In recent weeks, I’ve written about the lawsuit settlement of the National Association of REALTORS® (NAR) which has sent ripples through the real estate industry. This is a significant moment for both REALTORS® as well as consumers, even if many consumers don’t yet realize this. This lawsuit, which was closely monitored by those in the industry and to some degree, by the public, addresses critical issues related to commissions and transparency in real estate transactions.
The lawsuit originated in the state of Missouri by home sellers who alleged that there were rules or practices which artificially inflated commission rates. The plaintiffs argued that NAR’s policies required sellers to offer a commission to a buyer’s agent, which they claimed was an anti-competitive practice and pushed commission rates up. As I’ve said several times in my columns and radio segments, this is somewhat of a false premise given the buyer was the one funding the entire transaction. The BUYER was the one financing the commissions for both sides, and then the seller would simply allow their agent to then send a percentage back to the buyer’s agent. Once again, I’m stealing a phrase of a former president of the North Carolina Association of REALTORS®, Leigh Brown, by saying the commission of the buyer’s agent was “baked into the cake”. At this point, if a seller won’t agree to a commission split between the Realtors, the buyer would be expected to pay out of pocket! So, here we are!
The settlement includes provisions aimed at improving transparency, but let’s simplify this. Even if one brokerage had a set percentage, all a seller had to do was go to another brokerage. Maybe 2% would get you a Hooptie, while 6% would get you a Lexus, but it was always negotiable! A couple of months ago, I wrote about the tv commercial which ran for a couple of years touting 2% commissions. I can’t remember the name of the brokerage now, but they probably weren’t a Lexus, but it was proof that the commissions were negotiable!
NAR’s launched educational initiatives to explain commissions. These initiatives aim to empower consumers with the knowledge they need to make informed decisions. The settlement might bring some positive changes, but it also presents huge challenges to the industry. A Realtor can no longer show a buyer a property without that buyer signing an agreement. In that agreement, the buyer agrees to pay a commission in the event that the seller won’t allow their agent to split the commission. This will scare off many buyers who feel they will get trapped into owing money they may not have. A buyer pays a down payment and closing costs and that can already be rough. Adding an out-of-pocket commission, could stifle the dream of home ownership for many. It could also drastically reduce a seller’s number of potential buyers. As of the 17th of August, we don’t yet know the new normal. Bear with Realtors as we work to find the path forward.