Before delving into the real estate lawsuit that is set to fundamentally alter the industry, it's important to acknowledge the uncertainty of the outcome. My business model, focused on providing a lower-cost alternative without compromising service, aligns with my belief that commission fees are excessively high. This lawsuit might catalyze the industry-wide shift I've advocated for but I don't think this settlement does enough.
My commitment to offering a low cost alternative to the status quo remains unchanged. Although the specifics of this approach are still under consideration, it will undoubtedly be different from current practices despite major brokerages determination to continue the status quo.
The headlines in the media have been wildly misleading and despite what's been reported, this is not the change we might have hoped for.
The End of "6% Commissions"
The National Association of Realtors recently settled a landmark lawsuit, ending mandatory blanket commission offers to buyer agents through the MLS. Through the MLS is the key part here, Nothing precludes the agent or seller to offer commission any other number of ways.
This decision is aimed at decoupling buyer agent commissions from the MLS to promote a competitive and transparent market. Traditionally, sellers would pay a commission, usually between 5-6%, split between the listing and buyer’s agent. Critics of this system argued that it inflated fees and put sellers at a disadvantage if they wanted to pay a lower or no buyer commission. Proponents, however, contended it was vital for ensuring buyers would be represented in transactions.
Upcoming Changes
Starting mid-July, three significant rules will be implemented:
- Sellers will no longer list a buyer agent commission on the MLS, meaning the listing agreement will primarily cover the listing agent's commission only.
- Realtors and buyers must establish written agreements detailing the buyer agent’s fees before viewing homes.
- Licensed agents can earn commissions without belonging to the local MLS or the National Association of Realtors.
Rob Hahn, a real estate strategist and lawyer, has analyzed a recent legal settlement, as detailed on his Substack account. His insights, available behind a paywall, suggest that despite changes in how buyers’ agents’ commissions are displayed in the MLS, the traditional compensation structure will largely remain intact. Hahn argues that while commissions can no longer be listed on the MLS, listing agents and brokerages can still negotiate and disclose these commissions through alternative means, like their own websites or agent forums. He believes this will continue to incentivize listing agents to offer competitive commissions to attract buyers and maintain the status quo in real estate transactions, leading him to describe the situation as a "Total Victory for NAR."
Brokerages are already strategizing work arounds, check out this insane & brazen video to see how they go about doing it, starting at the 27:40 mark:
Implications for Sellers and Buyers
For sellers, this change means a potential reduction in total commission costs, as you won't be compelled to display a commission in the MLS. You can decide if you want to pay a commission on a case by case basis or not at all. For buyers, hiring a buyer's agent becomes an additional closing cost, potentially negotiable as a seller credit, which creates an environment where buyers will seek out lower cost alternatives. However, sellers and agents can continue to offer a commission to buyer agents, again, just not on the MLS.
The Loopholes, because of course...
- Sellers may offer buyer agent commissions outside the MLS, according to a Compass internal call, "anywhere in the universes except the MLS"
- Sellers can make offers like covering 'buyer closing costs' in the MLS, provided they are not directly linked to the buyer agent’s commission, in the MLS.
- Sales contract negotiations can include commission terms, allowing for buyers & agents to negotiate fees directly.
- Requiring buyers to sign contracts before looking at homes can lock buyers into burdensome agreements under the guise of regulations.
Many Realtors will continue to advise their clients to offer a buyer agent commission to more and better offers.
Conclusion
This new post-lawsuit era in real estate has the potential to change the landscape via more transparent and conversations but not regulation. The long term impacts and outcomes are unknown but in the short term, starting in July, buyers are vulnerable as there is no guarantee their agent will be paid by the seller.
I don't have all the answers yet, but I feel well-prepared for these changes. As the industry evolves, clients will increasingly seek out experienced professionals who can adeptly navigate the new landscape. I believe I'm well-suited for this role. Despite the uncertainties, I plan to continue growing my business and embracing the changes ahead. While the results are not as resounding as the media portrayed, I will act in good faith and do everything I can to reduce commission cost for our clients.
What are your thoughts on the change?
