You’ve probably seen the headlines or heard the news. The National Association of Realtors has been found liable in a lawsuit over Real Estate commissions.
In October, a federal jury in the state of Missouri found that the National Association of Realtors and many of the biggest residential real estate companies in the U.S. broke antitrust laws by requiring sellers to pay buyers’ agents commissions
A guilty verdict was reached in the prominent Sitzer/Burnett class action suit and defendants were awarded approximately $1.8 billion.
The parties agreed to settle and Judge Stephen Bough (Boo) granted preliminary approval to NAR’s settlement agreement in March. Final approval is pending and set for November 2024.
Other copy-cat suits have also settled and the numbers are substantial.
The National Association of Realtors has agreed to pay $418 million
Keller Williams $70 million
Anywhere Real Estate which includes (Better Homes and Gardens, Century 21, Coldwell Banker, Corcoran, ERA and Sotheby’s) $83.5 million
RE/Max, $55 million
Berkshire Hathaway $250 million
Redfin $9 million
Compass $57.5 million
Real $9.2 million
Debating the merits of the case at this point is unproductive. What’s done is done and the residential Real Estate industry needs to transition to a more transparent, yet somewhat challenging business model going forward.
That being said, it’s worth noting with customary legal fees of 33% to 40%, the attorneys in this matter ironically stand to rake in more than $350 million.
And who knows what the class plaintiffs will receive in the end, as it’s estimated over 21 million Americans could be part of the settlement class.
On that note, if you sold a home in the United States within the last ten years, you may qualify as a class member. You have until May 9th 2025 to submit a claim.
There’s a website where you can explore your rights and options. I’ll put a link in the description.
Anyway. Before we go any further, let me clarify some terms.
All real estate agents are required to be licensed and overseen by a Real Estate Broker in the State where they do business.
A REALTOR is an agent or broker that is a member of the National Association of REALTORS. Not all Brokers and Agents are REALTORS but all REALTORS are either licensed agents or brokers. To become a REALTOR, agents and brokers must pay annual dues to the National Association of REALTORS as well as state and local REALTOR association dues.
REALTOR members have access to the MLS or the Multiple Lising System.
The MLS is a powerful data base, enabling all members to upload properties for sale, exposing all listings to all other participating members.
Having access to the MLS is a compelling reason to become a REALTOR. In fact, many in the industry would say it is the main reason.
NAR establishes the rules and regulations for the more than 600 Multiple Lising Systems across the United States.
For nearly 70 years now, if a listing is entered in to the system it must include an offer of compensation to all agents in the system who may secure a buyer for that listing.
This blanket offer of compensation to buyer’s agents is THE CORE issue of the law suit.
Anyway, here’s what’s due to change this August.
The examples that follow pertain to the State of Florida. While each State has its own regulations and documents governing Real Estate, the basics are the same.
So, if you decide to hire a REALTOR to manage the sale of your home, you’ll typically enter into a Listing Agreement with that REALTOR.
The listing agreement outlines your asking price, terms you may accept, the length of the listing, showing procedures etc.
Of course, the agreement also includes the Real Estate commission to be paid if the property sells.
Real Estate commissions are negotiable, but for purposes of illustration let’s assume that you, as the seller and your agent have agreed to a 5% total commission to be paid at closing.
The Listing Agreement also clearly states what will be offered to a buyer’s agent in the event they produce a ready willing and able buyer for your home.
In this example let’s assume you and your listing agent agreed to offer half of the total, or 2.5%
When your listing is entered in to the MLS, the agreed upon buyer agent fee is entered in the appropriate fields.
By the way, regarding the 3 categories of compensation: Single Agent, Trans Broker and Non-Rep. The distinction between the 3 is beyond the scope of this video, but is extremely important. My next video will explain in detail what you need to know and what this means to you as a buyer or a seller in Florida.
Anyway, when an agent finds your listing in the MLS, the buyer agent fee is displayed in the compensation section. For now.
As of August 17th 2024, this will disappear.
This doesn’t mean that you as a Seller cannot pay a buyer’s agent if you see fit. It means an offer of compensation will not be displayed anywhere in the MLS.
The reasoning behind this change is to prevent agents from the unethical practice of selectively showing or “steering” buyers toward or away from particular listings based on the amount of compensation being offered.
As part of the settlement, NAR has mandated the following changes:
- Eliminate any offers of compensation in the MLS to buyer brokers or other buyer representatives.
- Eliminate all broker compensation fields and compensation information in the MLS.
- Require compensation disclosures to sellers and buyers.
- Also, Buyer agents must enter into a written agreement with the buyer prior to touring a home
The Buyer agreement must incorporate:
- The amount or rate of compensation the agent will receive and how this amount will be determined.
- The amount of compensation cannot be open-ended.
- The agent cannot receive compensation from any source that exceeds the amount agreed to in the agreement.
- The agreement must contain a conspicuous statement that broker fees and commissions are not set by law and are fully negotiable.
Those are the changes going in to effect August 17th. The final approval of the settlement is set for November of this year.
Also, the Department of Justice
is reviewing the case and appears to be “unsatisfied” with the settlement agreement in the NAR case and related cases,
A recent article In RisMedia dated May 21st quotes Jessica Leal, a lawyer representing the DOJ
Leal called the NAR settlement
“An improvement,” but implied it was not enough. Saying, “We believe offers of compensation should not be made anywhere, but certainly not on the MLS,” Leal said.
Leal also indicated the DOJ was not currently supporting or opposing the NAR settlement.
So, there’s a lot of speculation regarding the impact of these changes.
Generally, the aim for a higher level of transparency between agents and buyers is a positive development.
Under the old system, some buyers had no idea how their agent was getting paid or how much.
Also, the Seller’s blanket offer of compensation being made to any buyer agent, regardless of their skill, experience or even the relationship between the agent and the buyer is a bit odd.
Consider this: there are currently over 28,000 REALTORS in the Tampa Bay market alone and about 1.5 million REALTORS in the United States.
So basically, everyone knows a REALTOR or at least knows someone who knows a REALTOR.
The skill level, experience and productivity among REALTOR agents varies widely to say the least.
Anyone with a high school diploma who can do basic math and pass a reading test can get a Real Estate license. These “low barriers to entry” contribute to the massive, 87% failure rate of new agents. As they say, many are called but few are chosen.
Moving forward, buyer agent compensation will be determined by the buyer and their agent.
In certain situations, the buyer may ask the seller to pay the buyer agent fee as part of their offer. This is how it’s been done in Commercial Real Estate for years.
Sellers and their agents will weigh out the benefits of an offer in its entirety and determine how it affects the Sellers bottom line along with the other needs and requirements of the Seller.
Real Estate sales don’t operate in a vacuum.
There are offers and counter offers.
There can be multiple offers or no offers at all.
But, when a buyer and a seller come to an agreement, all of the terms and conditions including any agreed upon compensation to a buyer’s agent will be incorporated in to a written contract signed by all the parties involved.
It’s important to note that when a seller pays the buyer agents fee from their proceeds it becomes part of the total Sale Price. This in turn allows the buyer to effectively finance the buyer agents fee as opposed to incurring an additional out-of-pocket cash expense.
This can be critical to buyers who are approved for low down payment financing. Many popular mortgage products are available with a downpayment of 10% or less. FHA loans only require 3.5% down and VA loans for qualified veterans require no downpayment at all.
Seller concessions and contributions are fairly common place. Especially in the case of first-time home buyers.
Many popular mortgage loan products allow a seller to contribute anywhere from 2% to 9% of the Sale Price toward the buyer’s mortgage closing costs.
In light of all the recent changes: FHA, Fannie Mae and Freddie Mac have clarified that seller paid commissions to buyer agents will not count against these allowable seller contributions.
However, buyer agent commissions can only be financed if included in the sale price and paid by the Seller. In other words, if a buyer agent commission is added to the sale price after the fact, it cannot be included in the loan amount, resulting in an additional out of pocket cash expense for the buyer.
A survey conducted by ThousandWATT (a Portland Oregan based Real Estate Branding & Marketing Agency) asked the following question to a sample of consumers who have recently bought and sold real estate.
Currently, in most Real Estate transactions, the agent representing the buyer is paid about 2.5% of the home’s sales price. This commission is determined by the Seller and their agent before the home is listed for sale, and comes out of the Seller’s sale proceeds at the close of the transaction. How do you interpret this?
35% responded “The buyer is paying nothing for their agent’s services.
65% said The buyer is paying the 2.5% that goes to their agent because the buyer is the source of the money in the transaction.
When asked: Do you think this seems fair?
94% said Yes and 6% said No
In the final analysis, the buyer must be comfortable with the down-payment and the total cost of ownership, including the monthly payment.
The Seller must be comfortable with the amount of money they receive net of expenses, in a suitable time frame.
The Seller is selling the Home and the Buyer is selling the Money.
What do you think? I’d like to hear from you.
Do you have a question or an opinion? Please post it in the comments.
Thank you for your time.
https://www.realestatecommissionlitigation.com/
https://www.nar.realtor/about-nar/governing-documents/the-code-of-ethics