Upon recently receiving a plethora of phone calls it solidified the need to unpack the news. Over the past year I have attended countless zoom meetings while researching this topic at length. This is the biggest thing to hit real estate since the internet. The media is audaciously butchering the facts while spreading misinformation. Some outlets have suggested that NAR (National Association of Realtors) has previously set or guided commissions to a standard rate of 6%. In recent comments, President Joe Biden misspoke by suggesting that the settlement makes commissions negotiable for the first time.
First, please allow me to start off by saying that commissions are negotiable. They have always been negotiable and after this case will remain negotiable. Bare with me this topic can be complex and lengthy, but I will do my best to get straight to the point. Let's start with the facts; as with most changes to real estate, it all begins with a lawsuit.
The Case: Sitzer-Burnett, began October 8, 2019. It is a class-action lawsuit that was filed in a Missouri federal court by a group of home sellers in the state against NAR and other defendants, including Anywhere, Berkshire Hathaway Home Services, Keller Williams and RE/MAX. The plaintiffs claimed that real estate commission rates are too high, buyers representatives are paid too much, and NAR Code of Ethics and MLS (Multiple Listing Service) Handbook, along with the corporate practices, lead to inflated commission rates.
At the October 2023 trial, the plaintiffs took particular issue with cooperative compensation, i.e., when a listing broker makes an offer of compensation on the MLS to a buyers broker. Offer of compensation does not mean that a specific amount must be paid the offer can be any amount, including in many cases, $0.
NAR introduced evidence to show how the real estate market-place works and how cooperative compensation benefits consumers. NAR also showed that its rules prohibit anticompetitive behavior and encourage the free market and competition. However, the jury found for the plaintiffs. (source: NAR.org)
On March 15, 2024 NAR issued a statement providing a pathway to settlement. The settlement encompasses multiple conclusions to the case, with a settlement amount of $418 million dollars. The attorneys will be paid first followed by the plaintiffs.
This settlement will result in two main changes to the industry 1) No longer will commissions be offered in the MLS 2) Buyers will be required to sign a Buyer Representation and Broker Compensation Agreement (BRBC). Prior to an agent opening any door, a buyer will be required to negotiate and sign a commission agreement with their agent. As of today no settlement has been accepted. If accepted proposed changes are set to take effect July 2024.
Further Explanation:
Traditionally, listing agents negotiate their commission with someone looking to sell a property. That agent is not required to offer any compensation to another agent, in fact can find a buyer on their own and do what is called a Dual Agency; this is the same agent representing both the buyer and seller.
It has been customary, when taking a listing, to offer a portion of that listing agents commission in the MLS. Usually the amount negotiated for themselves is split between the two agents working the deal. This is not always the case tho, sometimes it is not split in half. For example, a listing agent takes a 5% listing, then offers 2% in the MLS. When the deal closes escrow buyers broker is paid 2 % and sellers broker is paid 3 %, which equates to the 5% listing. Obviously this can play out in numerous ways.
Secondly, before any doors open, a BRBC will be required. Within that BRBC, buyers will be contractually obligated to pay for their own representation. Then when a buyer makes an offer on a property they can ask the seller to cover their agent's fee. Interestingly, this resembles how commercial real estate works however, buying a home is very different.
How will buyers come up with those extra funds? My prediction is the loan industry will be forced to broaden the concept of closing costs if sellers do not offer buyer concessions. These new laws are not friendly for the first time home buyer or VA purchaser. The properties will be taken by those with deeper pockets until enough lawsuits show damages for not being able to afford proper representation.
The Takeaways:
Compensation will remain negotiable and all consumers should understand what they are paying for. These changes should elevate the standards in our industry. Agents with strong negotiation skills will rise to the top. Real estate may look easy, however, contracts get thicker every year and disclosures keep increasing. The losers will be those thinking they can save a buck with cheap representation. The value of an efficient seasoned professional will remain even more important.
I'm humbled having had the opportunity to represent equal numbers of buyers and sellers over the last 18 years. My focus has always been on strong negotiation skills, constant education and customer focused service. I do not fear these new changes they exemplify the need for a seasoned professional. As always I am here to guide you through the complexities of buying and selling real estate while continuing to promote your best interests. Should anyone wish to discuss this topic further please feel free to reach out direct.
All my best,
Jennifer Harris, Associate Broker & Realtor
The Shire Real Estate Group
DRE#01798819
Direct: 714.350.3977
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