National Real Estate Lawsuit Update & Outlook
In mid-March a high-profile lawsuit involving the National Associations of Realtors (NAR) was settled, which will inevitably have some impact to homebuyers, sellers, and agents. Many of our clients have reached out with concerns and questions about the future of Real Estate, so we wanted to take some time to unpack the lawsuit and settlement and answer your most pressing questions on how this will impact the industry. Let’s dive in!
The Lawsuit
On March 15th, the National Association of Realtors reached a settlement that would end the litigation of claims brought on behalf of home sellers related to broker commissions. The lawsuit was brought about due to many sellers being unaware that they were able to negotiate agent commissions. They alleged that as a result of this, agent commissions were artificially inflated in the industry.
What was agreed upon?
Two primary changes were agreed upon in the settlement. First, NAR has agreed to put in place a new MLS rule that prohibits communicating offers of broker compensation on the MLS. Currently, every MLS listing states how much commission is being offered to the buyer’s agent. But when this new law takes effect, that will no longer be allowed. Buyer agent commissions can still be offered, however, it can not be stated on the MLS listing.
The MLS is our Realtor-only platform that a buyer typically gets access to when looking for a home. On any active listing, the listing agent would state exactly how much they are willing to share with the buyer’s agent if they bring a buyer for that property and close. So, with this new rule, listing agents will not be able to put that information into the MLS.
Secondly, buyers will now be required to sign a Buyer’s Representation Agreement with their agent before beginning the homebuying process to make sure that everything up front is negotiated, they understand how their Realtor is paid, their duties, commitments, and obligations to them.
If the settlement is approved, these changes would go into effect at the earliest in mid-July.
What this means for sellers.
First and foremost, sellers have always been able to negotiate Realtor commissions before signing their listing agreement. That will not change. When you go to sell a home, you essentially negotiate the commissions for both agents - the one listing the home and the buyer’s agent. The biggest change we will see with these changes is the seller’s awareness that they can negotiate the agent’s commission. And the agents who bring more value are going to negotiate higher fees compared to those that bring less value. We think we will see more sellers evaluate the type of service they would like to receive to sell their homes and then pay accordingly.
What this means for buyers.
As previously mentioned, buyers will be required to sign the Buyer’s Representation Agreement before they even begin looking at houses with their agent. At Haven Realty Group, this is a step we’ve always had our buyers do, but it was not required. The reason why this was part of the settlement is so that buyers understand both that their agent is being compensated and how they are being compensated.
The Buyers Representation Agreement in Texas gives your right as a buyer as well as a fiduciary duty for your agent to put the buyer’s interest above their own. It spells out how much your agent will get paid and more importantly how much you agree to pay your agent regardless of what the seller is offering in compensation. Theoretically, agents could require the buyer to compensate the agent the remainder that was originally agreed upon if the compensation provided by the seller is lower than originally agreed upon.
There will be three choices for how buyer’s agents will be compensated:
Consumers can pay a flat rate commission. Meaning the seller is offering a flat rate or the buyer negotiates with their agent a flat rate for their services.
A concession from the seller. This concession is different from what it looks like today where the listing agent goes and negotiates on behalf of both agents in the beginning. The listing agent would be negotiating on their behalf and their commission. In this scenario, the buyer’s agent would need to come in and negotiate that alongside the offer they are bringing from their client. This is where we could foresee issues with the fiduciary duties of the agent.
Lastly, what is typical today, a portion of the listing broker’s compensation is shared with the buyer’s agent.
How does this affect the industry?
Most experts believe this settlement will be approved. For us at Haven Realty Group, very little will change. For buyers, we will continue to do the Buyer Representation Agreement, it will just be required before seeing the first home. For sellers, we will continue to negotiate the commission.
What we’re going to have to understand from an industry standpoint is just how commissions are going to be discussed in this future state. Right now, we typically know what commission is being offered with any home we show our buyers and it’s a completely separate conversation from our client’s offer on a home. Right now, our conversation with the seller’s agent has nothing to do with our commission and everything to do with our client’s interest and offer on the home. We are curious to see how this adapts and changes (or doesn’t) as these new rules take effect.
An unintended consequence, and our biggest concern, could be that people forgo using a Realtor if there isn't compensation from the seller. We could see this happening especially with those buying for the first time who may struggle to come up with more cash. They could end up foregoing representation when they need it the most.
Will this affect home prices?
While we know many hope that this will decrease home prices, we don’t think we will see that in the Dallas market. The theory is that if we pay agents less, home prices will go down. The problem with that is that home prices are a basic function of supply and demand. The price point of a house is based on the demand for that house in that neighborhood. Then how well your agent can market the property and negotiate on your behalf. Basic supply and demand dictates the price of the home, so we don’t see it affecting home prices in the future.
We are hopeful for a quick resolution to these lawsuits and we are always happy to answer your Real Estate questions anytime you have them. If you have more questions or are ready to start talking about buying or selling your home, give us a call! We’d love to help.
Until next time,
Brianna & Keelie