Transparency on Trial: Why It Still Feels Like the Fox Is Guarding the Hen House
We have a transparency issue in our industry. And I’m not just talking about in real estate…in relocation, too. It seems to have evolved from the premise of “well, no one ever asked.”
No matter how good the intentions of a real estate brokerage, it is made up of independent contractors who, while they operate under a national code of ethics if they are a member of the National Association of Realtors (NAR) and their own brokerage probably has some policy guidelines as well, they are not employees, so pretty much everything is just a highly recommended suggestion as long as it doesn’t break the law. I am not suggesting that agents are out there doing nefarious stuff. But what has evolved is the omission of information by agents and brokerages, endorsed by NAR and their associations, that is widely accepted as standard practice.
Wait. What just happened?
A couple of weeks ago, something truly shocking happened at a national meeting of the National Association of Realtors Delegate Body. That group is defined as follows: The Delegate Body is a formal part of NAR’s governance structure. National Association of REALTORS®+1
It is composed of the presidents (or their certified alternates) of each local REALTOR® association (member associations) in good standing.
Each local association is entitled to one Delegate (the association’s chief elected officer) or a designated alternate approved by that association. Caboose CMS+1
The Delegate Body is tasked with voting on amendments to NAR’s major governing documents (specifically the Constitution and the Code of Ethics).
This group elected to overturn a vote mandating the disclosure of referral fees to consumers. The amendment did not receive the required two-thirds majority (or equivalent threshold) for the final vote to become part of the Code of Ethics, even though the initial vote had garnered 84% support. So, what happened? I suspect some people got to some people. Associations and NAR leadership are desperate to please their membership base at this time, and that may include bending to brokers in powerful leadership positions.
Here is why this is so relevant. In a time when NAR is facing a massive transparency problem, it allows an appointed group to make decisions for the entire Realtor population and the industry itself. This sentence from a letter to the Delegates on the NAR website struck me: ”As a Delegate, you represent every member of your local association.” But do they really?
They are basically saying with this vote, “we prefer to keep the public in the dark on how agents are actually paid and what that means to consumers.” The optics are terrible, particularly when NAR leaders have been struggling to regain trust and remain relevant to their members.
Sound familiar?
The initial transparency problems first reared its head in the 2024 Sitzer-Burnett lawsuit and in all subsequent suits filed over agent compensation. When class action attorneys rounded up some sellers who were ‘outraged’ that they had to pay the buyer’s agent, it seemed silly to anyone in the industry. Of course, that is how it works; it has always been done this way since the 1920s. The seller is the one with the proceeds of the sale. However, it became clear that the defense attorneys miscalculated the jury’s ability to truly understand why that is the best way to handle it. Their arrogance cost them the suit, which forever changed real estate processes.
But, not much changed in how agents are paid.
The interesting part is that, despite all the fuss over process changes, etc., as a result of the settlement, the seller is still typically paying the buyer’s agent's commission. There was a reason for it, but because it wasn’t presented as an option, the case was made that it wasn’t transparent, and the issue of who pays whom should be segregated.
The plaintiffs' attorneys also skillfully convinced the jury that agents were showing specific properties to secure higher commissions. So that caused the buy-side commission paid to be stripped out of the MLS. It’s an inconvenience, but not a bad outcome to curb the tiny handful of agents who might have actually cherry-picked properties to show based on that information.
That leads me to relocation and referrals.
So if you think plaintiffs' attorneys had a field day with the above, wait until they figure out that people in governing body leadership positions voted to overturn an initiative to disclose referral fees to participating parties, and that NAR allowed it to happen. The legal exposure just got worse for NAR and brokers, if that is possible.
This most recent issue is much more closely tied to the relocation, referral, and mobility industry, since much of our business is referral-fee-based.
Online leads. A perfect example of non-disclosure is one of the class-action lawsuits recently filed against Zillow. Actually, they have five pretty significant suits against them right now that I won’t go into. When an online shopper visits Zillow and requests more information on a property, they aren’t sent to the listing agent; instead, they are directed to the agent who has paid to be part of their Flex Plan. They may know absolutely nothing about that property the consumer has inquired on, which is not great for the consumer.
One of the suits alleges that this practice has driven up prices. Honestly, I'm not sure prices have been driven up, but the practice certainly isn't good for consumers. Again, Zillow and other portals that use this practice are banking on the fact that consumers won’t question why that agent was chosen. Btw, Zillow and other portals aren’t the only entities that do this. Many brokers use this practice on their own websites. Although it is usually more about offering a quick response and a trained agent to capture the client, but a referral fee is typically charged to the assigned agent.
As long as consumers continue to initiate their online searches and agents continue to pay for the privilege of handling their leads, I don’t see much changing unless they lose their suit. Zillow does not disclose to online consumers that it receives fees from agents, but it does openly promote how the Agent Flex Plan works online, so it is not actively hiding information that it is a ‘pay to play’option.
Referrals. This entails broker-to-broker referrals or affinity programs. These are individuals who are typically referred for a self-move (as opposed to a corporate relocation). They might be moving locally or across the world. It has not been common practice to disclose to the principals in these transactions that a referral fee is being paid to another broker, a middleman, or that possibly a rebate is being paid to one of the parties in the transaction (unless it was already law in that state). This issue is complicated when you slice the pie to include a referral network that takes a share of the fee and is not a party to this transaction in any way.
Corporate Relocation. Since the transferee isn’t typically paying their own commissions, referral fee disclosure isn’t really that important in this scenario. But what is essential is that it’s not the transferee that is left in the dark (because they don’t really care); it is typically the corporation. They may or may not know about the exorbitant referral fees charged to brokers to handle their business, along with other membership, training, and service fees, etc., just to be eligible to handle the referrals. If disclosures become prevalent, it may affect lump sum transferees who question why a referral fee is being paid by a broker that was recommended to them. If the value isn’t shown for that referral, they may prefer to seek out their own broker or ask for a rebate back to them.
The last word.
I think it’s time. It’s time that we self-monitor instead of waiting for someone else to do it for us. Pull back the curtain on referral fees. If a portal, agent, and brokerage are providing something of real value and it doesn’t cost the consumer more, they should be perfectly fine with this information.
“Honesty and transparency make you vulnerable. Be honest and transparent anyway.” ~Mother Teresa
