Since the National Association of Realtors (NAR) and the plaintiffs in the following lawsuits—Christopher Moehrl v. The National Association of Realtors et al., Rhonda Burnett (originally Sitzer) v. The National Association of Realtors et al., Dawin Niel Umpa v. The National Association of Realtors, et al., and Don Gibson v. The National Association of Realtors—reached a settlement agreement on March 15, 2024, which is still pending court approval and thus preliminary at this point, the topic has dominated industry conversations. The focus of these lawsuits on buyer’s agent commissions has attracted more media attention since mid-March than it seems to have received in the over 40 years I’ve been in the business before that. Don’t get me wrong, I’m not saying all this attention is bad. In fact, I believe it is beneficial. I’ve long advocated for educating consumers, feeling that the more home buyers and sellers know, the better decisions they can make. This is why I’m rapidly approaching the milestone of 3,000 articles on the topic of real estate in St. Louis on this site.
Now, I don’t do this solely for altruistic reasons; sharing the information and knowledge I’ve gained either through experience or research is also self-serving. As a broker-owner of MORE, REALTORS®, I’ve put forth just as much effort in sharing knowledge with our agents, and I am blessed to be surrounded by real estate professionals who are as eager as I am to increase their knowledge and hone their skills to better serve clients. Here’s the reward for me: informed and knowledgeable consumers seek out better and more professional agents, like the ones we’re in business with, creating a win-win situation.
Having said all that, while the attention from the media is beneficial, unfortunately, there is a lot of incorrect information out there and assertions being made that don’t seem to be based on facts, but rather on opinion. Oh yes, I have opinions too, plenty of them, many of which are shared on this site, but to the extent possible, I try to base them on facts and include the sources of my opinions.
False expectations:
Many headlines I have seen make statements such as ‘real estate commissions will be slashed,’ ‘buyers’ agents will become obsolete,’ or ‘the “6%” commission is gone.’ While I do think that as a result of this litigation and, more importantly, the public attention it has drawn to how buyer’s agents are compensated, there will be more scrutiny of this part of the transaction, which likely will lead to somewhat lower commissions on many transactions, I believe the expectations set by the headlines and media are significantly exaggerating any such change in commission rates.
Practice Changes, or not?
Included in the settlement agreement, along with the payment of $418 million by NAR, were ‘practice changes,’ changes in policies and practices that NAR has agreed to and its members (REALTORS®) will have to abide by. The purpose of these practice changes is to address the concerns raised in the lawsuits and promote transparency and fairness in the real estate industry. Here are the practice changes, paraphrased for brevity, along with my commentary on whether they represent a change in our market here in St. Louis:
- Not require listing brokers or sellers to make offers of compensation to buyer brokers or other buyer representatives. (not a change, currently there is no such requirement)
- If there is commission offered to a buyers agent it may NOT be shown in the MLS. (this is a change, currently commissions offered buyers agents are shown in the mls)
- Require that all REALTOR® MLS Participants working with a buyer enter into a written agreement before the buyer tours any home including disclosure on compensation the REALTOR® will receive. (a change in part in that currently buyer’s agents are already required to do this in Missouri so that is not a change however, this will now apply to agents acting as seller’s agents, dual agents and transaction agents as well)
- Prohibit REALTORS® from representing to a client or customer that their brokerage services are free or available at no cost to their clients, unless they will receive no financial compensation from any source for those services. (not a change as the current REALTOR® code of ethics prevents it, as does Missouri License law)
- Require listing agents to conspicuously disclose to sellers and obtain seller approval for any payment or offer of payment that the listing broker or seller will make to an agent working with a buyer. (not a change as the St Louis REALTORS® current listing agreement form already has this included)
- Require that REALTORS® and REALTOR® MLS Participants and subscribers must not filter out or restrict MLS listings communicated to their customers or clients based on the existence or level of compensation offered to the buyer broker or other buyer representative assisting the buyer. (not a change as MARIS, the regional MLS serving our area, does not allow listing searches to be filtered or based upon commission now)
So, you can see by my assessment, of the 6 practice changes above, 4 are not going to change anything in our market, one will make a partial change and then there is one significant change, the one prohibiting buyer agent compensation in the MLS.
Will anything be gained by this settlement?
Uh yeah, $418 million, with I’m guessing about 30% – 40% going to the lawyers for fees, reimbursement of expenses, etc., and the rest to the plaintiffs in the class, which, by my rough calculations, works out to maybe $15 per person, give or take. Then we have the substantive change above about commissions not being shown in the MLS, so that will be a change, right? Well, yes and no. In the settlement agreement, it states:
“the practice changes in Paragraph 58 of this Settlement Agreement shall not (a) prevent offers of compensation to buyer brokers or other buyer representatives off of the multiple listing service; or (b) sellers from offering buyer concessions on a REALTOR® MLS (e.g., for buyer closing costs), so long as such concessions are not limited to or conditioned on the retention of or payment to a cooperating broker, buyer broker, or other buyer representative.”
So, based upon my understanding of the aforementioned, as well as what I’m hearing within the industry, here’s what I think is a realistic possibility on how transactions may be handled in the future versus the present:
- Under the present practices and rules:
- The listing agreement almost always provides for a commission amount that includes compensation to the listing agent as well as the buyers agent.
- The listing agent communicates the compensation that is being offer to a buyers agent in the MLS and usually in the form of a percentage, which a common percentage today being between 2.25% and 2.7%.
- Under the practice changes promulgated by the settlement agreement;
- The listing agreement may provide for compensation to a buyers agent in the form of commission but if so that won’t be able to be communicated by the listing agent through the MLS to buyers agents. However, if the seller chooses to not offer buyers agent compensation but instead offer a concession for closing costs to the buyer, as permitted, then that concession by the seller can be communicated to buyers agents through the MLS.
- So, in the scenario above, if the seller decides to offer a concession of say something between 2.25% and 2.7% then the listing agent can share that percentage in the MLS as a buyers concession enabling buyers agents to see it. Then, if a buyers agent has a buyers agency agreement with a buyer indicating they are to receive a minimum commission of say 2.25% commission and the listing shows 2.25% seller concession, the buyers agent will know their commission can be “covered” by the concession.
To address my latter question about practice changes or not, yep, this is a practice change. Then, to address my former question about whether anything is gained, if my speculation above is halfway accurate, then perhaps not much is gained in terms of lower home prices and slashed commission rates as the media has made out, but there will definitely be more transparency.
This is all speculation and guessing at this point, however, as the settlement has not been approved by the court (though I think it will be), and even if approved by the court, the FTC or DOJ may still want to take a bite at the apple too.
The Proposed NAR Settlement Agreement
(click on image to view entire agreement)
