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New U.S. Supreme Court Decision Will Increase Real Estate Commissions

By Jim Gillespie | August 13, 2007

As Florida real estate attorney Henry T. Sorensen wrote in his brief dated July 27, 2007, “On June 28, 2007, an atomic bomb went off in the real estate brokerage industry. The question is whether anyone heard it. On that date, the United States Supreme Court rendered an opinion that could profoundly affect the central compensation structure in the real estate industry, specifically the control of commission schedules offered by brokers to the public.”

In his brief Sorensen discussed the recent Supreme Court decision in the case “Leegin Creative Leather Products, Inc. vs. PSKS, Inc.” This is a case involving a manufacturer of leather products and accessories instituting a minimum pricing schedule for its products to maintain minimum retail pricing levels and to also maintain a strong brand image of the company’s products. And the U.S. Supreme Court held that Leegin has the right to do this.

Attorney Sorensen further wrote that “In one of the most significant parts of the opinion, the Supreme Court noted that without imposing the pricing schedule, retailers would be encouraged to discount prices to the point where (at) quality stores, training and marketing simply could not be provided due to the ever lowering margins made on such sales.”

Do you see any parallels here with the downward pressure on commissions these days in the commercial brokerage industry combined with lower profit margins and less money being available for training and marketing?

In his brief Sorensen concluded that this decision will be a blow to brokerage companies that discount their commissions and that it will have far reaching effects by increasing real estate commissions within the industry. And it appears that the U.S. Supreme Court decision may be most relevant to franchised commercial real estate brokerage companies in terms of any minimum standards that may be imposed on franchisees. But it also raises the question of “What if traditional real estate brokerage companies want to impose minimum commission amounts that must be charged on all real estate transactions closed by their own agents?” Does the U.S. Supreme Court decision apply in this situation also? And as always, you need to consult with your own legal counsel to learn the answer to this question and to learn how this recent Supreme Court decision will impact both you and your company.

With all the downward pressure on commissions these days combined with buyers and lessees themselves wanting to cooperate in receiving portions of the commissions from their commercial real estate transactions, any decision that can help brokers to earn and get paid fair commissions on their transactions will be welcomed by brokers all over the country.

The information on this U.S. Supreme Court decision came to me through an article written by Blanche Evans of Realty Times. For the complete text of Sorensen’s brief on the U.S. Supreme Court decision, click here.

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