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Daily Archives: December 5, 2023

NAR Trial Awards $1.8 Billion (or More) to Plaintiffs—What Could It Mean For the Real Estate Industry?

Article provided by BiggerPockets

A federal jury has decided that several brokerage firms colluded with the National Association of Realtors (NAR) to enforce inflated commission rates. According to the plaintiffs, the conspiracy was evident through a written rule that requires sellers’ agents to offer a set rate of compensation to the buyer’s agent when listing a property on an MLS. 

The ruling came last Tuesday after just a few hours of deliberation. Sellers of hundreds of thousands of homes in Kansas, Illinois, and Missouri, the plaintiffs in the Sitzer/Burnett lawsuit, were awarded $1.785 billion in damages. That amount may be trebled to greater than $5 billion. And the copycat lawsuits have already begun.

The verdict alone could have a ripple effect on the real estate industry. It could lead to lower commissions through negotiations between sellers and agents or even leave buyers to foot the bill for their own agents. 

Brokerages are likely to prioritize pro-competitive policies to avoid future litigation, and that could mean clear opportunities for discussions about commission rates. According to the NAR, commissions are always negotiable under its rules—but in practice, most real estate agents won’t budge on their rates, according to a report from the Consumer Federation of America

What the Defendants Have to Say

In a written update on its website, the NAR indicated plans to appeal the verdict. Keller Williams and HomeServices of America are also reportedly considering appeals. RE/MAX and Anywhere (the parent company of Sotheby’s, Coldwell Banker, and Century 21) previously agreed to settlements in the Sitzer/Burnett case and similar Moehrl lawsuit. 

Regardless of the outcome of those appeals, it will take time for a judge to issue an order. That injunction could also include a requirement to change NAR rules or brokerage practices. 

“We disagree with the verdict but respect the jurors who decided the case based on the issues in front of them,” said Darryl Frost, spokesperson for Keller Williams, in a statement provided to BiggerPockets. “We are disappointed that before the jury decided this case, the court did not allow them to hear crucial evidence that cooperative compensation is permitted under Missouri law.” 

For example, Missouri law states that a seller may authorize a broker to share the seller’s compensation with another broker. 

“This is not the end,” continued Frost. “Keller Williams followed the law regarding cooperative compensation and stands by the evidence presented on the 100-year-old practice of sellers’ agents offering commissions to other agents who help market and sell homes. Looking forward, we will consider all options as we assess the verdict and trial record, including avenues of appeal.”

That 100-year-old practice was commonplace before the NAR mandate was made, in large part because cooperative compensation may be the best tool sellers’ agents have to attract buyers. It’s practical for sellers’ agents to offer compensation to buyers’ agents in exchange for their marketing efforts, which brings more offers to the listing. That could be why the practice still continues in areas where cooperative compensation isn’t required. For example, Northwest MLS eliminated the requirement while also allowing brokers to publicly list compensation offers, with no noticeable market changes.  

BiggerPockets also contacted the NAR and HomeServices of America for comment, but as of this publication, they have not responded. 

The Journey to a Ruling

After deliberation, the jury answered yes to four questions. They agreed that there was a conspiracy between the brokerages and the NAR, that the conspiracy increased or stabilized commission rates, that the defendants willingly joined the conspiracy with knowledge of its goals, and that the plaintiffs overpaid for real estate services as a result of the conspiracy. 

At issue in the case was NAR’s cooperative compensation rule, which requires sellers’ agents to offer compensation to buyers’ agents when listing a home on a local MLS. The blanket offer is made without knowledge of the time or effort the buyer’s agent will bring to the deal. 

The plaintiffs argue that homebuyers aren’t privy to the offer of compensation, so buyers’ agents can steer homebuyers toward the homes with the highest payout. To ensure that buyers’ agents show the home to their clients, sellers’ agents are therefore incentivized to offer a competitive rate. That keeps commission rates artificially high. 

One witness for the plaintiffs compared the current commission system in the U.S. to other countries, where commission rates are significantly lower, arguing that the NAR and the brokerages were responsible for keeping U.S. rates elevated. Commission rates remain stuck, even as internet resources have shifted much of the work of finding a home to the homebuyer, and home prices have skyrocketed. However, that same witness denied evidence of a conspiracy. 

But Michael Ketchmark, the plaintiffs’ lead attorney, argued the written rule itself constituted a conspiracy. The defendant brokerage firms required their agents to join the NAR and follow their rules. They were, therefore, colluding with the NAR to enforce high commission rates, a form of price fixing, the plaintiffs argued.

In his closing remarks, Ketchmark positioned the case as a fight between consumers and corporations, saying: “Our system doesn’t have to forget people. You can hold corporations accountable.” 

A World Without Cooperative Compensation

Economist Lawrence Wu testified that homebuyers in Australia typically don’t rely on buyers’ agents—their services are instead handled by lawyers and CPAs. That might be preferable, given the surfeit of inexperienced agents in the U.S., but someone must pay for those services. In the absence of cooperative compensation, whether a buyer pays for legal services or real estate services, their upfront costs may be greater. 

It’s also possible that the sellers’ agent would still charge 6% for doing the buyer’s agent’s share of the work. So was the testimony of Jen Davis, vice president of MAPS Coaching at Keller Williams. That outcome could mean real estate transactions get more expensive for everyone involved. 

That scenario would be particularly tough on real estate investors, who often rely on the guidance of qualified agents to navigate markets they may be unfamiliar with. 

On the other hand, it’s also possible that changes to the industry could lead to more negotiation between consumers and real estate agents in general. 

Sellers might ask for reduced rates in exchange for reduced marketing efforts in a hot market. Buyers might pay a flat fee for limited real estate services, and the mortgage industry might evolve to allow those services to be financed. The reduced commission burden on the seller may be reflected in lower home prices. If all of those outcomes came to pass, everyone would win. 

The NAR has been central to real estate transactions for so long that it’s difficult to guess what the industry would look like without the association’s influence, and other countries don’t necessarily provide an apples-to-apples comparison. 

The NAR’s Reputation

Whether or not you believe a conspiracy was taking place between the NAR and the named brokerage firms, the NAR faces several reputational threats that may be a catalyst for change within the trade association and the industry. Between the antitrust lawsuits, Redfin’s breakup with the NAR, the accusations of sexual harassment, and the subsequent resignation of president Kenny Parcell and another high-profile resignation of its CEO, Bob Goldberg, just this week, the NAR has good reason to update its policies. 

To gain the trust of its members and consumers’ respect for the Realtor membership mark, the NAR will need to reinvent itself as a pro-consumer organization and take clear action to prevent intimidation and harassment of its employees. Those policy changes could impact the way homes are bought and sold. Likewise, if the NAR fails to maintain its powerful influence, that could open the door for swift changes to the industry. 

The NAR has always maintained that its policies are consumer-friendly. “NAR doesn’t tell people what to charge or to receive a commission,” the association wrote in an update on the trial. “NAR rules are very intentionally pro-consumer and pro-business competitive, and buyer brokers exist because consumer protection agencies thought they were important.” 

Still, the trade organization has fallen short of requiring local MLSs to publish commission rates publicly or mandating the removal of cooperative compensation requirements. That could change. And the climate of real estate transactions could shift due to the Sitzer/Burnett jury verdict—where home sellers were once afraid to discuss commission rates with their agents, they may more courageously negotiate pricing in the future. 

The Bottom Line

Whether the outcome of the lawsuit leads to lower average sell-side agent commissions remains to be seen. How it will affect buyers and buyer agents is also up in the air. And whether the effect of shaking up the industry will have a net positive or negative effect on consumers depends on who you ask. 

Still, the case is far from over, with appeals expected and the details of the judge’s order uncertain. We’ll provide updates as the situation unfolds. 

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Zombie Properties in U.S. Increase 15.3 Percent Annually in Late 2023

Article provided by World Property Journal

As U.S. Lenders Chase An Increasing Number Of Delinquent Mortgages In 2023

According to ATTOM’s newly released fourth-quarter 2023 Vacant Property and Zombie Foreclosure Report, almost 1.3 million (1,294,505) residential properties in the United States are vacant. That figure represents 1.27 percent, or one in 78 homes, across the nation – virtually the same as in the third quarter of this year.

The report analyzes publicly recorded real estate data collected by ATTOM — including foreclosure status, equity and owner-occupancy status — matched against monthly updated vacancy data. (See full methodology below).

The report also reveals that 320,765 residential properties in the U.S. are in the process of foreclosure in the fourth quarter of this year, up 1.7 percent from the third quarter of 2023 and up 12.8 percent from the fourth quarter of 2022. A growing number of homeowners have faced possible foreclosure following the nationwide moratorium on lenders pursuing delinquent homeowners was imposed after the Coronavirus pandemic hit in early 2020 and was lifted in the middle of 2021.

Among those pre-foreclosure properties, about 8,900 sit vacant as zombie foreclosures (pre-foreclosure properties abandoned by owners) in the fourth quarter of 2023. That figure also is up slightly from the prior quarter, by 1.4 percent, and up 15.3 percent from a year ago. The latest increase marks the seventh straight quarterly rise.

However, the fourth-quarter count of zombie properties represents only a tiny portion of the nation’s total housing stock – just one of every 11,412 homes around the U.S.

“The ongoing strength of the U.S. housing market continues to benefit neighborhoods around the country in so many ways, with the near-total lack of zombie foreclosures standing out as one striking example,” said Rob Barber, CEO for ATTOM. “Rising equity flowing from rising home values has not only kept foreclosure cases from spiking since the moratorium was lifted. It also keeps giving delinquent homeowners a valuable resource they can use to either stave off eviction or sell their homes and move on. As a result, we continue to see none of the widespread abandonment that followed the housing market crash after the Great Recession of the late 2000s.”

The stable number of zombie properties in the fourth quarter has come as the U.S. housing market has rebounded from a temporary setback last year.

The nationwide median home value grew 11 percent during the Spring-Summer buying season this year, hitting a new record of $350,000. Those gains followed an 8 percent decline from mid-2022 into early 2023. The growth in values has helped keep homeowner wealth at historic highs, with 95 percent of mortgaged owners having at least some equity built up and about 50 percent owing less than half the estimated value of their properties.

Zombie foreclosures rise in half of states but remain mostly absent around nation

A total of 8,903 residential properties facing possible foreclosure have been vacated by their owners nationwide in the fourth quarter of 2023, up from 8,782 in the third quarter of 2023 and from 7,722 in the fourth quarter of 2022. The number of zombie properties has decreased or stayed the same quarterly in 24 states and annually in 21.

While most neighborhoods around the U.S. have few or no zombie foreclosures, the biggest increases from the third quarter of 2023 to the fourth quarter of 2023 in states with at least 50 zombie properties are in Kentucky (zombie properties up 15 percent, from 53 to 61), Connecticut (up 15 percent, from 87 to 100), Maryland (up 13 percent, from 229 to 258), Texas (up 13 percent, from 112 to 126) and California (up 12 percent, from 244 to 274).

The largest quarterly decreases among states with at least 50 zombie foreclosures are in New Mexico (zombie properties down 15 percent, from 95 to 81), New Jersey (down 8 percent, from 205 to 188), Maine (down 7 percent, from 56 to 52), Nevada (down 7 percent, from 99 to 92) and Georgia (down 4 percent, from 85 to 82).

New York continues, among the 50 states, to have the highest ratio of zombie homes to all residential properties (one of every 2,115 homes), followed by Ohio (one in 3,690), Illinois (one in 4,338), Iowa (one in 4,380) and Indiana (one in 6,114).

Overall vacancy rates also hold steady

The vacancy rate for all residential properties in the U.S. has remained virtually the same for the sixth quarter in a row. It stands at 1.27 percent (one in 78 properties), which is virtually the same as the 1.26 percent rate in both the third quarter of 2023 and the fourth quarter of last year.

States with the largest vacancy rates for all residential properties are Oklahoma (2.26 percent, or one in 44 homes, during the fourth quarter of this year), Kansas (2.18 percent, or one in 46), Michigan (2.07 percent, or one in 48), Alabama (2.04 percent, or one in 49) and Indiana (2.03 percent, or one in 49).

Those with the smallest overall vacancy rates are New Hampshire (0.33 percent, or one in 302, in the fourth quarter of this year), New Jersey (0.36 percent, or one in 280), Vermont (0.39 percent, or one in 259), Idaho (0.45 percent, or one in 221) and North Dakota (0.63 percent, or one in 158).

Other high-level findings from the fourth quarter of 2023:

  • Among 166 metropolitan statistical areas in the U.S. with at least 100,000 residential properties in the fourth quarter of 2023, those with at least 100 properties facing possible foreclosure and the highest zombie foreclosure rates are Peoria, IL (12.4 percent of properties in the foreclosure process are vacant); Indianapolis, IN (9.9 percent); Cedar Rapids, IA (9 percent); Fort Wayne, IN (8.6 percent) and South Bend, IN (7.9 percent).
  • Aside from Indianapolis, the highest zombie-foreclosure rates in major metro areas with at least 500,000 residential properties and at least 100 homes facing foreclosure in the fourth quarter of 2023 are in Cleveland, OH (7.3 percent of homes in the foreclosure process are vacant); Baltimore, MD (6.7 percent); St. Louis, MO (6.1 percent) and Pittsburgh, PA (6 percent).
  • Among the 23.6 million investor-owned homes throughout the U.S. in the fourth quarter of 2023, about 842,400 sit vacant, or 3.6 percent. The highest levels of vacant investor-owned homes are in Indiana (6.9 percent vacant), Illinois (6.1 percent), Oklahoma (6 percent), Alabama (6 percent) and Ohio (6 percent).
  • Among the roughly 15,000 foreclosed, bank-owned homes in the U.S. during the fourth quarter of 2023, 15.9 percent sit vacant. In states with at least 50 bank-owned homes, the largest vacancy rates are in Kansas (30.8 percent vacant), Michigan (25.9 percent), Ohio (24.5 percent), Missouri (23.8 percent) and Wyoming (22.6 percent).
  • The highest zombie-foreclosure rates in U.S. counties with at least 500 properties in the foreclosure process during the fourth quarter of 2023 are in Peoria County, IL (15.6 percent of homes in the foreclosure process are vacant); Baltimore City, MD (14 percent); Marion County (Indianapolis), IN (13.1 percent); Broome County (Binghamton), NY (11.4 percent) and Cuyahoga County (Cleveland), OH (8.2 percent).
  • Among zip codes with enough data to analyze, 82 of the top 100 where zombie properties represent the largest portions of all homes are in New York, Ohio and Illinois, including 10 in Cleveland, OH. The largest portions are in zip codes 10993 in Rockland County (West Haverstraw), NY (one in 191 homes); 73554 in Greer County (Mangum), OK (one in 222); 44108 in Cuyahoga County (Cleveland), OH (one in 223); 61605 in Peoria County, IL (one in 229) and 44112 in Cleveland, OH (one in 236).

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Can You Legally Control Your Tenant’s Heat?

Thank you for this informative article provided by TurboTenant.

According to a recent GOBankingRates survey, 43.72% of Americans have had trouble paying utility bills over the last six to 12 months – and nearly 78% saw a rise in their household utility bills in 2022.

If you typically cover the heat as part of your lease agreement, this hike in pricing probably has you wondering if you can legally forbid your tenant from changing the temperature. The short answer is yes, but it’ll require some forethought and a signed contract.

Key Takeaways

  • You must provide your tenants with access to heat unless your lease explicitly says otherwise.
  • Your state and city laws dictate the minimum temperature a rental unit can be.
  • Conducting an annual energy audit along with regular inspections will help you manage the energy bill.

Before we get into the age-old debate of who’s allowed to touch the thermostat, let’s clarify your role as a landlord.


TurboTenant: A landlords one stop shop for tenant management…for FREE

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You can’t beat free and the only time you pay is if you want to purchase a lease or have expedited rent deposits. Most everything else costs zip, zero, zilch.


What Landlords Must Provide for Tenants

As a housing provider, you are held accountable for your tenant’s implied warranty of habitability. In other words, landlords are required to provide safe, livable conditions for their tenants since paying rent is conditional on the landlord’s duty to maintain a habitable living space, says Cornell’s Legal Information Institute.

While specific rules and regulations dictating habitability vary by city and state, ApartmentGuide highlights that landlords are typically responsible for:

  • “Maintaining the structure of the building’s interior and exterior
  • Keeping hallways, stairways, and common areas clean and well-maintained
  • Operating plumbing, sewage, and ventilation
  • Checking for environmental hazards
  • Exterminating rodents and insects
  • Supplying cold and hot water in appropriate quantities and at reasonable times
  • Providing heat in appropriate quantities and during reasonable times”

Their article also quotes Samuel Evan Goldberg, a lawyer with Goldberg & Lindenberg, who noted that the “landlord must provide heat and hot water to tenants. The hot water must be a minimum of 120 degrees Fahrenheit. Landlords are required to provide heat during the months of October 31st through May 31st

If the outside temperature is 55 degrees or below between 6:00 am and 10:00 pm, it must be at least 68 degrees in the apartment building, and the inside temperature must be 62 degrees [between 10:00 pm and 6 am].”

In short, landlords must provide access to heat – but your responsibilities don’t end there. If you’ve agreed to provide heat or other basic utilities, Pine Tree Legal Assistance lists four situations that would likely break the law:

  1. “The temperature in your rental is so low that it ‘injures the health’ of anyone living there. (This rule does not apply to someone who is so sick that he cannot stay healthy with a normal amount of heat.)
  2. The heating system is not able to heat the unit to at least 68 degrees when it is down to 20 degrees below zero (-20 F) outside. 
  3. The heating system doesn’t keep the building’s systems (like water pipes) from freezing.
  4. Other basic utilities in the unit don’t work, making it unsafe or unfit.”

If you’re not sure whether your heating system can warm the unit to at least 68 degrees, test it “by setting a thermometer at least 3 feet away from an outside wall and about 5 feet above the floor.” Note that the reading doesn’t count if it’s closer to the floor or wall.

Pro Tip:Be sure you know your state and city’s requirements regarding minimum and maximum temperatures your unit(s) can be! If you see conflicting information between your local laws, follow the stricter ordinance. And don’t be afraid to ask a legal representative or your city code enforcement office for help as needed.

A man adjusts a smart thermostat to control heat in his home.

Controlling the Temperature in Your Rental

Though the best rule of thumb is to ensure that your rental can maintain at least 68 degrees when the temperature drops outside, you may have more control over the temperature settings – if you and your tenant(s) have signed a lease agreement that supports your position. 

Your residential lease agreement should note which party is responsible for paying the heat bill and any other stipulations regarding energy use. So, if you and your tenant signed an agreement stating that they wouldn’t have access to the thermostat, you can decide which temperature to set your unit(s) – but be careful. Assuming that level of control means you need to be on top of the weather forecast to ensure your units are properly heated and your tenants stay safe.

If you give your tenants access to the thermostat, they can adjust the heat without needing to bother you. If the idea of giving your tenants access to the thermostat sends a chill down your spine, here are a couple of thoughts to consider:

  • Preparing your rental unit for colder months will help keep energy costs low. Check out our comprehensive article if you need help winterizing your rentals.
  • If you currently foot the heating bill, consider passing the expense – and the control – to your tenant(s) at their next lease renewal or through a lease addendum.

Did You Know?It’s most common that single-family rentals have thermostats that the renters can control whereas multifamily properties may have only a single thermostat for the whole building.

How to Reduce Your Rental Unit Heating Costs

Whether you decide to let your tenant control the heating or continue carrying the responsibility yourself, there are certain steps the U.S. Department of Energy recommends to help lower heating costs this winter, such as:

  • Conducting a yearly energy assessment, which entails checking insulation levels, inspecting heating equipment, and locating leaks
  • Advising your tenants to open curtains and shades during the day to let sunlight warm the rooms
  • Recommending that any unused rooms stay closed (as applicable)
  • Performing seasonal inspections to check for drafty windows, broken vents, and air duct leaks
  • Upgrading your unit’s heating system as newer high-efficiency heating systems can run at 90-98.5% fuel efficiency ratings compared to older systems, which run at 56-70% fuel efficiency ratings, according to CNET

You should also consider investing in smart technology as a way to lower the energy bill.

Get Smart: Using Technology to Cut the Energy Bill

Smart technology has come a long way since its inception – which is great news for those looking to save money on their energy bill. According to Reviews.org, “almost half of the cost of the utility bill comes from your cooling and heating system.”

That’s where smart thermometers come in. 

Whether you elect to control the temperature as agreed in your lease or allow your tenant full range, having a smart thermometer enables the unit to hone routines that support energy conservation.

For example, your tenant could program the thermometer to hold the unit’s temperature at 68 degrees while they’re at work, then kick up to 70 degrees at 5 pm when they return home. That way, the unit isn’t eating up energy while no one is home – without your tenant having to sacrifice their comfort.

Smart thermometers range in price, starting around $140.

Bottom Line

If your signed lease agreement says that your tenant won’t have access to the thermostat, then you get to dictate the temperature within the unit – but be sure to appreciate the great power that comes with this responsibility. Keep up with the weather forecast, and plan ahead to ensure your tenants are warm and safe within your rental property.

When in doubt, maintain a comfortable 68 degrees (or at least above the minimum temperature dictated by your local laws), and don’t hesitate to check in on your tenants when particularly bad weather is ahead. Reaching out to make sure they’re safe, well-stocked, and prepared for the storm will save you from getting frantic calls once the snow falls – and it helps your landlord-tenant relationship thrive, no matter the weather!

TurboTenant, Inc does not provide legal advice. This material has been prepared for informational purposes only and TurboTenant assumes no responsibility or liability for any errors or omissions in the content of this material. All users are advised to check all applicable local, state, and federal laws and consult legal counsel should questions arise.

Written By: Krista Reuther

Krista Reuther is the Senior Content Marketing Writer at TurboTenant where she writes data-driven, actionable material to help landlords and renters alike.

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