Proposed NAR settlement creates uncertainty for buyer agents and their commissions.
Previously, sophisticated homebuyers and sellers understood the rules: Real estate agents on each side of the transaction would be paid for their work through commissions, a percentage of the sale, which would be taken out of the funds going to the home seller when the house was sold.
In the MLS (multiple listing service) – a private database where real estate professionals list homes available for sale in an area – the commission for buying agents would be listed there. But that could change in July.
A Missouri-based lawsuit filed in October claims the longstanding practice was a form of collusion that artificially inflated real estate fees. On Friday, March 22, the NAR announced an agreement to settle the case that would eliminate an offer of compensation to buyer’s agents on the MLS.
“This action would settle one large class action suit involving the 1.5 million members of NAR,” said Arizona Realtors Past President Gary Nelson. “To simplify the action, offers of compensation paid from a seller to a buyer’s agent will no longer be on MLS. As a result, realtors will need to cooperate and communicate more with each other. Compensation for buyer’s agents will have to be negotiated outside the MLS.”
Nelson says many realtors are already doing this by creating exclusive Buyer Broker Agreements that guarantee that the buyer’s agent gets paid. “Commissions have always been variable,” he said. “But now, for the buyer’s agent, that commission will have to be negotiated for each sale prior to putting a contract together.”
Prescott Area Association of Realtors President Jeanelle Shearer says MLS participants working with buyers will be required to enter into written agreements with them. “The National Association of Realtors has consistently encouraged its members to utilize Buyer Broker Agreements to clarify the scope of services and associated value for consumers. This will now be a required additional document that buyers can expect to see when working with an agent who is an MLS participant.”
Unintended negative consequences of the settlement may impact first-time homebuyers, move-up homebuyers and elderly homebuyers more than those in the high-end home market, said Nelson. “It will be very difficult for them to have cash in pocket to pay a buyer’s agent up front, in order to obtain their services, which might include showing 50 houses,” he said. “Only about 30% of homebuyers would have the ability to pay their buyer’s agents.”
Some believe this action will lead to fewer buyer agents and less protection for consumers. Buyer agents have only been around since the 1990s, the result of political activist and attorney Ralph Nader’s criticism of dual agents: buyer-brokers and seller agents from the same firm collaborating on a single home sale.
“It can get nasty out there,” said Nelson. “You’ve heard of ‘buyer beware.’ There are potential disclosure problems and other concerns. Buyer’s agents are the ones who understand the contract inside and out to protect the buyer.”
“At this time, it is still too early to say how the mandated MLS rule changes will affect the industry, though certainly they will,” said Shearer. “The rule changes that are to be made as part of the settlement agreement relate to the communication of offers of compensation and the use of written agreements between MLS participants and buyers. It’s important to note that the offer of compensation has always been negotiable. That offer can be any amount, including zero.”
Despite the changes, Shearer said, “Realtors remain steadfast in their commitment to delivering exemplary service to their clients, with buyers and sellers retaining a multitude of options when engaging in real estate transactions.” QCBN
By Bonnie Stevens, QCBN
Courtesy Photo: Buying a home could require another document as realtors representing buyers may need to negotiate their commission with each client.
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