On this blustery day in the mountains, I wanted to take a moment to help explain the recent NAR Settlement – Real Estate Commissions

No doubt there are many of you have been reading about the class action lawsuit settlement between the National Assoc of Realtors and the plaintiffs regarding a commission dispute. 

The main premise of the suit is that the plaintiffs accused realtors and real estate agents of ‘price fixing’ commissions. The reality of the situation is that commissions have always been fully negotiable. In the perfect scenario an agent will have discussed the commission to sell the house and that this commission is split with the buyer’s agent. Colorado listing agreements offer sections to fill in both the gross commission and what the split between the two agents will be. All parties then are required to sign (and hopefully have read) the listing agreement.

So where did the issue arise from? My belief is that there have been documented cases (voicemails, video calls etc.) of brokers saying something along the lines of…… “if they are not paying X% commission, then I won’t show the property” – This is against the code of ethics and basically very bad business. Steering clients is not allowed. Whilst not commission fixing, enough examples of this allowed the plaintiffs to make a case worthy of a settlement if not one that would have held up in court. It is worth noting that the NAR did not admit to any wrongdoing.

The reality is that because of these steering situations, the settlement was agreed upon with certain provisions. The settlement still must be ratified by the DOJ – most likely either July or August this summer.

The two main outcomes are as follows:

1. There can be no mention of the co-op commission that a seller is offering to the buyer agent in the MLS. The offer of a co-op commission can however be publicized on the brokerage website or non-MLS literature, or a buyer’s agent can ask the listing broker directly if the seller is offering a commission. 

2. Buyer’s agents are required to sign up all buyers to a Buyers Agency agreement prior to showing any property. This agreement requires the compensation being paid to the buyer’s agent to be clearly cited.

So, what does this mean for the consumer? i.e., the seller and buyer. 

I think there will be more transparency in the process for all agents and consumers. For experienced agents who have always used buyer agency agreements and explained commission levels to sellers, this will not be a huge departure from the norm. For some it will no doubt be a change.

The seller can still offer a co-op commission to the buyer’s side.
The seller can offer seller concessions to the buyer to cover closing costs etc. 
The buyer’s agent can still ask if the seller is offering a co-op commission.

There has been some discussion or indeed hope that this will reduce the price of housing. My professional opinion is that this will not be the case. With inventory levels low and sellers still feeling in a position of strength, I do not think they will drop their pricing. This is not to say that more systemic changes in the economy or interest rates won’t still have an impact on pricing.

I think that there is still a very good argument for sellers to offer a co-op commission. 

1. It ensures that both sides of the transaction are represented by qualified professionals who are incentivized to engage in the successful closing of the contract.
2. It ensures that the buyer does not have to use funds ear marked for a down payment on a home to pay their buyer’s agent. 
3. Having unrepresented buyers or buyers being represented by the listing agent can expose the contract to bias and ensuing legal matters. 

Ultimately, the onus is on us as real estate brokers to demonstrate our value, the value in showing and identifying suitable properties, the value in writing up a winning contract and the skill of negotiation, and finally the often-misunderstood value of the closing process. Namely all the details, inspections, paperwork etc. that ensures a smooth transaction. Details that often get done without the buyer or seller fully appreciating the behind the scenes work that goes on.

If you would like to have a chat about this, do not hesitate to give me a call.