Unpacking the Real Estate Settlement: Will New Rules Change How Buyers and Sellers Deal with Commissions?

The real estate industry is undergoing significant changes following a settlement involving the National Association of Realtors (NAR) and several major brokerages. This settlement, which resulted in a payment of over $950 million, aims to introduce more transparency in how brokers and agents are compensated. However, the changes have sparked debates and concerns about their potential impact on the market dynamics and relationships between buyers, sellers, and agents.

Key Changes Introduced

1. Removal of Commission Listings on MLS: One of the primary changes is that offers of compensation can no longer be included in the Multiple Listing Service (MLS). This means that sellers must decide independently whether and how much to compensate a buyer’s broker. While this information cannot be listed on the MLS, it can still be communicated through informal means such as phone calls or social media.
2. Mandatory Buyer’s Broker Agreement: Buyers are now required to sign a written agreement with their broker before viewing homes. This agreement must clearly specify the compensation structure, whether it be a flat fee, percentage, or hourly rate. This change is intended to ensure transparency and clarity in the compensation process.

Intended and Unintended Consequences

The intention behind these changes is to eliminate “steering,” where agents might guide clients towards properties with higher commissions. By ensuring that compensation agreements are established upfront, the settlement aims to prevent agents from influencing buyers based on potential earnings.

However, there are concerns that the new rules might inadvertently lead to more steering. With buyers now more aware of the compensation they might have to pay, some are instructing agents not to show them homes where they would need to compensate the buyer’s agent. This could lead to a situation where properties offering lower or no buyer agent compensation are overlooked, despite the settlement’s objective to prevent such practices.

Negotiability of Commissions

Commissions Have Always Been Negotiable: A significant point often overlooked in this debate is that real estate commissions have always been negotiable. The recent settlement involving the National Association of Realtors (NAR) has been misinterpreted by some as an indication that commissions were fixed, which is simply not true. Sellers have always had the option to negotiate commission rates or even sell their homes themselves. If a seller didn’t want to pay the typical 5-6% commission, they could always find a realtor willing to work for whatever fee they were comfortable with or try to sell it themselves.

Perspective on the Settlement

From our perspective, while the settlement aims to enhance transparency and fairness, the reality on the ground appears to be quite different from what was initially anticipated. What we’re hearing from the field is that it’s largely business as usual. Sellers are still offering compensation to buyers’ agents for bringing buyers to the table, recognizing the value these agents bring to the transaction.

Interestingly, buyers are generally resistant to the idea of paying commissions themselves. Many are explicitly telling their agents that they’re not looking to cover these costs when purchasing a home. Their reasoning often stems from past experiences as sellers, where they paid the full commission. Now, as buyers, they’re reluctant to bear this cost again.

This sentiment is particularly strong among current buyers and sellers who are accustomed to the traditional model where sellers cover the commission for both sides. The expectation that buyers would suddenly be willing to pay for their agent’s services doesn’t seem to be materializing in the short term.

While the settlement’s intentions were to create more flexibility and transparency in commission structures, we’re not seeing a significant shift towards buyers and sellers splitting commissions equally. This change, if it happens at all, may come with the next generation of buyers and sellers who enter the market without preconceived notions about how commissions should be handled.

For now, the market seems to be adapting to the new rules while maintaining many of its old practices. This raises questions about the effectiveness of the settlement in achieving its goals and highlights the deep-rooted nature of existing commission structures in the real estate industry. It will be interesting to see how these dynamics evolve over time and whether future market entrants will be more open to alternative commission arrangements.