Today (March 15,2024) the NAR (Nation Association of Realtors) settled a lawsuit that’s been in the courts for several years.  The case alleged that home sellers were damaged by listing agents offering buyer’s agent compensation within their transaction. The plaintiffs claimed that buyer’s agent commissions were too high, and they were not able to negotiate fees with their listing agent.

The outcome of the settlement:

• End litigation and resolve claims against members/brokerages with transaction volume <$2 billion.
• $418 million dollars settlement paid over 3 years.
• Buyer’s agent commission cannot be offered within the MLS (multiple listing service).
• Buyer’s agents will be required to do written commission agreements with buyers.

However, buyer’s agent commissions can still be paid from the seller within the transaction. The terms just need to be negotiated directly and outside of the MLS.

Who does this benefit?

• The plaintiffs claim that the ability to negotiate commission fees is a win for sellers.
• They also claim that buyer’s compensation agreements will give buyers more freedom to negotiate.
• Out of the $418 million dollar settlement the attorneys are paid first, then whatever is remaining is disbursed out to the members of the lawsuit.

I agree that disclosing commissions would be a good thing for transparency, however it’s incorrect to say that realtor commission (both sides) have not been negotiable, because they always have been.

Having been in the business 22 years now I can say I strongly believe that having an agent that represents you and your interests as a buyer is very important.  I’ll leave that there as it’s a different topic all together.

How do I see this playing out?

The idea of having the “freedom” to shop and negotiate sounds great on the surface but there are certainly some problems when you go deeper.

Prior to Dodd Frank, and the CFPB changes that happened after the Great Recession, buyers were able to shop and negotiate rates with lenders.  But lenders could also premium price (increase rates for higher commission) and steer clients to different loan programs that offered higher commission.  Buyers were “free” to shop and negotiate but still didn’t always get the best deal or program that fit their needs best.

We saw this specifically with low income and minority households.  This is why the CFBP came in and changed Loan Officer compensation rules so lenders would get paid a specific amount regardless of interest rate or loan program.

How could this apply to realtor commissions? 

It’s called “disparate treatment” or “impact.” The act of not treating everyone equally.

Charging higher commissions on low income or minority households would be a blatant violation; and I’m sure this will be watched for. But the difference of commissions charged based on sale price is another to watch for.

Let’s say an agent is representing two buyers/sellers and they charge the following:

• $500,000 price with 6% commissions = $30,000
• $1,000,000 price with 3% commissions = $30,000

The earned commissions are the same in dollar amount for each home, but the seller of the higher priced home was charged less as a percentage than the lower priced home.   Fair/unfair?

It may take some time to gather the data to make a case, but I wouldn’t be surprised if the outcome of the initial ruling, giving buyers and sellers the ability to “negotiate” their own costs, ends up coming full circle back to a point where agent commissions are set at a fixed rate.

Just my thoughts and something to keep an eye on.

Mike