Realtor Litigation and the Implications for IMBs: #MBAIMB24

(left to right: Justin Wiseman, Curt Beardsley, Matthew VanFossen, CMB.
Background image courtesy of Connor Danylenko/

NEW ORLEANS–A recent court verdict and related litigation concerning the National Association of Realtors’ Multiple Listing Service rules regarding buyer real estate agent compensation could have significant implications for homebuyers and buy-side real estate agents, the primary source of referral business for most IMBs.

“Essentially, what the jury found in the Missouri case is that the defendants in the case engaged in what was called ‘per se price fixing’ under antitrust law,” Justin Wiseman, MBA Vice President and Managing Regulatory Counsel said here at MBA’s Independent Mortgage Bankers conference. “That is, the jury believed a conspiracy was proven to keep real estate commissions high. Where does that leave us? I think it says pretty clearly that cooperative commission arrangements–particularly requiring cooperation in commissions–is going to be something people are going to look at very skeptically going forward.”

Wiseman said there is a potential settlement in the Missouri case. “And that settlement has some important clues for where we’re going to go legally,” he said. “The changes they agreed to going forward are not drastic or revolutionary changes in how business is done, but more transparency to buyers that they are actually paying commission, you can’t say it’s free, things like that. And it’s essentially allowing them to make cooperative commission offers of zero or essentially not offer cooperative commission on listings and then train their agents to show those properties that have cooperative commission of zero or would not pay cooperative commission. That, I think, is the realistic landscape of what the settlements would look like, even with a judge’s injunction.”

Wiseman said in addition to figuring out the damages, the judge in the Missouri case also has to address the verdict of per se price fixing and how should it be remedied. “It’s hard to see him going much beyond the terms agreed to in the settlement, simply because going much further would be something of an extreme legislative act by a judge,” he said. “For him to outlaw the ability of a seller to pay cooperative commission would be quite a bit farther than saying it’s not required. So, I think that would be a very surprising and unlikely outcome.”

“I think the fear that it will be illegal to pay cooperative commission is probably not where we will land,” Wiseman said. “But we’re certainly going to see changes around disclosure and how buyers are informed of the commission structure. And then the ability of sellers–if they choose to–to not offer collaborative commission.”

Curt Beardsley, Vice President of Industry Development with Zillow Home Loans, Seattle, said Zillow has access to a huge number of consumers at the top of the real estate funnel–about 200 million of them. “Now, our goal is to get them down through the funnel to connect them to buyers’ agents, so they can actually get a home and get a loan,” he said. “As we look at that large group of consumers at the top of the funnel and we ask them what they need, it really boils down to three things. One, they want access to all the information, so they want to make sure that nothing prevents them from seeing all of the listings and all of the opportunities out there. Two, they want independent representation. And they say, yes, we understand that these people need to be compensated. So, three, they want fair compensation for the players that are in there.”

Regarding the Missouri case, Beardsley noted he does not expect it will cause a big disturbance. “Now, will there be people trying different things? Will there be more openness to the consumers about what’s going on and how people are getting paid? Yes. But we don’t see a radical shift in that it [any changes] will be over a long period of time. And as more transparency happens, that we may see some changes, but we don’t see anything big happening right now. So that that’s good, from our standpoint.”

Matthew VanFossen, CMB, Chief Executive Officer of Absolute Home Mortgage Corp., Fairfield, N.J., said the result from the court decision will likely be “business as usual,” at least at first. “At the onset of this, it will be a contract issue and a disclosure issue; you’ll see a little bit more consumer choice introduced into real estate contracts,” he said. “You’ll probably see some safe harbor disclosures to protect against further litigation.”

But some things may change over time, VanFossen noted. “For example, the vast majority of our originators have built their careers forging strong relationships with buyer agents, and anything that may affect a buyer agents’ compensation could have trailing risks to affect loan officers.”

VanFossen said if listing agents gain more control of buyers, “because let’s say a listing goes on the MLS and it’s not offering a buyer agent commission, and maybe buyer agents are not willing to show that property and people go to direct listing agents, maybe loan officers will have to hedge their bets a little bit and forge relationships with listing agents, which has typically been difficult in the past.”

“So, that’s something I’m telling my loan officers, VanFossen said. “Think about how you can actually help facilitate listing agents, perhaps sponsor more open houses and other ways to get more inroads with listing agents, because over time, if you do wind up with consumers that want to work with just listing agents and not pay buyer agent commissions, you have to be able to figure out how to facilitate that.”