To sum this up succinctly is not possible. The case is complicated as are the requirements coming out of it. There hasn’t been just one case. There have been many class action lawsuits over the past few years against NAR claiming that the association rules allow for the overpayment of commissions by the seller given that the commission is paid by the seller at closing.
In reality this is not true. While it is true that the commission for both the buyer and seller agents come from the sellers side of the equation, the seller would not be able to pay this unless the buyer bought the home. In reality, the buyer is paying their fair share of the commission but it doesn’t feel like they are.
It is more complicated than this because different states have different rules. In North Carolina, commissions are handled in the listing agreement, so we have always had commission discussions with our sellers. We also always get signed Buyer Agency Agreements and discuss compensation.
Here are the important points from the settlement.
- First, sellers can choose to offer a commission to the buyer’s agent or not.
- Second, offers of compensation can no longer be put into the multiple listing system (MLS).
- Third, if a seller does not offer compensation to a buyer’s agent, the buyer will need to pay for the service. Buyers can ask sellers for closing costs to cover the payment to their buyer agent. (As an aside, not to make this too complicated but Veterans, based on the VA guidelines, specifically cannot pay a commission and have to get it from the seller. This could put people wanting to use their VA credit at a disadvantage until the VA guidelines change).
Now, let’s unpack what all of this means.
What is missing from much of this discussion is what will happen with home prices. We price homes based on previous sales, called Comparables, all of which have had a full commission built into them.
It is unclear if the sellers in the Class Action Lawsuit think that moving forward home prices should be based on the full sales price of the Comps. If that is the case, sellers would get the part of the commission that would have gone to the buyers agent. Buyers would be paying for a commission twice, by paying a higher price for the house and paying for their agent, if they choose to have one.
If a seller chooses not to compensate a buyers agent, what do you think should happen with list prices? Should buyers pay twice?
Buyer Representation is very important and it is not going to go away. Buyer agents work incredibly hard for their clients. For a detailed description of what buyer agents do throughout the home buying process, see my video, “What Do Buyer Agents Really Do.”
The new rule that we can not put information about commissions in the MLS is huge. Now, before an agent shows a property, they will need to contact the listing agent to know what to communicate to their buyer client about compensation. Multiply this by the number of houses we show in a day. This adds to all of the work we already do to prepare for showings, including evaluating all of the information about the property and running numbers so we can be prepared to discuss pricing on each and every house we show.
Think about the impact on listing agents. Listing agents will be bombarded with phone calls or text messages asking whether the seller is paying a commission or not. This information can be someplace else but where will it be and how will that be communicated to agents if it can not be done through our primary means of communication, the MLS.
To make this more complex, there will be those buyers who think they don’t need a buyers agent. They are going to be calling the listing agent too. How can one listing agent handle this increased pressure when we are running a business and have multiple listings and multiple buyers we are working with at any given time.
If buyers want to go directly to the listing agent it is not going to be free and they won’t get the type of expert analysis and guidance they would get from having their own buyers agent.
Moving forward, every agent and/or company will come up with different payment options for buyer agents. These could include a commission paid at closing, either by the seller or buyer; a flat fee; or possibly a retainer fee and subsequent hourly rate.
It will be even more important than ever for buyers to interview buyer agents and hire the best qualified person to analyze, advocate, and negotiate on your behalf. As buyer agents it is our job to get you what you want and get the best deal possible. I am proud to report that I recently negotiated an excellent price on a home for a client and got them a $36,000 repair credit. This does happen! Sometimes in this crazy competitive landscape the best we can do is get you the house! We do that too!
Starting July 2024, the real estate landscape is going to change a lot. If you have questions about how to navigate these changes as a buyer or a seller, don’t hesitate to reach out to me at [email protected] or 919-759-6359.