Real estate commission structure changes must be driven by Realtors, analysts say

In the wake of the Sitzer-Burnett decision, changes to the real estate commission structure are inevitable and the National Association of Realtors must be the driver, not the individual franchisors that settled their legal proceedings, a note from Keefe, Bruyette & Woods said.

Both Remax and Anywhere announced they have received preliminary court approvals for settlements in three cases, including the Sitzer/Burnett case that went to trial against the remaining defendants. The other cases involved are Moehrl and Nosalek.

"I am pleased the court has granted Anywhere preliminary approval of our nationwide settlement," said Ryan Schneider, Anywhere chief executive officer and president, in a press release. "Our efforts to resolve these claims remove future uncertainty and legal expense for Anywhere, our franchisees, and affiliated agents as, together, we focus on serving home buyers and sellers as they move to what's next."

The Anywhere agreement includes monetary relief of $83.5 million. Remax will pay $55 million. NAR and the remaining defendants in the Sitzer/Burnett litigation, Keller Williams and HomeServices of America were ordered by a jury to pay $1.78 billion.

"We are pleased with the court's decision to grant preliminary approval of the settlement," said Nick Bailey, Remax president and CEO, in its press release. "This development signifies progress in our ongoing efforts and commitment to a resolution — it's a positive step forward in bringing these cases closer to the finish line."

These agreements, as well as Redfin's decision to exit NAR over the issue, are not going to push the real estate industry towards a new compensation model; that can only be driven by the trade group, analysts said. 

"However, regardless of these settlements or any future settlements with other brokerages, we believe significant changes to the industry's commission structure are inevitable, where NAR is the primary change agent, not individual brokerages," said KBW's Ryan Tomasello. "We believe these changes will ultimately be effectuated by a court-ordered injunction, settlement agreement with NAR, or direct intervention by the Department of Justice or Federal Trade Commission."

The Minnesota court's preliminary approval is good for both Anywhere and Remax because it allows both the companies and their agents to concentrate on servicing their clients, added BTIG analyst Soham Bhonsie.

"While there is still a risk that the DOJ could step in, as it pertains to copycat lawsuits from other states, our understanding is that Anywhere and Remax are now covered nationally," Bhonsie wrote.

For mortgage originators, trade groups previously warned of "unintended consequences" of any change to the commission structure that could affect loan qualifications.

Meanwhile, a survey from Clever Real Estate, which connects consumers to agents, indicated confusion among purchasers and sellers about who is responsible for paying the buyer-broker's commission.

On its own website, the company notes the seller commission is 1.5% but added that "buyer's agent commission (usually 2.5 to 3%) still applies."

Clever found that 42% of sellers don't realize they pay the borrower's agent commission, the main point of contention in the legal cases. Overall 62% of Americans think the buyers pay their agent's commissions. Among non-homeowners, 66% believe the buyers are paying their own agents' commissions.

More than half of the sellers surveyed, 55%, said they shouldn't be obligated to pay the buyers' agent commission.

"This misunderstanding could be why 65% of Americans wrongly think buyers can save money by not working with an agent," the Clever press release said.