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In March the National Association of Realtors agreed to pay $418 million and make changes regarding buying a home with an agent in the United States in order to settle a class-action lawsuit alleging that the industry conspired to keep agent commissions among the world’s highest — often 5 or 6 percent, split between the listing agent and the buyer’s agent, all paid for by the seller.
Under the terms of the 108-page settlement agreement, offers of compensation are now prohibited on multiple listing services. Traditionally, this is where buyer’s agents could learn what commission to expect from a seller. Offers of compensation will continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals.
Offers of compensation can help make homeownership and the benefits of professional representation more accessible to buyers, increase homeownership opportunities for historically underserved groups, and benefit sellers by expanding the potential buyer pool and ensuring they receive the best offer possible for their property.
Also as part of the settlement, agents working with a buyer must enter into a “written buyer agreement” before showing a home. The changes do not require an agency agreement or dictate any type of relationship. NAR encourages all members to prepare to educate real estate professionals and consumers about revised forms.
The nonprofit Brookings Institution in Washington, D.C., described the practice of “tying” buyer and seller commissions as harmful. Tying commissions — whereby an MLS mandates that buyers’ agents be offered a predetermined commission — has been shown to inhibit competition and drive-up fees, the institution noted in a paper.
“These changes help to further empower consumers with clarity and choice when buying and selling a home,” said NAR President Kevin Sears in a statement.
Are better days ahead for potential real estate buyers? Some think so. Others are not so sure.
“With commission costs off the table, negotiations can focus squarely on the property’s price, streamlining the discussion,” said Darryl Davis, a Rocky Point-based real estate agent coach and trainer in a YouTube video. Davis has published several NAR-settlement commentaries and informational guides on his website.
“It’s not good when one does not know what their compensation is going to be. We do not know what the cap is,” said a Hamptons-based real estate agent speaking on the condition of anonymity. “People are going to continue to need agents. Rates have always been negotiable, especially on high-end properties. We are talking to lawyers while trying to unravel this.”
“We fully expect this to be enforced,” said a second Hamptons-area agent also speaking under anonymity. “Until then, there is going to be a lot of ambiguity.”
Representatives from other area brokerages declined to answer questions for this article or did not return phone calls seeking comment.
While commission fees were always negotiable, most customers were not aware of this or did not realize that they could negotiate with an agent. Also noted in the lawsuit was that some homesellers alleged that real estate agents would sometimes “direct” buyers to certain properties based on the amount of compensation the agents could potentially receive. Removing commissions from MLS was designed to prevent the directing of buyers to higher-commission properties.
The real estate market is very dynamic. In an environment when inventory is thin — i.e., a seller’s market — it may be relatively easy for sellers to leverage the demand for their home and decline to pay the buyer’s agent’s fees, effectively increasing the total amount the buyer would pay. An anxious buyer might agree to such terms. In the opposite scenario, during a buyer’s market, a seller may become anxious, especially if eyeing another property and in need of capital. In such a case, a seller may offer to pay the buyer’s agent’s fees.
“The goal here is decoupling,” said Tanya Monestier, a scholar at the University of Buffalo School of Law specializing in contracts, via a statement. “Sellers pay for their agent. Buyers pay for their agent. Because you are now paying for your own services, the thinking is that it will become more competitive. We might see buyers’ agents agreeing to do deals for flat rates, or 1 percent, or 1.5 percent. Ultimately, both buy-side and sell-side commissions should come down.”
Monestier noted it is also possible that more buyers will negotiate without an agent, entirely avoiding their fees. That could lead to less potential work for real estate agents.
