The Future of the Buyers’ Agent Commissions: Overview of the Recent National Association of Realtors Settlement
Regardless of whether you've been following real estate news or not, you most likely heard about the antitrust lawsuits and settlements involving real estate brokerages and the National Association of REALTORS regarding the payment of the buyers' agents’ commissions. The media, industry experts, as well as individuals, have shared their opinions and contributed their perspectives, offering a mix of information and speculation about the potential outcomes.
Below, is a synopsis of my personal comprehension, intended solely for informational purposes, detailing the main events surrounding this issue and what will unfold next.
1). When it all began: The Sitzer case
For your convenience, you will find below a timeline of the Sitzer lawsuit as well as a brief description of the key issues at stake:
1-1). March 2019, the beginning of the Sitzer lawsuit
The lawsuit alleged that the National Association of REALTORS® (NAR) had rules in place related to commissions and Multiple Listing Service (MLS) practices that were anti-competitive. In essence, these rules were believed by the defendants to restrict competition within the real estate industry, potentially limiting consumer choice and driving up costs.
To better understand the lawsuit, let’s concentrate our attention on its primary arguments:
The lawsuit focused mostly on two rules established by NAR and the MLS regarding how real estate agents are compensated for their services, and more specifically the facts that:
- The buyers’ agents’ commissions are paid by the sellers;
- The percentage of the buyers’ agents’ commissions paid by the sellers is disclosed on the MLS when the property is listed for sale.
Conversely, if the buyers are responsible for covering their agents' commissions, it could result in the following significant issues:
Buyers may be less inclined to consider properties where they would need to cover their agents' commissions totally or partially. This could result in fewer potential buyers viewing the property, leading to a longer time on the market and potentially lower offers.
Buyers' agents may be less motivated to show properties where they won't receive a commission from the sellers if they are not able to negotiate a fee that will be paid to them by their buyers. As a result, this could hinder negotiation opportunities for sellers, potentially reducing the number of offers and diminishing the buyers' motivation to submit competitive bids.
1-2). From 2019- until the present time:
Legal Proceedings: The lawsuit progresses through various legal stages, including discovery, motions, and hearings. Both sides present their arguments and evidence to the court.
Settlement Talks: Parties involved in the lawsuit engage in settlement discussions.
Settlement Reached: A settlement agreement is reached between the plaintiffs (those bringing the lawsuit) and the defendants (NAR and the real estate brokerages).
Approval and Implementation: The proposed settlement undergoes review by the court overseeing the case.
2). What will happen next?
Starting August 17, 2024, the two major changes resulting from this litigation are as follows:
2-1). Properties listed in the multiple listing service (MLS) will no longer be allowed to include an offer of compensation to buyer’s agents. To put it simply, it eliminates and prohibits any requirement of offers of compensation in the MLS between listing brokers or sellers to buyer brokers or other buyer representatives.
2-2). Homebuyers who want to work with an agent will need to sign a written agreement with that agent prior to touring a home. This means before they start their home search, they’ll need to discuss and agree with their agent on what the agent will do on their behalf, and they’ll need to decide how much and how to pay that agent.
These changes will not prevent offers of compensation by the sellers to the buyers’ agents off the MLS.
It will not prevent either the sellers from offering buyers concessions (ex. concessions for buyer closing costs).
Compensation would continue to be negotiable and any compensation offered on the sellers' side will be credited against the buyers’ obligation to pay.
The settlement is subject to final court approval. The final approval hearing is scheduled to take place on November 26, 2024. The court approval is a process that we can expect to take several months or more. As a result, the National Association of Realtors agreed under the settlement to put the practice changes in place no later than the date of class notice, which will be sent out no earlier than August 17, 2024.
It is stating the obvious that the situation harbors complexities beyond initial impressions. Navigating the evolving dynamics of consumer-agent interaction in this landscape demands time for resolution, with agents and their clients likely to embrace diverse approaches. Presently, industry stakeholders are actively engaged in efforts to swiftly define and navigate these emerging practices before the looming deadline of August 17, 2024.
I hope this helped.