By now, many consumers have probably heard about changes coming to the real estate industry, some of which took place on August 1, 2024 and others which took place on August 17, 2024. After several years of controversial litigation, copycat lawsuits, and misleading headlines targeting the century-old, legal practice of real estate brokers sharing commissions via "offers of compensation" advertised in the Multiple Listing Service (the "MLS"), the National Association of REALTORS has agreed to a few MLS practice changes in a consolidated settlement of the cases.
Here's what the changes mean for both Buyers and Sellers:
Background
The MLS has always functioned as an ecosystem for agents and brokers to share real estate data, pertinent documents, and available inventory, as well as the offers of compensation that listing brokers were willing to share with cooperating brokers for bringing a buyer to a transaction. Listing agreements nationwide have typically included "cooperation + compensation" components, whereby listing brokers were authorized to share part of the overall compensation with one of thousands of cooperating brokers who may have a buyer client for the property. If no cooperating broker was involved, the listing broker essentially had the jobs of two agents, and therefore received the entire commission.
Prior to the early 1990s, however, any buyer who worked with a real estate agent to find a property was actually not receiving buyer representation or the fiduciary duties that are commonly set forth in today's agency laws. Rather, every agent worked directly or indirectly for the seller. Through this lens, brokers splitting commission was never given much of a thought, as both agents represented the seller and were splitting the work (and therefore the fee) on the seller's behalf.
As buyer's agency evolved and became more popular in the late 1990s and 2000s, a small minority of sellers felt it wasn't right for them to pay a second agent who didn't represent them. Various lawsuits targeted this "new" buyer's agency practice, but courts and the Department of Justice routinely supported the notion that sharing compensation was very consumer-friendly, leading to informed consumers, faster sales, and potentially for more money.
After 30+ years and various unsuccessful lawsuits, one group of law firms landed on an allegation that the structure and rules of the MLS amounted to "price fixing." After several years of discovery in a major copycat case in Missouri, a jury determined that "price fixing" had occurred simply based on the mere existence of an MLS rule that "required" an offer of compensation (which could have been $0) to be made to cooperating brokers as a condition of listing on the MLS. In many markets, these offers of compensation were somewhat consistent, but NAR and REALTORS never had any agreement or understanding that fees would be fixed. Indeed, commissions have never been fixed and there is no data to suggest they have been. Nevertheless, the plaintiffs won a verdict, which led to a consolidated settlement of the other cases and several related rule changes.
Sellers
So what has changed for sellers? Truthfully, as much or as little as desired and agreed upon between you and your agent. Real estate fees and commission rates remain negotiable, as is the portion (if any) that you authorize your listing agent to share with cooperating brokers. That is and always has been the case.
You still have the choice of allowing your listing broker to share compensation (or not) with one of thousands of cooperating brokers who may be working with the buyer of your property. Your approval and the amount must be conspicuously stated in writing (typically in your listing agreement).
If you choose to allow an offer of compensation, one of the new rules is that the offer cannot be communicated on the MLS. The concern cited by plaintiffs was that buyers were being "steered" from properties that were offering lower payouts. However, the evidence of this alleged practice was slim. Offers of compensation can still be communicated in other ways, such as text, email, phone, and other off-MLS advertising. You also have the option to indicate to a buyer that you will offer concessions so that they may be able to pay their agent, or offer nothing at all.
Some brokerages are no longer allowing offers of compensation in their listings. We believe these brokerages are wholly misguided, as studies have shown that sharing offers of compensation fosters an efficient, robust market where everyone gets fair treatment and representation.
You do not have to allow an offer of compensation, but you may be missing out on a larger buyer pool and a quicker sale by not engaging the entire buyer market. Many buyers want to work with their own agent, and if there is no offer of compensation, many buyers likely will not have the money to pay their own agent because their cash is going towards their down payment, inspections, survey, appraisal, loan fees, title fees, and other closing costs.
Some listing agents may agree to a certain listing fee knowing that many buyers and buyer's agents will attempt to negotiate the buyer's agent fee into the contract. This is another strategy you could use. You have choices. However, be sure you thoroughly understand the terms of your listing agreement before you agree to not allow an offer of compensation. It could end up costing you more than anticipated.
Buyers
So what has changed for buyers? Only a couple of rules, but the practical effects could be drastic.
Purchasing real estate is one of the largest financial transactions that most people will undertake in their lifetime. For over 30 years, the real estate industry has been protecting real estate buyers with buyer's agency laws designed to make sure buyers have representation rather than a real estate agent representing a seller directly or as a subagent. Buyer's agents have become a trusted source of market expertise, advice, guidance, regulatory/legal compliance, negotiation, and general transaction coordination for buyers.
There are two main MLS rule changes that will effect buyers: (1) offers of compensation are no longer displayed on the MLS, so buyer's agents will not be as able to readily ascertain offered commission amounts, and (2) buyers must sign an agreement prior to touring a property. The agreement can take many forms -- it can be for initial showings only, limited in scope in other ways, or a full buyer's agency relationship. The fee can be $0, per showing, flat fee, or percentage of purchase price; but it must be specific and not open-ended. It can be for a short term or for a longer period. This flexibility has always been the case, but the agreement didn't need to be signed up front. Now, it must be signed prior to touring. However, this is not to say that your agency relationship can't be changed to allow for additional services or fees in the future.
Today, when you are working with a buyer's agent, that agent represents your interests and owes you strict duties of confidentiality, loyalty, accounting, and disclosure, among other duties, as well as general competency in the areas and types of real estate you are searching for. In exchange for bringing a buyer to a transaction, buyer's agents have traditionally been paid by way of an offer of compensation from a listing broker (and indirectly, from a seller).
Even if there is not an offer of compensation on a listing you are interested in, the buyer's agent commission can still be negotiated into a contract and paid by the listing broker or seller. You may also pay your buyer's agent directly, or a buyer's agent may be paid by way of a combination of all of the above. You, too, have choices. No buyer should feel forced to work directly with a listing agent if they want their own representation.
Our buyer's and seller's agents are here to help craft a listing agreement that suits your needs and wishes. If you have any questions about these industry changes, please feel free to reach out at hello@goedgerealty.com.