Legal-Ease: Real estate agent commissions under microscopes

In Ohio, real estate agents must be licensed with the Ohio Department of Commerce. There are two types of licenses for real estate agents in Ohio: real estate salesperson or real estate broker. Each real estate salesperson is required to be affiliated with at least one real estate broker.

It is common to describe real estate agents as “realtors,” but real estate agents cannot call themselves “realtors” unless the agents are members of the real estate agents’ national trade association called the National Association of Realtors (NAR), which provides its members with exclusive marketing tools among other benefits.

The NAR is essentially the default/universal trade association for real estate agents in the U.S., because the NAR counts 1.5 million real estate agents as members.

NAR membership requirements include compliance with NAR member rules. NAR rules prohibit members from negotiating their commission rates, require members to allow only real estate sellers to pay sales commissions and prohibit members from allowing real estate buyers and sellers to shift the seller’s obligation to pay commissions to the buyer.

Ironically, in real estate transactions, just about everything is negotiable. Price is negotiable. Who pays for inspections and to remedy issues identified in inspections is negotiable. Who pays closing fees is negotiable. Who pays the buyer’s prepaid real estate taxes and assessments is negotiable.

However, because almost all real estate transactions involving real estate agents include at least one NAR member, the payers and amounts of sales commissions are effectively not negotiable.

This dichotomy between real estate commissions and all other aspects of real estate transactions has prompted significant, recent, legal attention.

The attention toward non-negotiability of anything in business is particularly acute, because American and Ohio law in the broadest, general sense is trending toward “freedom of contract.”

For example, the foundational principle of 2022’s new Ohio LLC law is “freedom of contract.” Under current Ohio LLC law, other than precluding people from defrauding each other, almost every aspect of the relationship among LLC owners (called members) is able to be negotiated and laid out in the LLC’s operating agreement in the form of a contract.

In late October 2023, a class action lawsuit in Missouri resulted in a $1.8 million jury verdict against the effective monopoly of the NAR and several large real estate brokerage companies, because the jury determined that the commissions requirements were illegal and cost consumers more money than legally appropriate. Notably, the $1.8 billion jury verdict amount pales in comparison with and in contrast to the estimated $100 billion in real estate commissions paid annually by American real estate buyers and sellers.

Independent from the Missouri lawsuit, which is expected to be appealed, the U.S. Department of Justice has asked for permission to investigate the NAR under federal anti-trust law.

Consumers can shop for their ideal mix of price and service on almost everything except real estate commissions. Although the wheels of justice move slowly, the unamendable treatment of real estate commissions may eventually become a thing of the past.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.