You may have recently heard some information on the news about an out-of-court settlement involving NAR, the nation’s largest trade organization representing over 1.5 million Realtors. I felt obligated to give you the whole truth because I have yet to see a news media outlet that’s gotten it right so far (so shocking!).
In May, the National Association of Realtors (NAR) resolved a series of class-action lawsuits that claimed its compensation rules—which required listing agents to show compensation for buyer’s agents in the MLS (multiple listing service)—were essentially anti-competitive, reducing competition and artificially inflating commission rates.
The majority of the settlement involved NAR members agreeing to a range of industry-wide changes and paying $400 million in damages—took effect on August 17 nation-wide.
In the settlement, NAR denied any wrongdoing and settled for liability and business reasons, which is common for corporations. The agreement includes some changes to the way Realtors conduct business and I’ll explain in simple terms how this will affect buyers and sellers moving forward.
THE CHANGES:
First, homebuyers must now enter into a contract with an agent before that agent can show them any properties. Some states already require this, but now, it’s required for any agent who’s a member of NAR. This new ruling will be a change for agents in roughly 30 states.
My response: This isn’t a new concept for real estate agents in Missouri and Kansas, as we’ve had “buyer agency” in place since the 1990s. This written agreement between a homebuyer and their agent outlines the terms and conditions of their working relationship, defining how the buyer’s agent will represent the buyer and how they will be compensated in a real estate transaction. However, before the August 17 settlement deadline, it was common for Realtors to show one or two homes to a potential buyer before requiring a formal agreement. With the new rules, we can no longer show any homes without a contract in place. Frankly, we’re not happy about this change.
Second, There is now a significant shift in how agent commissions are handled. Before the settlement, NAR members who listed a home would post a “shared commission” on the Multiple Listing Service (MLS)—the platform where most homes are listed. Starting August 17th, these advertised offers of compensation are no longer allowed on the MLS. While sellers and their agents can still offer to pay a buyer’s agent’s fee, this must now be negotiated separately.
My response: I’ll clarify the misunderstandings in the news media by using my real estate team as an example. Before August 17, we charged a compensation of 6% of the home’s sales price, with 3% going to us and 3% to the eventual buyer’s agent. This was a “commissions sharing arrangement” used by all Realtors and it worked very well over the last 100 years.
We are now required to change our terminology to say that we are “decoupling” the commissions. My real estate team charges a 3% commission for our services, while the seller is free to decide how much to offer the buyer’s agent.
To be clear, Realtor commissions have always been negotiable, and they always will be. In my 19 years in real estate, I’ve met many sellers who didn’t want to pay my 6% commission. Some preferred to pay 5% or even 4%, while others chose not to use an agent at all, opting to sell as For-Sale-By-Owners. My team simply chooses not to work with those clients, and that policy isn’t going to change.
I feel like my team charges according to our level of experience and knowledge. We’re not colluding with other Realtors, as the biased news media would have you believe. It’s called fair market value in America, and that still continues today in real estate as well as in all other business service industries.
We also believe it is in our seller clients’ best interest to offer fair market compensation to buyers’ agents to attract their clients to the home. Since we can no longer advertise this in the MLS or on other online platforms, the offer of compensation is now included in the purchase contracts to ensure transparency for all parties. While this change is somewhat unconventional for our industry, we have embraced the challenge and are moving forward.
Ironically, I believe the DOJ (Department of Justice) and other agencies were hoping to completely disrupt our industry with these changes. I’m not sure that’s happened, and I can actually make a good case of how in certain instances, the consumer could end up paying more money than they would have previously, but don’t get me started on government intervention in business!
If you have any questions about this subject or anything else real estate related. I’m happy to speak with you. You can reach me at Ron Henderson 816-651-9001 or ron@kansascityagent.com