
- Mobile Apps: Provides clients with easy access to listings, booking viewings, and direct communication.
- Digital Transaction Management Platforms: Streamlines the closing process by digitizing paperwork.
Thus, the assertion that brokerage firms lack the structure or willingness to invest in technology is not just inaccurate, and it is a disservice to the thousands of agents and firms who have readily embraced and integrated technology into their practices. This statement fundamentally misrepresents the industry’s adaptability and the relentless entrepreneurial spirit of its professionals. It is a disquieting display of ignorance that undermines trust in the report’s credibility and understanding of the contemporary real estate landscape.
The author of The Phillips Report studied advanced marketing at MIT.
Claiming A Diminishing Role Of Buyers Agents | Advancements In Technology
Plaintiffs claim that technological advances must result in lower fees as buyers find the home they wish to acquire online. This suggests a singular tour, escrow, and closing. OpenDoor educates the Plaintiffs by revealing significant efforts by buyer agents.
“Want to Buy Your First Home? Get Ready to Tour 15 Houses and Make at Least 5 Offers.” “A new report from Opendoor, a residential real estate platform for buyers and sellers, underscores the lengths first-time homebuyers have been going to find a house.” “The company commissioned a nationally representative survey of 1,000 first-time homebuyers, and spoiler alert: They’re putting in tons of time and energy” “THE HOMEBUYING HUSTLE DOESN’T STOP AFTER REFRESHING ZILLOW A BUNCH OF TIMES. Finding a worthwhile listing is merely the first of many steps, likely laden with disappointment for first-timers.” “Next comes the logistics of viewing the homes. The average first-time buyer toured 15 properties — virtually or in-person — AND 33% OF RESPONDENTS TOURED 20 OR MORE, ACCORDING TO THE REPORT” “Rejection shouldn’t only be expected, it’s all but guaranteed. Almost every first-time homebuyer that Opendoor surveyed said they lost out on a property that they were interested in before finally finding their current one — 98% overall, and 99% for millennials.”
Standard Commission Claims Fail
Claims of a “standard” fails; Clever Real Estate claims that buyer’s agent commission ranges from 2.19% to 3.17%. Cohen Milstein, attorneys for the Plaintiff, which appear to collect up to 40% of a judgment, likely deem a ~1% reduction in fees (commissions) as insignificant. The variance related to the spectrum of agent fees equates to a 33.51% differential.
Commission Confusion | Consumers Lack Knowledge
Another primary allegation is that Realtors conceal buyer agent commissions, impairing real estate market transparency. We refute this claim by highlighting the transparency within the real estate industry. We believe that Redfin contributed studies establishing these claims. If true, Redfin’s assertions are self-serving and ironic from a company that settled claims of “redlining and setting minimum fees, practices that reportedly adversely affect minority communities by limiting their housing opportunities.”
The Plaintiffs argue that buyer agent commissions are concealed from consumers. Nevertheless, they fail to acknowledge that these commissions are typically disclosed within the transaction (HUD-1) documentation. Also, 85% of buyers were recent sellers who executed a listing agreement with commission breakdowns. Buyers can also inquire about commission details from their agent, and a simple Google search on commission structures reveals 230,000 results. Plaintiffs claim that buyers are technologically savvy enough to select the home to acquire without an agent while simultaneously unable to operate a search engine.
Profound Lack Of Self-Reflection | Comparing Legal Fees | Concealment
In a fascinating display of irony, Plaintiff’s counsel and expert witnesses have expressed strong criticism of Realtors for not publicizing commissions on consumer-facing websites. At the same time, organizations such as Cohen Milstein and The Consumer Federation Of America (CFA) fail to disclose their fees on their respective websites. This omission extends to the CFA’s 990 form, which lacks any compensation data for Steven Brobeck. It is striking that these organizations, quick to hold Realtors to high standards of transparency, do not seem to uphold these same standards themselves. If Cohen Milstein and Brobeck sincerely believed in the necessity of publicly displaying fees to safeguard consumer interests, they would undoubtedly incorporate this practice on their own platforms, mirroring the transparency they demand from Realtors.
Adversarial Transactions
Contrary to the assertion made by Plaintiffs that real estate transactions are adversarial, leading to the ineffectiveness of sellers contributing to buyer agent’s commissions, we propose a different perspective. Real estate transactions, by nature, are fundamentally collaborative. All parties—buyers, sellers, buyer’s agents, and seller’s agents—are united in pursuing the same outcome: to finalize a transaction under mutually agreed-upon pricing and terms.
The negotiation process often involves each party making necessary concessions and compromises to reach a consensus, a fact exemplified by the Plaintiff himself, Mr. Christopher Moehrl.
Furthermore, A study by Redfin published on January 5, 2023, titled “A Record Share of Home Sellers Are Giving Concessions to Buyers,” announced that “Home sellers gave concessions to buyers in 41.9% of home sales in the fourth quarter—the highest share of any three-month period in Redfin’s records, which date back to July 2020.“
This case is an explicit testament to the cooperative nature of real estate transactions, where all stakeholders collaborate to realize a shared objective.
Alternative | Discount | Rebate Brokerages
Anti-Realtor propagandists proclaim that their innovative brokerage models eliminate two-sided commissions, and buyer rebates solve the dilemma of buyers subjected to non-negotiable fees.
iBuying Firms
iBuying brokerages like Zillow initially presented an alternative to traditional two-sided commission structures by allowing sellers to transact directly with iBuying firms. The expectation was that this approach would result in lower fees and superior net proceeds for consumers. However, the iBuying model proved to be a failure, with higher fees imposed on consumers and an iBuying firm’s lack of profitability, even in an appreciating market. The downfall of iBuying was so significant that Zillow and Redfin exited the space, while OpenDoor and Offerpad had to reduce their fees to compete with traditional Realtors.
The Federal Trade Commission’s (FTC) action against OpenDoor further highlights the issues within the iBuying model. According to the FTC’s complaint, OpenDoor misled potential home Sellers by giving them the impression that they could achieve higher proceeds by selling their property to OpenDoor rather than through the traditional sales process in the open market. The FTC alleged that OpenDoor used deceptive and misleading information in its pitch to potential Sellers. In reality, most sellers who transacted with OpenDoor received thousands of dollars less than they would have through the traditional sales process. OpenDoor now discloses, “* Beginning on September 30, 2020, for new offers, Opendoor’s service charge will be no more than 5%. Service charge is subject to change and has historically been as high as 14%.” Furthermore, Offerpad’s Express Cash Offer, which allows consumers to sell direct to Offerpad and avoid two-sided real estate commission fees, charges 6%, which exceeds the NAR average. It is reasonable to infer OpenDoor and OfferPad reduced fees to compete with the competitive marketplace the MLS provides.
Redfin | Commission Rebate Brokrages
The concept of commission rebates for buyers is often presented as a remedy to assumed issues with price fixing in buyer agent commissions. Advocates of this model frequently point to Redfin as a role model for traditional agents. However, it’s important to remember that Redfin operates in hand-picked markets conducive to its unique business model and utilizes sophisticated technology beyond the reach of most independent agents.
In March of 2023, according to Redfin’s Form 10-Q, the company had eliminated the commission refund in all markets after a successful pilot, with the average refund per transaction in 2022 being $1,336.
Redfin functions in markets with above-average property values and arms its Agents with proprietary technology packages valued at $25,000 annually, leading to Redfin agents earning double the amount of traditional Agents. Despite these benefits, Redfin grapples with providing refunds of just $1,336 per customer. This surprising situation is exacerbated by the fact that Redfin benefits from ancillary revenue streams such as mortgage services, a perk not typically accessible to conventional agents.
Muddying Waters
The Plaintiffs have raised several additional red herrings to create confusion.
1. The plaintiffs argue that the Buyer Broker Commission Rule requires brokers to offer blanket, non-negotiable compensation regardless of an agent’s experience. The Seller is providing compensation for an outcome. Commissions are granted upon a Buyer’s Agent facilitating a sale based on the price and terms the Seller establishes. The key focus should be on an Agent’s ability to facilitate a successful transaction, not their years of experience.
2. The plaintiffs claim that Sellers cannot unilaterally reduce commissions. It is essential to recognize that no party can unilaterally change the terms of a dually executed agreement. Commissions are negotiated during the listing agreement, and both parties must mutually agree upon any changes.
3. The plaintiffs contend that commissions are non-negotiable and emphasize the prohibition of attempting to negotiate via the purchase offer. This argument overlooks the legal implications of tortious interference. While a Buyer’s agent cannot negotiate commissions via the purchase offer without risking tortious interference, parties can negotiate terms or concessions before or after an offer. Buyers may also use brokerage firms that offer commission rebates.
Indications Of A Coordinated Multi-Stakeholder Propaganda Approach
The sudden surge in anti-Realtor publications was both swift and immense, suggesting a potential collaborative effort among several parties. Here’s why we think this might be the case:
- Steven Brobeck, Senior Fellow at The Consumer Federation of America, released a series of articles and press releases, beginning in ~2019, that scrutinized the existing commission structure. These publications echoed sentiments expressed in The Danger Report from 2015. The scale of Brobeck’s influence is significant, with the CFA citing that in 2021 alone, it issued 114 press releases, held eight press conferences, published 43 op-eds, letters-to-the-editor, and blogs on major websites, and appeared in over 10,000 publications, nearly 600 of which were among the top 100 print, internet, and trade publications.
- It appears that Brobeck and the CFA have formed alliances with flat fee brokerages and agent referral websites. This partnership allows them access to valuable data for their publications and the opportunity to quote “industry participants” who contend that the current commission structure is unjustifiably high.
- The extensive reach of the CFA’s publications piqued the interest of Inman News, a leading real estate news source.
- Inman News has demonstrated a pattern of frequently quoting Brobeck’s censures of the clear cooperation rule and his assertions about recessive fee misconceptions, citing his viewpoints in an estimated 52 articles. Notably, Brobeck was also a participant in a DOJ workshop in 2018. From our analysis, Andrea V. Brambila, the Deputy Editor of Inman News, seems to have played a significant role in elevating the profiles of proptech companies, the majority of which did not meet expectations. Additionally, it seems she may have sidestepped articles of substance that countered the narrative Inman has constructed against NAR.
- This wide-ranging propaganda effort was evidently noticed by the Department of Justice, prompting an official inquiry.
- In the wake of this, multiple class-action lawsuits have been filed against NAR by law firms. These lawsuits cite studies from the CFA, publications on Inman, testimony from “industry experts,” and ongoing investigations by the Department of Justice.
Stephen Brobeck | The Consumer Federation Of America
The Consumer Federation of America (CFA) has repeatedly published studies and reports that have been roundly criticized for their sensationalized narratives and lack of objective data analysis. Stephen Brobeck, a senior fellow at the CFA, is particularly known for presenting views and data that often appear biased and slanted.
Brobeck’s coverage of The National Association of Realtors (NAR) is a notable example of this issue. The data used in these reports appears to be predominantly derived from flat-fee, discount, and referral brokerages. These business models inherently stand to gain from any perceived discredit to traditional real estate commission models, thereby raising concerns about the impartiality of the data and the conclusions drawn from it.
Moreover, these reports tend to paint the traditional real estate commission model in an overly negative light, often without acknowledging the various services and protections this model provides to Consumers. This oversight further contributes to a skewed perspective that fails to present a balanced view of the real estate industry.
Additionally, the CFA’s involvement in and apparent enrichment from cy pres awards is highly concerning. Cy pres is a doctrine that permits a court to award any unallocated, unclaimed, or undeliverable funds from a settlement of judgment to a nonprofit organization that would advance the interests of the class and people similarly situated. Acts by the CFA raise questions pertaining to conflicts of interest, particularly given the CFA’s seemingly biased stance on real estate issues.
Lastly, the CFA’s public image may inadvertently mislead consumers. Despite being a private organization, the CFA’s name and public messaging can give the impression of a governmental or regulatory entity. This misunderstanding could potentially lead consumers to give undue weight to the CFA’s views, which, as discussed, often appear to be biased and lacking in objective analysis.
Conflicting Opinions | The Consumer Federation Of America
In January and February of 2021, Brobeck participated in two studies:
On January 28th, 2021, Brobeck published an opinion on the impact of decoupling commissions, resulting in buyers paying buyer agents direct. The study titled “CFA Predicts Impact on Consumers and Real Estate Brokers If Courts Require Uncoupled Commissions” covered these topics:
1. “Mortgage lenders and the GSEs (Fannie Mae and Freddie Mac) will quickly accept the desirability of Buyer broker commissions being financed, then work with brokers to facilitate this transition. These lenders will understand that to afford a new home, many buyers will need these fees to be included in their mortgage. Lenders will also know that these fees are currently largely or wholly included in the sale price, so the size of loans will not change appreciably.”
Here, Brobeck admits decoupling commissions will lack a material impact on transaction economics, considering “the size of loans will not change appreciably.” And claiming “mortgage lenders and the GSEs (Fannie Mae and Freddie Mac) will quickly accept the desirability of buyer broker commissions being financed,’ is reckless at scale. The VA loan program prohibits Veterans from paying commissions. If Mortgage lenders and the GSEs (Fannie Mae and Freddie Mac) decline this transformational framework, resulting in buyers paying agents direct and out of pocket, it effectively ends the FHA and VA programs, which will disproportionately harm low-income and minority groups.
2. “Listing and Buyer brokers will need to revise sales forms. With the help of NAR, they will do so quickly and at a relatively modest one-time expense.”
Brobeck becomes an advocate for NAR’s market efficiencies, stating, “With the help of NAR, they will do so quickly and at a relatively modest one-time expense.”
3. “Consumers will remain focused on the sale and the sale price of the home or homes, not on commission levels. And they will depend on their real estate agent to help them sell or find a property at a desirable price.”
Indeed, we concur that Consumers are primarily concerned with the tangible financial impact, i.e., the actual dollars spent, rather than commission rates in isolation. Steven Brobeck, along with his co-conspirators, have advanced a narrative that commission rates alone serve as the definitive economic measure, which is a flawed perspective. They attempt to establish a universal equivalence of buyer agent commissions across the U.S. while asserting that these commissions surpass those in comparable markets. Such a skewed narrative ignores the broader economic realities and the actual financial impact on Consumers.
Furthermore, Brobeck claims:
4. “For some time, probably well over a year, average commission levels will not decline. Many Sellers will think they benefit by being charged commissions of 2.5-3 percent rather than 5-6 percent. Buyers will accept the fact that they now must pay their brokers 2.5-3 percent when brokers explain to them that this commission was previously included in the sale price.”
The debate pertaining to who actually pays the commission in a real estate transaction – the buyer or the seller – is a complex one. Even organizations such as the Consumer Federation of America struggle to establish a clear position. Both sides of the argument have been represented in class-action lawsuits. Some claim that the buyer ultimately pays the commission as it is factored into the purchase price. This view is backed by the Department of Justice. On the other hand, other lawsuits and Judge Andrea Wood maintain that the seller pays the commission, as it’s typically agreed upon in the listing contract and paid out of the sale proceeds. The reality likely lies somewhere in the middle. Both the buyer and seller play roles in the commission payment process, contributing in different ways through their negotiations, decisions on listing and purchase prices, and agreements on commission rates. This nuanced understanding reflects the complexity of real estate transactions, which is often oversimplified in public discussions.
5. “A flurry of press coverage about uncoupling will not be seen or fully understood by most Consumers; however, sporadic but continuous coverage of new opportunities for negotiating commissions will eventually be heard by many. These opportunities will be amplified by stepped-up marketing from discounters who no longer will be constrained by anti-rebate laws or compulsion to offer commission splits.“
While Brobeck admits that new regulations are unlikely to influence commission rates, it’s concerning to note his involvement in a campaign that seems to have more to do with propaganda.
6. “Over time, average commission levels will decline but not for most successful, full-time agents and brokers. Many marginal agents, a large percentage of some two million licensed agents whose median annual gross income is less than $50,000, will feel pressure to cut commissions. Confident in their long-time success serving clients, well-established agents will not feel such pressure.”
Commissions earned by top agents will not decline. Marginal agents with an anemic market share will feel pressure to reduce fees.
7. “As marginal Agents increasingly have difficulty generating even modest incomes, a number will cease active practice. Their clients will then be available to established Agents whose expanding clientele will allow some reduction in commission levels while maintaining gross incomes. Overall, clients will receive better customer service.”
Marginal agents who are pressured to reduce fees “will cease active practice” thus cannot provide concessions to consumers.
8. “Discounters will increase market share, but this share will remain relatively small because most consumers want effective personal service from a single Agent. While technology can routinize much paperwork, most Buyers and Sellers will still desire the assistance of a professional who can guide and reassure them.”
The key appeal of discount firms is that they claim to offer a comprehensive suite of services akin to those provided by traditional brokerages but at a reduced cost. However, Brobeck’s statement unequivocally contradicts this notion, asserting that these discount firms provide inferior services and lack “a professional who can guide and reassure” their clients.
9. “Increasingly, entry to the profession will be gained through internships, apprenticeships, and administrative positions. The current trend to shift routine work to salaried administrators will accelerate.”
The assertion that the profession will predominantly lean towards internships, apprenticeships, and administrative positions as entry points is both alarmist and unsubstantiated. It presents an oversimplified and flawed understanding of the dynamics and evolution of professional industries. The prediction of a swift shift in routine work to salaried administrators is an unwarranted extrapolation devoid of empirical evidence or credible studies to back it up. It is a hasty generalization that seems to be crafted to provoke reaction rather than inform with well-founded analysis.
10.“To a greater extent, the industry will look like a profession – with well-established, full-time Agents dealing with clients and their issues while delegating routine tasks to salaried administrative staff. As a professional association, NAR will continue to lead a more economically efficient and respected industry that provides better overall value to consumers.”
Brobeck’s narrative delusion is noteworthy, albeit his reasoning falls short. To summarize, market forces dictate that top agents will keep their commission levels intact. A considerable number of the two million licensed agents, who are marginal performers, may feel compelled to lower their commissions. However, these same agents are likely to exit the industry, thereby rendering them incapable of influencing commission rates. The top 20% of agents, while currently resistant to commission reduction, could potentially lower their rates in the future. This is despite the departure of 80% of rival brokerages that offer lower rates, an argument that surprisingly overlooks basic supply and demand principles. The assertion that the dismissal of a majority of agents will result in improved customer service is dubious at best. Moreover, it is plausible that commission rates will actually rise.
On 02/25/2021, Stephen Brobeck participated in a collaborative study titled: “Obstacles to Price Competition in the Residential Real Estate Brokerage Market” This study, which thanks NAR antagonist “Real Estate Exchange (REX) for financially supporting this update,” states in part, “A study participant estimated that a lack of effective price competition led home buyers and sellers to pay commissions inflated by more than $30 billion per year, and IN 2019 THAT FIGURE IS LIKELY TO BE AS MUCH AS $50 BILLION.”
Inflated commissions are $50B, or they are not.
Inman News | The Consumer Federation Of America
On Wednesday, March 29, 2023, Andrea V. Brambila, from Inman, was notified that the Consumer Federation of America (CFA) had published a study on January 28, 2021, that included significant contradictions of claims made in other publications. Inman appears unwilling to force Brobeck to elect a position.
Inman’s bias becomes glaring upon discovery of an article Brand Inman published in 2019 titled. “NAR lawsuit is good for consumers,” and “Savvy and progressive industry leaders such as Redfin’s Glenn Kelman and Northwest MLS are using this moment to break from the past and lift the veil of secrecy.” Moreover, “Which turns me to the lawsuits against the National Association of Realtors (NAR) and other big real estate firms. Against a backdrop of inaction, it could be one of the best things to happen to the industry.”
Redfin’s chaotic fee schemes are absurd, “Fees are subject to change; minimums apply. Buyer’s agent fee not included, e.g., if the buyer’s agent fee is 2.5%, the seller will pay a total fee of 3.5%. The listing fee increased by 1% of the sale price if the buyer is unrepresented. Sell for a 1% listing fee only if you also buy with Redfin within 365 days of closing on your Redfin listing. We will charge a 1.5% listing fee, then send you a check for the 0.5% difference after you buy your next home with us.”
The brilliant minds at The Consumer Federation of America fail to grasp the difference between rates and aggregate fees pertaining to commissions. Yet, they assume Consumers will decipher alternative Brokerage fees.
Conclusion
In conclusion, the allegations leveled against the National Association of Realtors (NAR) and the multiple issues raised about the U.S. real estate industry’s structure can be seen in a different light when we consider the evidence and context provided in this discussion.
Notably, attempts to compare U.S. real estate practices with those of foreign markets, such as the claims presented in The Danger Report, fall short when considering the unique dynamics and complexities of the U.S. market. The U.S. real estate industry is more technologically advanced and has a more diversified agent base. Comparisons to foreign markets that fail to acknowledge these differences are overly simplistic and potentially misleading.
Significant proof of the pro-consumer nature of the Multiple Listing Service (MLS) systems can be seen in the staggering number of monthly visitors to affiliated websites. With an estimated 400 million unique monthly visitors, it is clear that millions of consumers rely on these platforms and the Realtors linked to them for property information and guidance on market trends. This considerable engagement contradicts the narrative that the current commission structure lacks consumer benefit.
It is also vital to underscore that claims of damages due to the current commission structure are often unconvincing. While critics may suggest that the MLS structure is inherently flawed, evidence, such as the case of the plaintiff Mr. Moehrl, illustrates otherwise. Rather than suffering harm, he actually experienced a net gain from commission transactions in his real estate deals.
Furthermore, the deliberate misinformation to consumers by the coalition of discount brokerages, which spurred legal and regulatory responses, raises serious doubts about their integrity and authenticity. The Consumer Federation of America (CFA), given its financial gains from cy pres awards, puts its objectivity into question. The vested financial interests of the CFA seriously impinge on the credibility of its pronouncements and research findings.
Finally, As per the ethical responsibilities outlined in Rule 3.3 of the Model Rules of Professional Conduct, Plaintiff’s counsel is obligated to ensure accuracy and truthfulness in all proceedings before the court. Given these circumstances, it is incumbent upon Plaintiff’s counsel to take remedial measures to correct these misrepresentations. These measures may include but are not limited to revising the statements in question, withdrawing inaccurate evidence, or even communicating directly with the tribunal to rectify the misrepresentation. Failure to adhere to these duties can lead to severe repercussions, including sanctions and disciplinary action. Swift attention to this matter is advised.
View The Phillips Report | Burnett v. The National Association Of Realtors | Missouri
View Stephen Brobeck of CFA Questions $13.7B Realtor Commission Damages
Author Anthony Phillips
Anthony Phillips, co-founder of Luxury Real Estate Advisors, is renowned in the luxury real estate market of Las Vegas, providing top-tier services to global clients, including private equity firms. In addition to leading 12 Las Vegas HOA Boards, his performance at premier locations earned him a spot in MGM Resorts International’s Elite Developer Circle. As an authoritative voice in real estate, his views have appeared in publications like Forbes and American Genius. Before his current venture, he was an executive at Del Webb, aiding in the construction of over 11,000 homes. Phillips continually enhances his expertise through Executive Education programs at Cornell University and MIT. He hails from the influential Phillips family of New England, known for their varied contributions to law, academia, business, politics, and consumer rights.
Mr. Phillips does not speak on behalf of the defense.