The long-established custom that residential home sellers share a significant percentage of their profit with buyer brokers is being upended by a $418 million settlement involving the National Association of Realtors. If the settlement is approved by a federal court, listing agents won’t have to specify what a buyer’s agent will be paid, leaving that to be negotiated between the buyer and their agent. The change is expected to arrive in about July.
Many buyers already work directly with listing agents if they find listings on sites such as Realtor.com, but many also employ buyer agents as they shop for the right home.
“All eyes are laser focused on the commission structure for listing agents and buyer agents for good reason,” says Jill Schwartz, sales associate at Douglas Elliman Real Estate in Palm Beach.
On its face, “it seems like a dream career to showcase luxury listings on Instagram and collect hundreds of thousands of easily ‘earned’ commission dollars for opening a few doors and waving to the videographer as we lure our audience through luxurious homes,” Schwarz says. Ah, but behind the scenes, it’s quite a different beast, she continued. “It can take months of decluttering, staging, renovating, improving and improvising to showcase the home as pure perfection. That’s our responsibility as a listing agent.”
For those who believed the commission system was predictable, well, shunt that notion aside, says Schwartz, who characterized the entire process as subjective and not regulated.
“Sellers often interview and can hire one—or, in some states, multiple—listing agents to sell their home. There are full-service top-tier and discount brokerages that sellers can choose from and further negotiate the commission structure based upon the specific agent,” she says.
Meantime, back on the legal front, since the decision, a slew of other lawsuits have been filed nationwide, said Professor Suzanne Hollander, an attorney and broker who teaches real estate law and property rights at Florida International University.
The lawsuits are claiming that the commissions paid to the buyer’s agents shouldn’t be dictated by the Multiple Listing Service, nor should co-ops be the seller’s expense, noted Schwartz. Rather, it should be the buyer’s responsibility to compensate their buyer agent.
She further noted that the class action lawsuits against the brokerages have been “long overdue.” It was obvious‚ and only a matter of time, that coop and buyer agent fees listed in the MLS would be entered at zero. “Every component of a real estate transaction is customizable and negotiated.”
Still, Hollander acknowledged that “the brokerage community was kind of blindsided by [the verdict— or maybe didn’t really take it seriously because people weren’t really thinking about it.”
Maybe not, said David Hellmuth, an attorney and partner with Hellmuth & Johnson. “I think that the decision is not surprising due to the fact that real estate agents and brokers are often not fully transparent about how commissions are handled with their clients.
Schwartz said the industry is evolving with artificial intelligence. “The top producing agents will continue to offer value-added services and the real estate industry will continue to expand and grow as housing demands continue to increase at record pace.” What’s more, she continued, commissions should be negotiated based on the goals of the home seller.
Hollander believes the lawsuits will lead to increased commission negotiations. “Sellers are going to say, ‘I want to negotiate what I’m going to have to pay the buyer’s broker.’ So real estate agents have to be prepared for that.”
Whatever unfolds, she explained that these cases are challenging the long-established national custom that residential home sellers share a significant percentage of their profit with buyer brokers.
At the end of the day, Hollander believes the impact of these lawsuits will reverberate through the industry. “I think the lawsuits will be a catalyst for a change in the way compensation is [handled] for the purchase and sale of real property. I do believe that buyers’ agents are professionals and should be compensated for their work. These new changes will lead to more competition that will help buyers and sellers, as well as innovations in compensating brokers.”
Speaking of reverberations, the NAR settlement was lauded by both consumer advocates and some Realtors, both of whom characterized it “a win for homebuyers and sellers,” according to nbcnews.com.
“Price transparency is a good thing; increased competition is a good thing, and this will increase both,” Mariya Letdin, an associate professor at Florida State University’s College of Business,” told NBC. “I really welcome this change.”
