Summarizing this succinctly is not possible. The case is complicated as are the requirements that arise from it. There has not been a single case. There have been many class action lawsuits in recent years against the NAR alleging that the association's rules allow excessive payment of commissions by the seller, since the commission is paid by the seller at closing.
This is actually not true. While it is true that the commission for both buyer and seller agents comes from the seller's side of the equation, the seller would not be able to pay it unless the buyer purchased the home. In reality, the buyer is paying his or her fair share of the commission, but it doesn't seem that way.
It's more complicated than this because each state has different rules. In North Carolina, commissions are handled in the listing agreement, so we have always had commission conversations with our sellers. We also always sign buyer agency agreements and discuss compensation.
Here are the important points of the agreement.
- First, sellers can choose whether or not to offer a commission to the buyer's agent.
- Second, compensation offers can no longer be included in the multiple listing system (MLS).
- Third, if a seller does not offer compensation to the buyer’s agent, the buyer will be required to pay for the service. Buyers can ask sellers for closing costs to cover paying their buyer’s agent. (As an aside, I don’t want to overcomplicate things, but veterans, under VA guidelines, specifically cannot pay a commission and have to get it from the seller. This could put people who want to use their VA credit at a disadvantage until the VA guidelines change.)
Now, let's look at what this all means.
What is missing from much of this debate is what will happen to home prices. We price homes based on previous sales, called comparables, all of which have a full commission built in.
It's not clear whether the sellers in the class action think future home prices should be based on the full sales price of comparable properties. If that's the case, the sellers would get the portion of the commission that would have gone to the buyer's agent. Buyers would pay a commission twice, by paying a higher price for the home and to the agent, if they choose to have one.
If a seller decides not to compensate the buyer's agent, what do you think should happen to listing prices? Should buyers pay twice?
Buyer representation is very important and it is not going away. Buyer's agents work incredibly hard for their clients. For a detailed description of what buyer agents do during the home buying process, watch my video, “What do buyer agents really do?“
The new rule that we cannot put commission information in the MLS is very important. Now, before an agent shows a property, he or she will need to contact the listing agent to know what to communicate to his or her buyer client about compensation. Multiply this by the number of homes we show in a day. This is in addition to all the work we already do to prepare for showings, including evaluating all property information and run numbers so we can be prepared to discuss prices for each and every home we show. .
Think about the impact this will have on real estate agents. Real estate agents will be bombarded with phone calls or text messages asking if the seller is paying a commission or not. This information may be somewhere else, but where will it be and how will it be communicated to agents if it can't be done through our primary means of communication, the MLS?
To make matters even more complicated, there will be buyers who think they don't need a buyer's agent. They will also call the listing agent. How can a listing agent handle this added pressure when we run a business and have multiple properties for sale and multiple buyers we are working with at any given time?
If buyers want to go directly to the listing agent, it won't be free and they won't get the kind of expert analysis and guidance they would get if they had their own buyer's agent.
In the future, each agent and/or company will offer different payment options for buyer's agents. These could include a commission paid at closing, either by the seller or the buyer; a fixed rate; or possibly a retainer fee and an hourly rate afterward.
It will be even more important than ever for buyers to interview buyer's agents and hire the best qualified person to analyze, advocate, and negotiate on their behalf. As buyer's agents, our job is to get you what you want and get you the best deal possible. I'm proud to report that I recently negotiated a great price on a home for a client and got her a $36,000 repair credit. It happens! Sometimes in this crazy competitive landscape, the best thing we can do is get you the house! We do that too!
Starting in July 2024, the real estate landscape is going to change a lot. If you have questions about how to deal with these changes as a buyer or seller, please feel free to contact me at (email protected) or 919-759-6359.