Craig Studnicky recognizes the value of shaking things up.
“Some disruptors make a lot of sense for me, like Uber,” he said.
But the South Florida brokerage chief is scratching his head in response to the National Association of Realtors’ proposed settlement of the class action lawsuit filed by a group of home sellers in Missouri, announced last month.
Under the $418 million settlement, the industry trade group with nearly 1.5 million members is barring listing agents from offering compensation to buyer’s agents through the Multiple Listing Service. In other words, the entry field will disappear in the MLS, but a buyer’s agent can still pick up the phone and call the seller’s agent to find out what their commission would be.
“I think this [disrupter] is completely stupid,” said Studnicky, CEO of Aventura-based ISG World. “Now we’re bringing a variable in that just complicates things.”
In South Florida, where median home prices continue to rise despite the slowdown in sales, the class action litigation is not expected to cause home prices to fall. Commissions will adjust, and buyer’s agents will try to get their clients to sign buyer-broker agreements, known as BBAs, for the sellers who don’t want to pay both commissions, brokers say. Some agents will likely leave the industry.
“There’s a segment of that population that is going to decide they’re not willing to ride the wave,” said real estate attorney Claudia Cobreiro of Cobreiro Law. “It can be overwhelming.”
Jaime Sturgis, CEO of Fort Lauderdale-based Native Realty, agrees that a “thinning of the herd” is coming, which he views as a positive. Miami Association of Realtors, the largest local chapter, has more than 60,000 members. In a statement, CEO Teresa King Kinney said that the organization has provided agents with information and updates to “address industry concerns, needs, and changes.”
For buyer’s agents who sometimes get the short end of the stick working with clients who are secretly also working with other agents, having a written contract outlining compensation could improve transparency, brokers said.
Joanne McCurdy, who recently sold her Treasure Coast brokerage to Keyes Company, disapproves of the industry shakeup, but she believes that after the dust settles, buyer’s agents will still get paid. A new “business as usual” will be established, she said.
Survival of the fittest
Brokerages in South Florida could also see revenue fall, but the question is by how much. Studnicky said about half his firm’s business comes from listings, the other half from buyer’s commissions. He’s being more selective on what agents he brings on.
“Everyone is nervous about a potential drop [in revenue] at the moment,” he said.
Seth Kaufman, chief sales officer of Coconut Grove-based One Sotheby’s International Realty, acknowledged that revenue on the buy side will be affected across the industry.
“Those that articulate their value the best will do more business than ever,” Kaufman said. “Although maybe the commissions decrease a bit, the amount of business will increase because there’s going to be less of a pool of agents to compete with.”
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Keyes Company President Christina Pappas said in a statement provided to The Real Deal that buyer’s agents are “vital navigators in the complex journey of buying a home.”
“There is an opportunity for the best agents to rise to the top,” she said.
Buyer-broker agreements have existed for years, though getting clients to sign them can be a hassle.
“A lot of these people understand how real estate works, but there is going to definitely be a flight to excellence [for agents and brokerages],” Kaufman said, calling it a “survival of the fittest.”
The plaintiffs in the NAR litigation, a group of home sellers that includes Joshua Sitzer and Scott Burnett, alleged that NAR and brokerages violated antitrust laws and inflated costs to sellers by requiring listing brokers to offer buyer’s agents compensation on the MLS — typically 6 percent. The defendants were found liable, and on the hook for a $1.8 billion judgment that could be tripled.
One Sotheby’s, a Sotheby’s International Realty franchise, is under the Anywhere Real Estate umbrella. Anywhere agreed to pay $83.5 million to settle the class action lawsuit last year. Re/Max also agreed to pay $55 million to settle. Of the brokerages sued by the Sitzer and Burnett class, the only firm that has not settled is HomeServices of America, but other large brokerages can still opt in. After NAR announced its proposed settlement in March, Compass, which was not a named defendant, said it would settle for $57.5 million. All settlements are pending court approval.
Let’s make a deal
Most home sellers in South Florida don’t pay the 6 percent commission that’s at the center of the Sitzer/Burnett case, real estate agents say.
Commissions can vary based on the seller’s abilities and supply and demand. In South Florida, sellers will typically pay 2.5 percent to the listing agent’s brokerage and 2.5 percent to the buyer agent’s brokerage. If the same agent represents both sides of the deal, they may get less than 5 percent. For more complicated deals, the agents may earn a higher commission, Cobreiro said.
She handled title work for a recent deal where the seller was in foreclosure and on a tight deadline to sell the property before a foreclosure sale. The seller walked away with $200,000 and the agent got a 10 percent commission on the deal.
“Those are things that kind of show me that buyers and sellers knew there was negotiating power,” Cobreiro said.
More than anything else, a number of brokerage heads say the liable verdict, damages and the proposed settlements have fueled a firestorm of confusion. Many have offered town halls and training seminars in recent months to try to counteract that.
“Most agents are still [operating] business as usual,” said Studnicky of ISG, who has been hosting weekly Zooms during which the litigation is discussed. “My job is to make sure they are emotionally and intellectually prepared for this.”
Kate Hinsche contributed to this report.