Passed in 1890, the Sherman Antitrust Act was created to ban businesses from colluding or merging to form a monopoly. According to Investopedia, the act aimed to promote economic fairness and competitiveness while regulating interstate commerce. The Sherman Antitrust Act was the U.S. Congress’s first attempt to address the use of trusts as a tool that enables a limited number of individuals to control certain key industries. At the time this was targeting oil and railway companies from unfair practices. Over 130 years later this act has stood the test of time and has fostered competitiveness in the US.
The Moehrl class-action lawsuit, filed in 2019, used the Sherman Antitrust Act as a vehicle for suing the National Association of Realtors (NAR) and other large brokerages. The attorneys found a crevasse in the act to allow them to argue that commission sharing inflates the cost for sellers in violation of the act. In other words, if a real estate transaction involved two Realtors, (one representing the seller and the other the buyer), it violated the act. They stated that only the listing agent should receive a commission. It is estimated that around 95% of all real estate sales involve two Realtors. To date, several large brokerages have settled by paying over $100 million. The trial with NAR should commence shortly.
This case may change the way commissions are paid moving forward, but it will not change some basic facts in the marketplace. Home buyers and sellers need a Real Estate Agent. Buying or selling real estate is a complicated transaction. There are legal and ethical issues to contend with. From basics like verifying ownership of the property, to negotiating a fair price, to working with inspectors and title companies, and providing the proper documentation to lending companies, this is a very complicated transaction. To many people, this is the largest purchase or investment they will ever make. They need a professional to guide them along the way.
Consumers also rely on Realtors to research to find the right property. Most people don’t have the time or resources to do the research. A typical transaction could require dozens of phone calls which most people don’t have the time or expertise to do. This lends credence to the Multiple Listing Services (MLS). This is a database of available properties. It is controlled by the local real estate boards which the majority of real estate websites for agents belong to. Without such a database it would be near impossible to keep tabs on properties and transactions. It would cost the listing agents a lot of money to create awareness that they have a property for sale. This would put the seller at a disadvantage since most agents do not have the marketing dollars to promote their listings. Without the MLS large brokerages would gain an advantage monopolizing the industry. Possibly violating the Sherman Act.
There is also the appearance of a conflict of interest if the same Realtor represents both the seller and buyer. As a teacher of accredited classes for Realtors in Florida, I (Mark Weithorn as instructor) am required to teach parts of the state’s Code of Ethics where it is clearly stated that a real estate agent must disclose that they represent both sides of the transaction. NAR, and state boards also have ethical rules governing how their members should behave. Violating these rules could have financial and professional consequences. It is these organization’s mission to self-police their members, instilling consumer confidence that when they are working with a licensed Realtor this person is conducting themselves in an honest a professional manner.
Then there are market conditions. The pendulum is constantly swinging in the real estate marketplace. There are two types of environments, a seller’s and a buyer’s market. Without getting too much into the weeds, a seller’s market is when there is too little inventory and the seller can command their price. A buyer’s market is the opposite, there is too much inventory and the buyer can negotiate their price. Professional agents learn to operate in both scenarios.
Today, the sales of single-family homes are in a seller’s market. Inventory is very low. Many baby boomers are not selling their homes and are not downsizing. They are aging in place. Many homes are paid off, have low taxes, and are large enough to house the kids and grandkids when they come to visit. Boomers are also buying second homes for investment, vacationing, or to be near their children. Millennials and Gen Zs are now entering the home-buying market adding stress to an already lean market. In this environment, having laws only allowing the seller’s agent to receive a commission will work. But when the pendulum swings to the buyer’s side, this equation will not work. It will then be more important to be a buyer’s agent. Sellers, who are having trouble selling their home will gladly pay for the buyer’s agent commission.
For those who think that they do not need a real estate agent to sell their home, For Sale By Owner (FSBO), statistics have proven them wrong. In 2016 there was the Sklarz and Miller Study. After looking at 1.35 million sales during 2016 they found that FSBO sales were 5.5% lower than sales listed on the MLS. Basically, the real estate agent sold the property for a higher price covering their commission.
Yes, there is a need for Realtors. Consumers rely on them to get the best price for their property, make sure all the paperwork is done legally, and run interference with all problems that occur when selling or buying real estate. I (Mark Weithorn) hope that NAR fights this battle up to the Supreme Court. They need to stand up for the rights of their members to earn an honest living. The Sherman Antitrust Act is a good law, but sometimes even the good laws need tweaking.
Mark Weithorn is the Founder & CEO of DPI Showcase Web Sites. Based in Miami Beach, Florida, since 2004 his company has been creating websites for real estate agents across the USA. He is also an accredited instructor volunteering to teach marketing classes to Realtors nationally and mostly at the Miami Association of Realtors.-
By- Mark Weithorn (Founder and CEO at DPI Showcase Websites)
Visit https://dpishowcasewebsites.com/ to know all these details and explore more. This is the source of all the content written in the article.