Commissions and Antitrust Laws

Agents believe that it is an antitrust violation to discuss commission rates with other agents. The truth is different.  Agents and brokers can discuss real estate commissions as long as it isn’t with the idea of fixing the commission rate in a given area.    But agents are discouraged to do so.  Especially in trade association meetings with other agents.

They are discouraged by the Brokerages and by the Association of Realtors®.  In fact the National Association of Realtors® does not survey agents on the amount of commission they charge.  Given that most businesses do surveys about salary information all the time, this seems an odd thing to omit.  Unions survey compensation information, many trade associations survey compensation information, but NAR does not survey commission information for fear of an antitrust violation.

In reality, even if NAR did survey their members for this information, it would be incomplete.  Although most agents do sell homes with commission based compensation, many agents provide different services for that fee.  Some agents provide cleaning, repair, or even paint.  Some cover the costs of some of the reports.  Others provide their buyers or sellers with a Home Warranty as part of the fee.

So even if NAR were to survey its members it would not be violating antitrust laws.

Commissions are also quoted in terms of a percentage.  Given the difference in home prices in different areas and across the country, a 6% commission in Ohio on a 2 bedroom, 2 bath home, is not going to be worth what a 6% commission in California, on the same house.  The sales price has an impact on the commissions.

The Department of Justice is concerned about real estate agents fixing the commission rates in an area.  However, one would think that NAR would have adequate legal advice to do this survey in such a way as to not opening themselves up to the accusation of price fixing.
Knowing what competitors charge is not an antitrust violation.

Since NAR is not inclined to disclose information that isn’t in its best interest, I wonder if NAR’s concern in doing this type of survey is just that.  Is it possible that because of the high number of agents, more and more people are not paying the full 6% commission?  I know that in many of the deals I did, the commission rates were not the full 6%.  As a buyer’s agent, you are at the mercy of the seller and his agent.  As a seller’s agent, you are trying to get the best deal possible for the seller.  If you’re acting as the agent for the sale and the purchase of a new home, isn’t it likely that an agent will discount one of the commissions?  After all, this client is working with you on two deals.

In fact, if you are selling a home in an area where the standard commission offered to the buyer’s agent is 2.5%, aren’t you working against your seller’s best interest if you offer a 3% commission to the buyer’s agent?  Of course if the market is slow, you may be working in the seller’s best interest by increasing the likelihood that the home will be shown.  But if the market is moving quickly and that’s why the commissions to seller’s agents are reduced, you are not representing your client responsibly if you don’t compare the commission you are offering with the other commissions offered.

In sales, it is all about competition.  You want the home you are selling to be the one people want.  For the buyers’, this is done by fixing up the home.  For the buyer’s agent, this is done by increasing the commission.  Again, is this serving the client?  Well, it’s certainly serving the seller’s interest by possibly moving the property more quickly.  But it isn’t serving the buyer’s interest to have his agent focus on listings with higher commission rates.

Some agents do advertise what they charge.  These are typically the fee for service or “discount brokerages”.  In a normal Brokerage office with many different agents, having one agent advertising a reduced rate would be frowned on and discouraged.  And since the buyer’s agent’s commission rate is published in the MLS, some offices also frown on allowing that rate to be set below a certain point.  The Brokerage doesn’t want to be looked on as a discount brokerage.

Although it is an antitrust violation to set fees among different brokerage firms, individual firms can certainly try to control what their agent’s offer to other brokers.  In fact, in my experience, the information that was published and on display to others was discouraged far more often than when an agent took a discounted fee.  In other words, I could work as a buyer’s agent for the 2% commission offered.  But if it had been my listing, I would have been discouraged, at least, for offering a 2% commission to a buyer’s agent.

It would seem that the Broker Manager would be more interest in his agent getting the fee?  Since he wasn’t, doesn’t that support the concept that the Broker Manager doesn’t really care what individual agents make.  Instead he cares about keeping the number of agents in the office up.

© 2007 by Judy Kane