It is not possible to summarize this succinctly. The case is complicated, as are the requirements that follow 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, given that the commission is paid by the seller at closing.
In reality, this is not the case. While it is true that the commission for both the buyer’s and seller’s agents come from the seller’s side, the seller would not be able to pay it unless the buyer purchases 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 every state has different rules. In North Carolina, commissions are handled in the sales contract, so we’ve always had conversations about commissions with our sellers. We also always sign buyer representation agreements and talk about compensation.
Below are the key points of the agreement.
- First, sellers can choose to offer a commission to the buyer’s agent or not.
- Second, compensation offers can no longer be listed on 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 payment to their buyer’s agent. (As an aside, not to overcomplicate this, veterans, under VA guidelines, specifically cannot pay a commission and must get it from the seller. This could put people who want to use their VA credit at a disadvantage until VA guidelines change.)
Now, let’s analyze what all this means.
What is missing from much of this debate is what will happen to house prices. We price houses based on previous sales, called comparables, all of which have full commission included.
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 agents work incredibly hard for their clients.
The new rule that we can’t put commission information on the MLS is very important. Now, before an agent shows a property, they will need to communicate with the listing agent to find out what to communicate to their buyer client about compensation. Multiply this by the number of homes we show in a day. This is on top of all the work we already do to prepare for showings, including evaluating all the information about the property and crunching the numbers so we can be prepared to discuss pricing 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 real estate 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 firm will offer different payment options for buyer’s agents. These could include a commission paid at closing by either the seller or the buyer; a flat fee; or possibly a retainer fee and an hourly rate thereafter.
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.
