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Lawsuits over who should pay buyer’s agent could upend housing market - The Washington Post

The long knives are out again for one of American real estate’s oldest and most controversial traditions: requiring home sellers to pay the agents who represent the buyers of their properties.

A landmark suit filed in March alleged that the 1.3-million-member National Association of Realtors has conspired with local multiple listing services (MLSs) and with major realty brokerage companies to force sellers who list their homes on an MLS to pay a contractually specified percentage of the commissions to the broker/agent who brings in the ultimate buyer. Now two new class-action lawsuits have been filed with allegations along the same lines.

According to the suits, an NAR rule prevents buyers from unilaterally altering the “split” stated in the listing contract. Say, you are a seller of a $500,000 home and agree at the listing to pay a total 5.5 percent commission, allocating 3 percent to the listing agent and 2.5 percent to the buyer’s agent. If the house sells for the full asking price of $500,000, that would mean the buyer’s agent would be due $12,500 at closing. If you thought this was more than you wanted to pay — especially given that you knew part of the buyer’s agent’s job was to help your buyer obtain a lower price for your house — you might not be happy about having to shell out the $12,500. Shouldn’t the buyer pay this fee?

[Selling a home without a real estate agent]

In March, the seller of a home in Shorewood, Minn., filed suit to challenge this NAR rule, arguing that, among other problems, this system of mandating compensation to the buyers’ agent raises total transaction costs. The rule “saddle[s] home sellers with a cost that would be borne by the buyer in a competitive market,” where buyers can opt to pay directly for their agents’ services. The U.S. market’s total transaction costs tend to be much higher than in most other industrial economies.

The original suit, which already ranks as the most significant antitrust litigation against real estate agents in decades, is now pending in U.S. District Court in Chicago, with NAR’s reply to the complaint expected shortly.

The two most recent class actions, filed in April, have different plaintiffs than the original suit but have nearly identical allegations.

They come with proposed giant classes of alleged victims who have sold and paid millions of dollars in commissions via major MLSs to buyers’ agents across the country.

NAR, which is the largest lobby in the real estate field, rejects the premises of the suits and pledges to fight them vigorously.

The sheer costs for any single law firm to mount a credible antitrust case against a major lobby and the largest realty enterprises in the United States — plus no doubt the prospect of large payoffs and settlements — has apparently attracted the new actions. Sources tell me that it’s not unusual in wide-ranging cases like these for other law firms to jump in with nearly identical copycat filings.

Defendants in all three include NAR along with the giants of the brokerage industry: HomeServices of America, Keller Williams Realty, Realogy Holdings and RE/MAX Holdings.

[How to pick the best real estate agent to sell your home]

Realtors tell me that an adverse decision in the cases would produce transformative changes in home-sale transactions nationwide. Some brokers say that it could create situations where first-time and other cash-short buyers might not be able to afford to pay for their agents’ services — creating a new obstacle to homeownership. Rather than buyers having their commissions paid for by the seller, they would need to come up with that money themselves.

Today, however, buyers don’t give it a thought, and they often do not even know what commission split the buyer agent expects to receive.

In places such as the United Kingdom and much of Europe, home sellers typically pay total realty fees of 1 percent to 3 percent vs. the 5 percent to 6 percent average commonplace in the United States.

Critics of the American system have long argued that if home buyers paid the fees for the services rendered for them — and negotiated them with the buyers’ agents directly — total fees would be lower.

On the other hand, sellers’ agents say that if the buyers-side commission is low under the current system, many buyers’ agents will not show houses because the compensation is not sufficient. Discount realty firms have reported that sometimes they cannot get any of their listings presented to willing and able purchasers because buyers’ agents will not cooperate with them.

Ken Harney’s email address is <a class="showlink" href="mailto:harneycolumn@gmail.com" shape="rect">harneycolumn@gmail.com</a>.

Read more <a href="https://www.washingtonpost.com/people/kenneth-r-harney/" shape="rect">Harney</a>:

<a href="https://www.washingtonpost.com/realestate/whistleblowers-claims-revive-class-action-suit-against-zillow/2019/05/06/8c8f7a40-7019-11e9-8be0-ca575670e91c_story.html" shape="rect" title="www.washingtonpost.com">Whistleblowers’ claims revive class-action suit against Zillow</a>

<a href="https://www.washingtonpost.com/realestate/home-lenders-are-more-friendly-to-riskier-applicants-is-that-wise/2019/04/30/bfa6f718-6aa2-11e9-8f44-e8d8bb1df986_story.html" shape="rect" title="www.washingtonpost.com">Home lenders are becoming more friendly to riskier applicants</a>

<a href="https://www.washingtonpost.com/realestate/overall-massive-tax-overhaul-hasnt-hurt-home-values/2019/04/23/2ec0fa5c-6537-11e9-8985-4cf30147bdca_story.html" shape="rect" title="www.washingtonpost.com">Overall, massive tax overhaul hasn’t hurt home values</a>

Kenneth Harney was a nationally syndicated columnist on real estate for The Washington Post Writers Group. He died in May 2019. He was 75.

Kenneth R. Harney

The Washington Post

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Real Estate

Washington Post's Real Estate section is your source for buying and selling a home and finding open houses in DC, MD and VA.

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Zillow Group Inc. Illustrations Ahead of Earnings Release

Whistleblowers’ claims revive class-action suit against Zillow - The Washington Post

Zillow is back in hot water: A class-action suit against the online real estate giant is moving forward after insider whistleblowers alleged that the company designed its controversial “co-marketing” program to violate federal anti-kickback laws.

Zillow termed the charges “without merit” and says it intends to “vigorously defend” itself.

Best known to the general public for its Zestimates property-valuation feature, Zillow is a multibillion dollar, publicly traded behemoth whose principal revenues come from advertising placed by real estate agents. “Premier” agents and brokers, who receive prominent placement on Zillow-listed home sites, pay hundreds or thousands of dollars a month in advertising fees to the company. Premier agents need not be the highest volume or most successful agents in their area; they simply need to pay for the label. According to the company’s latest Securities and Exchange Commission filing, it earned nearly $900 million — two-thirds of its corporate revenue — in fees from agents paying for ads last year.

In 2013, Zillow rolled out a program whereby real estate agents could have large portions of their advertising fees paid for by lenders who share advertising costs with them. Buyers interested in a particular property could then contact not only an agent but a lender to shepherd them through the financing process. The idea proved wildly popular among agents and lenders. For paying part of an agent’s Zillow advertising fees — initially up to a maximum of 90 percent, later revised to 50 percent — a lender could get hot leads directly to active buyers. For agents, the attraction was obvious. Hey, why not? Lenders will subsidize my costs.

But a federal law known as RESPA — the Real Estate Settlement Procedures Act — prohibits payment of fees for business referrals among realty, mortgage and title industry providers that are not for services actually rendered. In April 2017, the Consumer Financial Protection Bureau informed Zillow that it was investigating whether its co-marketing program violated the law’s prohibition against kickbacks. Zillow negotiated with the CFPB, but last year, after the Trump administration appointed a new CFPB director, the agency abruptly dropped the case.

Meanwhile, investors who said they bought Zillow stock at inflated prices relying on company executives’ statements that its co-marketing concept did not violate federal law filed a class-action suit alleging securities fraud. A district court judge later dismissed portions of the suit but allowed the plaintiffs to file an amended complaint if they presented conclusive evidence that the co-marketing scheme violated RESPA.

They appear to have done so successfully — at least enough to convince a federal district court judge to put the case back on track. Last November, the plaintiffs filed their amended complaint, bolstered by testimony from two unnamed Zillow insiders. The first: a regional sales manager for the company who alleged that lenders participated in the program because they “expected real estate agents to refer business.” The second: a sales and operations trainer who alleged that “every agent and lender knew that the co-marketing program was for the lender to get leads and referrals. . . . It was understood that lenders were paying for referrals.” Whenever the second insider “spoke to Zillow about potential concerns with the co-marketing program,” she was told “not to ask questions,” according to the court. She also alleged that she knew of a lender who had been paying 100 percent of a realty agent’s fees for 2½ years. Both whistleblowers provided “consistent testimony regarding how agents and lenders used the [program] to provide mortgage referrals in exchange for advertising payments,” according to the court.

In his decision, which was handed down April 19, Judge John C. Coughenour of the U.S. District Court in Seattle said “the court can draw a reasonable inference that Zillow designed the co-marketing program to allow agents to provide referrals to lenders in violation of RESPA.”

Asked for his take on the case, Marx Sterbcow, a nationally known RESPA lawyer based in New Orleans, told me “the court certainly seems to suggest there is a lot of smoke involving the legality of Zillow’s” program. If the whistleblowers’ allegations are correct, he said, “it could cause [mortgage companies] and banks to pull completely out” of the program, for fear of violating RESPA themselves, and being exposed to major legal jeopardy.

The significance for buyers, sellers and owners? The case is still out on the alleged federal law violations, but when you see “premier” agents linked up in marketing efforts with lenders, you have a better idea about what’s really going on.

<a href="https://www.washingtonpost.com/realestate/cash-out-refinancings-helocs-are-down-economists-arent-totally-sure-why/2019/04/15/b98325b6-5f8d-11e9-9412-daf3d2e67c6d_story.html" shape="rect" title="www.washingtonpost.com">Cash-out refinancings, HELOCs are down. Economists aren’t totally sure why.</a>

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Tax Overhaul Medical Deduction

Overall, massive tax overhaul hasn’t hurt home values - The Washington Post

A <a href="https://libertystreeteconomics.newyorkfed.org/2019/04/is-the-recent-tax-reform-playing-a-role-in-the-decline-of-home-sales.html" title="libertystreeteconomics.newyorkfed.org">new report </a>from the New York Federal Reserve sheds light on a question that has been hanging over the American real estate market: Has the <a href="https://www.washingtonpost.com/news/wonk/wp/2017/12/15/the-final-gop-tax-bill-is-complete-heres-what-is-in-it/" title="www.washingtonpost.com">massive tax overhaul </a>adopted by Congress in late 2017 had any effect on whether consumers want to buy or sell homes?

It’s an important issue because federal tax laws can make owning a home much less costly — or far more — than it otherwise would be.

The new study does not attempt to measure impacts on home values or selling prices. Instead, it focuses on sales and concludes that the tax law’s $10,000 cap on deductions of state and local taxes (SALT), its increase in the standard deduction and the $750,000 limit on the amount of mortgage debt that qualifies for interest write-offs “have negatively impacted the housing market” by lowering sales volume. The study found that a slowdown in home sales nationwide from late 2017 through the third quarter of 2018 could be attributed in part to the tax-law changes as well as interest-rate increases.

[From 2017: New tax law expected to slow rise of home values, creating winners and losers]

The law’s potential effects on real estate have been controversial since before the legislation was enacted. In the weeks leading up to the overhaul, housing and realty groups lobbying Congress warned of damage not only to sales but to property values. The National Association of Realtors predicted price declines, with the heaviest hits in high-cost coastal markets where the new SALT limit would hit owners hardest.

But by all indications, there have been no widespread decreases in home values. The Case-Shiller home-price index, which tracks price movements, has documented a modest slowing in the pace of increases recently but has recorded no net declines.

NAR’s own data indicate that although sales of existing homes slumped in the final quarter of 2018 as interest rates increased, they have rebounded since then. In February, sales rose nearly 12 percent — the largest month-over-month gain since December 2015. Median home prices in February rose by 3.6 percent from the year earlier to $249,500, the 84th straight month of year-over-year gains.

So what does seem to be happening in real estate that can be linked to the tax changes? Economists and realty agents offer a couple of preliminary observations.

Buyers and owners who opt for the standard deduction are unscathed by the lowering of the mortgage interest cap to $750,000 — they no longer itemize, so real estate write-offs are not an issue. Owners who had planned to use home equity lines of credit (HELOCs) may be inconvenienced by new rules restricting deductions, but those who use the borrowed money for home improvements are untouched.

Where you can see ripples is in the upper brackets in high-tax areas.

Mark Fleming, chief economist for First American Financial, says a new crop of home buyers is emerging: “Tax refugees.” These are owners who are fed up with high taxes — now no longer deductible beyond $10,000 — and are heading to more tax-friendly locales. In the process, 
they may be creating “greater demand in the high end of lower-cost real estate markets,” Fleming says.

Realty agents in Florida, which has no state income tax, confirm the trend. Brian Walsh, a Redfin agent in Tampa, says he is seeing an influx of generally affluent clients who tell him they are abandoning areas with high taxes to buy homes in Tampa and St. Petersburg. He quoted one client who said, “I am so excited to be in a state with no income tax!” Recent refugees that Walsh has encountered come from places such as New York, the Washington area, Chicago and Denver, he told me.

Mike Litzner, broker at Century 21 American Homes on Long Island, told me he is seeing a lot of frustration over SALT. “When you’re losing 60 percent of your [previous] tax deductions,” it hurts.

But agents who serve the upper end of some markets aren’t so sure about tax refugees.

Liz Lavette Shorb, an agent with Washington Fine Properties who specializes in luxury homes in the Washington area, says that so far in 2019, the numbers tell a different story: There has been an 18 percent increase in the number of sales in $1 million-plus homes year-over-year, and a 16 percent jump in $2 million-plus homes. “So while buyers might grumble, we are seeing more of them at the settlement table,” she says.

You probably just filed your taxes for 2018. How did you fare with the tax law changes?

<a href="https://www.washingtonpost.com/realestate/is-spring-going-to-be-a-goldilocks-housing-season-for-everybody/2019/04/09/8eb6ec0c-5a1d-11e9-842d-7d3ed7eb3957_story.html" shape="rect" title="www.washingtonpost.com">Is spring going to be a Goldilocks housing season for everybody?</a>

<a href="https://www.washingtonpost.com/realestate/need-a-boost-to-your-credit-rating-these-new-financial-tools-might-help/2019/04/02/c48d38ba-54a3-11e9-814f-e2f46684196e_story.html" shape="rect" title="www.washingtonpost.com">Need a boost to your credit rating? These new financial tools might help.</a>

Kenneth R. Harney

Lawsuits over who should pay buyer’s agent could upend housing market

Whistleblowers’ claims revive class-action suit against Zillow

Overall, massive tax overhaul hasn’t hurt home values

Cash-out refinancings, HELOCs are down. Economists aren’t totally sure why.

Is spring going to be a Goldilocks housing season for everybody?

Need a boost to your credit rating? These new financial tools might help.

New FHA rules make it tougher for people with heavy debt to get a mortgage

Five major real estate firms face far-reaching antitrust lawsuit

If you’re self-employed or a ‘gig’ worker, getting a mortgage just got easier

Zillow faces $60 million suit over hacked listing of L.A. mansion