Class Action Lawsuit Against Realtors

Question: What are your thoughts on the recent class action lawsuit against the National Association of Realtors?

Answer: You’ve probably read headline news over the past week about the Kansas City jury that found the National Association of Realtors and two of the nation’s largest brokerages, HomeServices of America and Keller Williams, guilty of colluding to keep Realtor commissions high via the use of the “clear cooperation” rule, which required there to be an offer of compensation to buyer agents/brokers for properties listed in an MLS.

The lawsuit awarded plaintiffs in Missouri, Kansas, and Illinois damages of $1.78B, which gets automatically “trebled” (tripled) by the court to $5.36B. Numbers that the defendants don’t come remotely close to having in combined cash and/or assets.

If you missed it, here’s a Housing Wire article with a good summary of the lawsuit, without subjective commentary. The lawsuit and others like it (there was a similar lawsuit settled a month ago and another copycat lawsuit recently filed) are a huge deal for the residential real estate industry and consumers.

I’m not going to waste your time making predictions about the legal process this and similar lawsuits will follow, you can google the lawsuit for plenty of opinions. It’s a massively complex issue from a legal and practical standpoint and nobody can honestly say they know where this will lead in the next six months or six years. It could end up at the Supreme Court years from now or it could send shockwaves through the residential real estate industry by next year.

I’m going to share my thoughts on a few of the ideas the lawsuit was built on, some of the more popular opinions I’ve read in the news, and things I find particularly difficult to solve in all of this.

There are reasonable, strong arguments to be made on both sides of most of the issues revolving around this topic. Most of what you’ll read/hear in the media is going to focus on opinions and ideas that are anti-Realtor “Cartel” because it appeals to the masses and generates traffic and eyeballs. I’ll touch on both sides of the argument in some cases, in others I’ll offer my perspective from inside the industry.

This is Mostly About Seller’s Paying Buyer Agent Commissions

Most MLS’s and Associations require(d) there to be an offer of compensation to the buyer agent/broker on a property listed for sale in the MLS; you could not sell something on-market with zero buyer-agent compensation. The lawsuit claims that ~500,000 sellers in MO, IL, and KS included in the class action lawsuit would not have offered/paid this compensation had it not been required and the $1.78B is the amount they “overpaid” in commissions.

The way most market transactions are structured (and have been for 2-3 decades) is that the seller agrees, prior to selling, to pay their broker X% and that amount is usually split evenly between the seller’s broker and the buyer’s broker, which is explicitly stated in the Listing Agreement. For reference, here’s the study I did this year on 2022 buyer-agent commissions in Arlington. There is clearly a “market” price for buy-side commissions.

While required, there is nothing that prevented offers of compensation of $1 or something well below the market, but people (consumers, agents, brokers) rarely chose that option. The plaintiffs in the case were able to make a strong enough case that sellers were forced to offer compensation at market rates and did not know they had a choice.

What if Sellers Stop Paying Buyer Agent/Broker Commission?

This is where it gets interesting and difficult, practically speaking. I could write a few columns on this topic and may do so over time, but I’ll keep it simple here.

Representation on both sides of the transaction is important. Yes, there are plenty of examples of bad representation and consumers who saw little or even negative value in their representation, but for the most part, studies show that buyers and sellers value having independent, professional representation in real estate transactions.

Sellers paying buyer broker commission makes sense and doesn’t make sense all at the same time.

It makes sense because it’s a cost taken out of proceeds for the sale rather than an out-of-pocket expense, so it’s much easier for a seller to receive less than a buyer to pay more. Anybody who has owed taxes understands the significance of how different paying taxes feels when it’s taken out of your paycheck vs cutting a big check to Uncle Sam.

It doesn’t make sense because of the obvious…why should I pay for your representation?

The problem, and I mean problem for consumers not for Realtors because of lost commission, is that if there’s a fundamental change to commission structure and sellers generally stop paying buy-side commission, the result is that most buyers cannot afford to tack on additional closing costs to their transaction and lenders will not allow it to be rolled into the loan (maybe this changes in the future). Wealthier buyers may be able to afford to hire buyer agents, but this scenario all but guarantees an even more difficult path to home ownership for those who can’t afford it.

Is Buyer Representation Important?

So how do we feel about most buyers not being represented in their purchase? Other countries do it, right? I feel strongly that buyer representation is of critical value to most buyers, especially first-time buyers, less financially advantages buyers, buyers who don’t speak English as their first language, etc etc. This is particularly true in the new world of real estate that is critically under-supplied and constantly competitive.

Let me suggest this exercise for anybody who doesn’t mind seeing buyer rep go away…visit 10 Open Houses and consider how many of the hosting agents you’d be comfortable writing a contract with and relying on guidance from to purchase that house within 24-48 hours of seeing it, knowing that they have a fiduciary responsibility to represent the seller. You might feel comfortable with one or two.

It’s also worth noting that “dual agency,” whereby one agent represents buyers and sellers, is illegal in many states, including Maryland. It’s legal in Virginia, but in my opinion, it’s an inappropriate relationship for the majority of transactions because, if done ethically and correctly, neither party gets the type of representation they often want or need.

Home Prices Will Fall if Commissions Drop?

I’ve seen this claim made quite a few times recently; it’s a perfect headline. Buyers across the country are frustrated by high prices, high mortgage rates, and low inventory so let’s suggest a path to cheaper housing if Realtor commissions are reduced. Sounds nice! But that’s not how markets work.

For the most part, prices are set by how much buyers are willing to pay, not how much a seller wants. A seller wants too much? They’ll probably sit on market and be forced to reduce or withdraw. A seller is willing to accept too little? Buyers will show up in crowds and push the price up. Seller expenses do not define market values – supply and demand do.

Scenario #1: Sellers stop paying buyer agents and buyers don’t pick up the tab either. Buyer rep mostly disappears.

If sellers stop paying buy-side commission, effectively cutting their commission cost in half, and buyers aren’t paying for representation either, buyer budgets remain the same, prices don’t fall, and sellers net more. You could even make a case that prices increase because buyers are relying on listing agents who represent the seller to submit and negotiate offers.

Scenario #2: Sellers stop paying buyer agents and buyers start paying for representation.

Buyer budgets shrink to accommodate the cost of buyer rep and because that cost is cash, it likely shrinks budgets by many multiples above the fee being paid to the agent (via reduction in funds available for a down payment), and prices drop as a result. Sure, you can take this scenario are say prices dropped because of the change in commission structure, but it didn’t make buying a home less expensive, maybe even more expensive AND due to the multiplier effect of cash in a real estate transaction, sellers might net less in this scenario too.

Are Commissions Too High?

Overall, yes, there’s plenty of waste in our industry and not enough innovation; we have plenty of room for improvement. But find me an industry or company with tens of billions or more of revenue that doesn’t have waste and inefficiency.

One of the major differences between the Realtor industry and other large multi-billion-dollar industries is that the excess gets spread across well over one million Realtors across the country plus the secondary services that support the industry. For most people involved, these are modest paying full-time and part-time jobs for many people in every community. Realtors, as a whole, do not make as much income as you think. Compare that with other large businesses/industries and I think you’d find that less of our excess/waste floats to the top or to wealthy shareholders but goes towards normal working wage people.

I’m not excusing the excess and want to see progress made there, but I think proper perspective is important.

Was There Collusion to Keep Commission High? Yes and No

One of the lawsuit’s accusations was that agents, who are mostly independent contractors in competition with each other, receive training from brokerage and Association leadership on securing specific commission amounts (6% is the one everybody hears as the “standard”). I do think this is a problem in our industry – training and influence of groups of agents to set a specific price sure does feel like collusion.

There is a fine line between what feels like collusion (training for 6% commissions or any specific number for that matter) and acceptable training for agents to help them maximize their income, but that has to be done without telling agents en masse what that rate should be.

On the other hand, I have a hard time fully buying the collusion argument (aka the Realtor Cartel/Monopoly) when there are endless service and pricing options available to consumers in every market for buyer or seller representation. Redfin carved out a massive market share offering listing services for roughly half of the average sell-side commission and crediting buyers a percentage of the buy-side commission at closing. There are low flat-rate options, listing-entry services, and plenty of agents who charge well above average too. And there’s also nothing preventing somebody from buying or selling without representation of an agent.

Does the industry need to change some of its training practices to ensure Realtors are acting more independently and competitively in determining their rates? Yes, for sure. Is there a monopoly that has cornered the market on commission rates? No, consumers seeking different pricing and services can find it in every market.

Consumers Also Need to Take Responsibility for Their Decisions

I am pretty pro-consumer in my belief system and apply that to this lawsuit with clear eyes (I think), but consumers also have a responsibility to do proper due diligence and make informed decisions in what is likely their largest transaction(s) by many multiples in their lifetime. Heck, I just spent 12 hours researching robot vacuums before making that purchase!  I landed on a Roomba j7+ (on sale, of course), which arrives tomorrow, and I’m very excited.

I bet many of the same sellers who were part of the class action spend months shopping for a car, scrutinizing dealership fees, and negotiating. Some of them probably spend Sunday mornings clipping coupons and driving to different grocery stores to get the best deals. Was that same energy given to the sale of their home?

Sellers have every opportunity to read the contract, ask questions, and meet with different Realtors prior to selling a home so in that respect, this lawsuit doesn’t make a whole lot of sense to me.

And the Result Will Be…

Nobody knows. Personally, I think the media and pundits are getting carried away with how much of a shockwave this is going to create in the real estate industry. It will surely lead to change, but class-action lawsuits are more about money and a couple of class-action lawsuits don’t help answer the deep, complex issues that need to be reckoned with to create a more efficient, balanced industry that supports homeownership across all classes and demographics. It’s quite possible that these lawsuits lead to massive structural changes in the industry in the name of consumers and we end up with a landscape that is a net negative for consumers. We shall see…

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Construction Underway on 40 New Toll Brother Homes

Question: Do you have any information on when the Toll Brothers community in Dominion Hills will be for sale?

Answer: Construction is underway on Toll Brothers upcoming 9.5 acre community, The Grove at Dominion Hills, a massive (by Arlington/inside-the-beltway standards) development of 40 brand new detached homes that will start around $2M, formerly the site of the historically significant Febrey-Lothrop property.

As of Monday, March 13 they were fully framed and under-roof on their model and one of their “quick-move-in” homes, with a third in foundation, and a fourth getting ready for foundation; all along the existing N Madison St.

What I Know/Expect

Toll Brothers is as tight-lipped as it comes about new developments until their official public releases, but here’s what I know/expect:

  • The community will include 40 new single-family homes
  • Lot sizes will clock in around 60ft wide and about 8,000 SqFt (just over 1/6th of an acre), which is about 5% smaller than the average Arlington lot and about 10% bigger than the median Arlington lot (as we know from this column on Arlington lot sizes)
  • I expect home sizes to range from about 3,500-5,500 total finished square feet depending on lot dimensions and options
  • I expect most or all homes to include a two-car garage with either basement and main level entry depending on lot topography
  • Toll Brothers will offer a combination of “quick move-in” homes with pre-selected options/finishes and semi-custom homes that allow buyers to choose from a pre-determined selection of elevations (exterior design), floor plans, options, and finishes
Site Plan from the Dominion Hills Civic Association website

Details and Sales Opening Expected 2023

Toll Brothers is careful to not release pricing, floor plans, or most details about a project until their chosen public release date which is currently projected to occur in late summer 2023. Details will get released for the first time on their website with a community webpage. Sales are currently projected to start at the end of 2023, but that timing could easily move up or back depending on market conditions and work progress.

Toll Brothers determine their sales process based on market conditions and you can expect a multi-phased release, with prices increasing with each release (standard practice for new communities). Toll Brothers often use a combination of option incentives and preferred lender incentives to drive demand, which smaller builders do not offer.

In my experience, they usually implement an appointment system on a first-come, first serve/meet basis. Those who register online for an appointment first, can schedule the first appointments with a sales rep and have the chance to lock in lots early so interested buyers should go into those meetings prepared to put down a deposit.

Recently, and controversially, Toll Brothers implemented a blind auction system for lots at Arden, their luxury community in Great Falls. They set a starting price for a lot and had buyers submit forms stating how much they were willing to pay for the lot and what they wanted to build on it then chose the winner (presumably based on the highest lot bid).

If you’re an interested buyer, take advantage of the time between the public information release and the sales opening to learn as much about the community as possible, figure out what lots you prefer (note that the best lots usually come with a steep lot premium), compare your options with Toll Brothers to other new build opportunities, and be ready to make a decision with a lot-hold deposit at your first appointment.

What Will the Homes Looks Like?

In my opinion, Toll Brothers has some of the best-looking homes (exterior and interior) and smartest floor plans of any of the national/regional builders. I often reference their plans, options, and designs for inspiration on local new build projects.

Each of their communities gets a unique set of elevations (exterior design), plans, options, and selections to fit the local community, price point, lot dimensions, etc so we won’t know what we’re getting at The Grove at Dominion Hills until they release the community website, but I did my best to give interested buyers an idea…

The following image is posted in a Dominion Hills Civic Association article about the community, and I assume it was provided to them by Toll Brothers during a community meeting. The Randolph model looks to be a clear match to one of the two homes currently framed and under-roof that I took photos of above.

Local communities that may have a similar design aesthetic to The Grove:

While the above communities may have a similar design aesthetic, they are all being built on sites with much larger lot sizes so you’ll get wider homes with different floor plans. I searched nationally for other Toll Brothers sites that have smaller, more narrow lots like we’ll see at The Grove to try to find some examples of what the floor plans might look like:

How Will The Grove Impact the Market?

There’s no way to overstate the scale of this development in Arlington and the surrounding communities given how unusual it is to even see a development of 2-3 detached in Arlington, let alone 40. For reference, there have been 79 new construction homes sold (per MLS) for $1.9M-$2.5M in Arlington since Jan 2021 (26+ months). I will provide more in-depth analysis on this once more information is released by Toll Brothers later this year.

If you are interested in buying a home in The Grove or other new construction homes in the area, you can reach me at Eli@EliResidential.com or on my cell at (703) 539-2529.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

My Best Advice to Start Your Home Search

Question: We are looking forward to buying a home next year. Do you have any recommendations on how we should start the home buying process?

Answer: If you Google “home buyer tips” or “what to know before buying a home” and you’ll find plenty of advice on the topic, so I’ll include some suggestions I don’t usually see online and put my own spin on some of the more common advice. 

Weighted Criteria

It’s easy to come up with 3-5 things that are most important to you, so challenge yourself early to come up with a list of 10-15 must-haves and wants. Then, starting with 100 points, allocate points to each criteria based on how important it is to you and you’ll end up with a weighted criteria list to help you focus your search and objectively compare properties.

I encourage couples to complete this exercise individually first, then work together on a combined list. This will put even the best relationships to the test!

If you want to take it to the next level, bring your weighted criteria list with you on showings and score each house based on the points you allocated to it and score each home on a 100-point scale. I often find that buyers who have taken this exercise seriously and are working within a budget are hitting scores in the 70s-80s on their top choice homes.

Length of Ownership

How long you expect to live in your home is one of the most important factors in defining what you prioritize and how you use your budget. You should focus on the following:

  1. Likely length of ownership
  2. Difference in criteria for a 3-5 year house vs a 10-12+ year house
  3. Difference in budget requirements for a 3-5 year house vs a 10-12+ year house

Appreciation is not guaranteed and difficult to predict, but the value of longer ownership periods is undisputed. One way longer ownership adds value is the potential for eliminating one or more real estate transactions over your lifetime, thus the associated costs (fees, taxes, moving expenses, new furniture, etc) and stress that comes with moving.

If you have an opportunity to significantly increase your length of ownership by stretching your budget, you generally should. On the other hand, if your budget or future (e.g. job will move you in a few years) restrict you to housing that’s likely to be suitable for just 3-4 years, it’s generally better to stay under budget.

Influencers (not the Instagram ones)

Family, friends, colleagues…they’re all happy to offer opinions and contribute to your home buying process, but the input can be overwhelming and unproductive if you don’t set boundaries. Try to determine up-front who you want involved in the process and how you’d like them to be involved.

Think about how you’ve made other major decisions in life – what college to attend, what car to buy, where to get married, whether to change jobs – and if you’re the type of person who likes input from your friends and family, you’ll likely do the same when buying a house. Plan ahead with those influencers so their input is productive and comes at the right time (e.g. not when you’re already two weeks into a contract).

Does Your House Exist?

Before jumping too far into the search process, spend a little bit of time searching For Sale and Sold homes on your favorite real estate search website/app to see if the homes selling in the area(s) you want to live in and that are within 10% of your budget are at least close to what you’re looking for. If not, spend some time adjusting price, location, and non-critical criteria to figure out what compromises you’ll need to make and then compare those compromises to your current living situation and/or alternatives like renting.

Know Your Market

We’re transitioning from the most intense housing market ever into a much more moderate environment, but what you see and read about the housing market may not be accurate in the sub-market you’re looking in.

Each sub-market behaves a bit differently and comes with its own unique set of challenges and opportunities, so take time early on to understand the sub-market(s) you’ll be involved in and what you’re likely to experience. This is something your agent should be able to assist with.

Pre-Approval & Budget

There is a lot of value in working with a lender early in the search process. For starters, you’ll have somebody who can provide real rates and advice based on your specific financial situation/needs. A lender can only do this if they’ve reviewed your financial documents and credit. The more you put in, the more you get out.

You’ll need to have a lender pre-approval to submit an offer (the seller has to know you qualify for the purchase you’re offering to make) so if you have to do it anyway, do it early on so you get the most value out of your lender. It also means that you’ll be prepared to make an offer if you find the right home earlier than you expect.

Despite the market slowing down, the quality of your pre-approval can make a big difference when you make an offer. Quality means a lender who has taken the time to fully review your documents and credit, will speak on your behalf to the listing agent, and is a bank/mortgage broker with a good local reputation.

You should strongly consider having a pre-approval from a reputable local lender to give yourself an advantage when making an offer. Pre-approval letters from big banks and online lenders don’t go over as well in our market. If you’re looking for a recommendation, consider Jake Ryon of First Home Mortgage (JRyon@firsthome.com).

Find an Agent

Agents come in many different forms and finding somebody who suits your personality and goals is important. Ask friends, colleagues, and family for referrals or spend time talking with different agents at Open Houses until you find somebody you like.

The worst thing you can do is choose your agent based on whoever responds to an online showing request faster. A good agent can provide a lot of value getting involved in your buying process 2-4+ months before you’re ready to buy.

If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

2020 Housing Market Review: Condos

Question: How did Arlington’s condo market perform in 2020?

Answer: I ended up writing a lot about the condo market during the second half of 2020 because of the historically high numbers of units listed for sale from July to November, falling demand, and falling market values (compared to the first half of the year). However, there were slightly positive signs in the last month of 2020 and early weeks of 2021 that the negative trends are reversing. Despite a 2nd half that looked very different from the previous three years, 2020 overall was still a strong market for condos in Arlington. Let’s take a look at how things played out…

Prices Up, Volume Down, Pace Mostly Unchanged…

The average and median price of condos increased by 4.2% and 6.3%, respectively, a strong performance but a bit short of the nearly 8% growth in 2019. I wouldn’t be surprised to see no appreciation or slightly negative appreciation in 2021 as a result of changing housing priorities from COVID.

Despite the late surge of condos listed for sale, the number of condos actually sold in 2020 dropped 8.3% from 2019 and 19.3% compared to 2018.

The speed of the market remained relatively unchanged, with average days on market staying put at 7 days and median days on market decreasing slightly from 19 days to 18.4 days. However, my preferred “speed” metric, the percentage of units selling within one week, dropped to 48% in 2020 from 52% in 2019, but still well above 2018’s 29%.

Six Interesting Charts

Below, I put together a series of charts to visualize how the Arlington condo market performed in 2020 and how that performance compares to the 2015-2019 markets.

If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.