Trending in the financial press is the fact that effective August 17, 2024, there are new rules revolving around Realtors Commission. These new rules are the result of a class action lawsuit against the National Association of Realtors (NAR).
These suits were filed on behalf of home sellers and buyers, claiming that the NAR and several major brokerages conspired to maintain high commissions through anti-competitive practices.
The lawsuit and subsequent changes involving the NAR stemmed from concerns over the transparency and fairness of real estate commission practices. The core of the legal action focused on allegations that the existing system for broker commissions was anti-competitive and artificially inflated costs for consumers. Specifically, the lawsuits argued that the traditional practice of sellers offering a commission to buyer agents, which is then baked into the home price, created a lack of clarity and competition regarding who pays for those services and how much they cost.
Key Issues Leading to the Lawsuit:
Commission Structure: Traditionally, home sellers set aside a portion of the home sale price as commission for both the seller’s and buyer’s agents. Critics argued that this practice led to inflated costs because buyers were often unaware of the exact compensation being paid to their agent, resulting in less competitive pricing
Antitrust Concerns: Several class-action lawsuits claimed that NAR and major real estate brokerages conspired to keep buyer agent commissions high by enforcing rules that made it difficult for consumers to negotiate or understand these fees. This was seen as a violation of antitrust laws, which are designed to prevent collusion and promote fair competition.
Lack of Transparency: The lawsuits emphasized that the traditional system hid the true cost of buyer representation, with commissions often being set without the buyer’s full knowledge or consent.
Settlement Outcomes and Rule Changes:
In response to these legal pressures, NAR agreed to a settlement that included the following major changes:
Key Changes for Home Sellers:
Compensation Choices: Sellers can still choose to offer compensation to buyer brokers.
Disclosure Requirements: Agents must disclose compensation agreements in writing and obtain seller approval.
Changes to MLS Listings: Compensation offers can no longer be shared via MLS; but can be shared on alternative platforms like social media.
Buyer Concessions: Sellers can still offer concessions for closing costs on the MLS.
Implementation Date:
Changes take effect on August 17.
What Remains Unchanged:
Realtors are still ethically obligated to act in the best interest of sellers.
Compensation remains fully negotiable.
Sellers have a range of choices when working with their agents.
Key Changes for Homebuyers:
Requirement for a written agreement before home tours.
Key Components of the Agreement Regarding Compensation:
Specific disclosure of compensation amount.
Objective, non-open-ended compensation.
Agent’s compensation capped at the agreed amount.
Clear statement that commissions are negotiable.
Other Key Changes:
Applicability to both in-person and virtual tours.
No agreement needed for casual inquiries or open house discussions.
Sellers may still offer compensation, but it won’t be shared on MLS.
What Remains Unchanged:
Realtors are ethically obligated to prioritize clients’ interests.
Compensation is fully negotiable, with clear communication encouraged.
Buyers retain the freedom to explore various options with their agents.
Implementation Date: The changes go into effect on August 17.
These updates aim to empower homebuyers with clearer choices and ensure transparency in compensation practices.
An article appearing in “USA Today” titled, “Residential real estate was confronting a racist past. Then came the commission lawsuits” stated the following: “By decoupling the commission paid to buyer brokers from seller proceeds, the landmark class-action lawsuits brought against NAR and other large national brokerages on behalf of consumers have unintended consequences.”
The concern: Black buyers, who often come to the house hunt with the deck stacked against them, will be further disadvantaged by having to pay more money out of pocket for an agent to represent them—or will choose to go without representation in a transaction that’s expensive, confusing and laden with unfamiliar pain points.
The “USA Today” article argues that legal challenges to current commission structures, while aiming to reduce costs for buyers, could inadvertently exacerbate existing racial inequities by making it harder for Black homebuyers to compete in the market.
Key Topics Discussed:
Historical context of racism in real estate: Redlining, discriminatory lending practices, and housing segregation have contributed to the wealth gap and limited access to homeownership for Black Americans.
Barriers for Black homebuyers: Limited access to credit, higher mortgage rates, and affordability issues disproportionately impact Black buyers.
Impact of commission lawsuits: Potential for higher costs for buyers, which could disproportionately affect marginalized communities, and a potential reduction in incentives for agents to represent buyers with lower budgets, further disadvantage Black homebuyers.
Expert analysis and concerns: Potential for systemic racism to worsen if the market shifts in favor of wealthier, predominantly White buyers.
Efforts to address inequity: Initiatives aimed at addressing racial inequities in homeownership, including policy proposals and community-driven efforts.
Future outlook and reforms: Importance of balancing market changes with the need for racial justice, and the need for legal and market changes to promote equity and inclusivity in homeownership.
Call to action: Stakeholders must prioritize equitable access to homeownership, especially for communities historically marginalized by the real estate industry.
I spoke to Janeen Shackelford, a high school friend and a veteran realtor with Brokers Realty Group, based in Youngstown. I asked Janeen the following:
“From a practical standpoint, other than more paperwork, how has this impacted your business? Are sellers still paying the whole fee? Has the fee being charged been reduced? Are buyers now paying a fee? If so, how much?”
Here’s her response:
“It’s too early to tell, but the new rules are designed to weed out the tire kickers and attract serious buyers. Now, you can’t see a property without a signed Buyer Agency Agreement, unless it’s at an open house.
“I’m seeing more wholesalers trying to get away with not paying buyer’s agents. That’s just not going to work—who works for free?
“If a seller doesn’t offer compensation, it’ll take longer to sell. And buyers will have to make up the difference between what the seller offers and their agent’s commission. People just don’t understand how real estate agents are compensated. We’re not salaried, we’re self-employed and we set our own rates. The average commission is 7 percent, split between the buyer and seller agents. We pay for everything ourselves: gas, car maintenance, insurance, marketing, everything. We only get paid when a property closes. So, if we’re not getting paid, we’re not working.”
(Damon Carr, Money Coach can be reached at 412-216-1013 or visit his website @ www.damonmoneycoach.com)