A recent nationwide settlement by the National Association of Realtors (NAR) could drastically impact how buyers and sellers compensate real estate agents. Critics argue the existing system artificially boosts agents’ commissions.
The settlement marks a shift in the real estate landscape, with conceivable implications for millions of homebuyers, sellers, and real estate professionals nationwide. While attorneys continue to finalize the specifics, local realtors commented on the potential impact.
“The recent settlement for NAR means a better pathway forward for consumers and their realtor,” said Greater Owensboro Realtor Association President Matthew Schell. “The settlement, which is focused on helping disclose commissions to the public, includes two fundamental changes to the daily practice of real estate agents.”
NAR represents more than 1 million realtors in the U.S., and since the 1980s, sellers have determined the commission paid to buyers’ agents for the use of the multiple listing service (MLS). As is, data from Forbes suggests buyers’ and sellers’ agents can share anywhere between 5-6% commission. As reported by national outlets, critics suggest including commissions on the MLS encouraged brokers to steer buyers toward more expensive listings.
Owner and principal broker of Triple Crown Realty Group Charlie Dawson elaborated on the presumption that realtors were overcharging clients.
“I believe there are a lot of misconceptions out there about the reasons this transpired,” Dawson said. “A common conception in the consumer population is that this lawsuit is about realtors overcharging clients; however, this is not the case. My understanding is that the actual issue stemmed from a lack of transparency from agents to consumers on how commissions were paid to the involved realtors.”
Following the settlement, buyers and sellers will leverage negotiations for a commission percentage. The settlement deduces that sellers can continue offering the buying agent a commission, but it’s not a requirement for using the MLS. The settlement also ends the requirement that brokers subscribe to the MLS.
Schell and his industry counterparts all said that commissions have always been negotiable. He said the settlement offers more transparency to the involved parties.
“Moving forward, realtors will provide all parties with transparent documentation on the commission amount being paid to the respective licensees,” Dawson said. “This ruling will also clarify for consumers the expectations of the realtor representing them through buyer-agency agreements, which were previously optional.”
Vickie Ballard with Supreme Dream Realty echoed Dawson’s statements.
“I think there has been some confusion on some of the information that has been getting out there,” Ballard said. “The American dream has always been to own a home. Many realtors, like myself, work day and night to make this a reality for our buyers and sellers looking to move.”
The settlement stems from allegations of anticompetitive practices.
By law, selling and buying agents are required to act in the best interest of their clients. The group of home sellers from Missouri who filed the class-action suit against NAR, Anywhere, Berkshire Hathaway HomeServices, Keller Williams, and RE/MAX said the agents have conflicting interests, thus creating a direct violation of the Sherman Antitrust Act.
The settlement is subject to court approval, which clarifies that NAR continues to deny any wrongdoing. However, the organization agreed to pay $418 million over 4 years and alter the commission-sharing rule central to the litigation.
“It became evident about a year ago with this Sitzer/Burnett lawsuit, and there was some shock and panic in the industry about how everything would turn out after the verdict,” said local realtor Blake Hayden with BHG Realty. “While I disagreed with the ruling, I believe some positive changes will occur as a result.”
In the suit, the plaintiffs’ attorneys argued the sellers overpaid in commissions, citing the MLS Handbook and other standards of practice as evidence that they should not have had to pay the buyer’s agents.
Court documents showed that NAR and the other defendants argued for dismissal on the grounds that current procedures do not violate antitrust laws and that MLS rules and the Code of Ethics exist to create market competition and value for all parties involved.
The court rejected the argument and submitted it to a jury, which spent less than 3 hours deliberating and ruled in favor of the plaintiffs. The changes will likely go into effect this summer, and Hayden said several industry experts are still determining how things will unfold.
“It’s going to take all of us as an industry the next 4 months and even years after that to settle into a new normal,” he said. “There are a lot of great realtors in our brokerage and across the community. In any business, you get paid by your value, especially if paid on commission or as an independent contractor.”
He continued, “I think our industry will actually strengthen, and in due time, the best agents — the ones who take their careers seriously — will rise to the top. This should tighten the level of professionalism, increase performance, and create value for the consumer.”
And now the ultimate question: what does this mean for home prices?
Local realtors agreed the settlement would have minimal impact on housing costs.
“This recent change should not impact the housing market and home prices, as they are typically tied to supply and demand,” Schell said. “The public will now select agents and interview them to determine the best fit and the varying services they need from the agent.”
Hayden said many critics are focusing on the buyer’s agents, arguing that fees will be less, housing prices will drop, and this will fix the underserved element. He strongly disagreed with that sentiment.
“They’re saying that a seller won’t have to pay the buyer’s agent. If that’s the case, guess who has to pay: the buyer,” he said. “There’s a lot of confusion about what this looks like and how it will play out, but I don’t think it will drive prices down because supply and demand drive prices, not paying a buyer’s agent.”
Assuming the court approves the settlement, NAR must remove commissions from its MLS system by July. Then, the industry and the public will determine how to compensate a buyer’s agent.
Michelle Wiesman with the local RE/MAX said the settlement could complicate VA and FHA loans, as those borrowers legally can’t pay realtor fees when buying a home. She added that other conceivable complications could result from the potential ruling, such as buyers having to qualify to cover the buying agent’s commission.
“The paperwork will ultimately change to ensure buyers and sellers have a better understanding of the commission they will pay,” Wiesman said. “While clients and consumers may feel these changes will work to their advantage, they only change how realtors communicate and are compensated.”
With the effects still unknown, Wiesman doesn’t foresee dramatic changes in how realtors sell real estate.
“The insight and skill of a realtor will be needed more than ever,” she said. “We will continue to deliver good customer service and honor our fiduciary responsibility to assist buyers and sellers with the sale or purchase of their most prized possession: their home.”
Schell concluded that the local Realtor Association will continue to monitor the situation closely and is eager to prepare local agents to serve the public’s needs.
