Home buyers and home sellers are listening closely to the latest news flooding the airwaves. And if they’re not, they should be. TV, radio and newscasts are all abuzz right now with the settlement the National Association of Realtors (NAR) has agreed to in the ongoing court cases. The stories all make it sound like this is a massive shake-up in real estate.

The truth of it: it is, and it isn’t. It’s a disrupter for a lot of the country. Not as much here in FL as it might seem, but there’s definitely going to be an adjustment period leading up to July when it’s official and the months after.

How does this impact Realtor Candis’s home buyer and home seller customers?

For starters, for my customers and clients, I’m proud to say that this isn’t a major shakeup for us!

• I believe in transparency. My commissions have always been negotiable (both buyer and seller-side). We discuss them at our first meeting.
• The commission offered to buyers’ agents has only needed to be $1 or more since I started in the business. It’s never been mandatory to do more, but it DOES help get agents to bring their buyers.
• I have required an Exclusive Buyer Brokerage agreement for most of my career. They’re important to protect the buyer and my compensation.

As an Accredited Buyer’s Representative (ABR) as well as a Seller’s Representative Specialist (SRS), it has always been my business practice to have written agreements with both my buyers and my sellers. I’m a firm believer that transparency is key and that educated clients make for stronger, better transactions in the end. It’s important to me that all my clients understand their options and the importance of committing to an agent that will dedicate their time and resources to finding you the right buyer / the right home.

That said, let’s dive into what this is all about.

What was the court case?

In a nutshell, the class action court cases against NAR and a number of other major real estate brokerages essentially said that there was price-fixing going on to keep the commission rates high across the board and that sellers were being forced to pay their agent AND the buyer’s agent in every transaction.

How do commissions work in real estate?

Commissions are the compensation to the agents for their work, usually in the form of a % of the sale price. In theory, tying it to the sale price incentivizes the agent to sell the property for a higher price. It’s traditionally shared between whatever agent lists the home and whatever agent brings (and represents) a buyer to purchase the home.

What does the commission pay for?

Commissions paid to a brokerage/Realtors is a fee for services rendered. This commission is paying the agent and their broker for the days (months) of research, marketing of a property (seller), legwork, showings (preparing for them and actually showing), and negotiating and pre-emptive troubleshooting to make for the smoothest transaction possible. There is a lot of work that goes into the process of helping buyers and sellers get across the finish line that’s done behind the scenes.

Commissions are split between the agents and the brokers. Your agent is not pocketing that “fat commission check,” they have to share it, and it’s quite a bit more expensive to sustain a real estate business than it appears at first pass. It pays for things to run the business such as licenses, continuing education, Realtor board fees, MLS subscriptions, software, website development and maintenance, marketing, supplies and materials, insurance… the list goes on and on.

What does the NAR settlement say?

The key points in the settlement agreement reached by NAR and the class action plaintiffs are pretty simple: it has decoupled the buyer’s and seller’s agent commissions and it requires that all buyer’s agents have a contract with their buyers before going to see properties.

Decoupled Commissions – Sellers can no longer be required to pay a buyer’s agent. They still can agree to, but it’s no longer going to be a line item in the MLS entry and will have to be communicated directly between the agents (not marketed in the MLS).

Buyer’s Agent Contracts – Buyer’s agents will be required to have a contract directly with their own agent before touring homes if they want their own representation. These agreements not only outline the responsibilities of each party to one another, but they also specify the compensation to be paid to the buyer’s agent for the transaction.

What does all of this mean?

I can’t speak to what happens in other markets, but I can speak about commissions here in Tampa Bay. I’ve worked at two different brokerages since getting my license, and I can say that commissions are not fixed. As a matter of fact, price-fixing would violate anti-trust laws – it was covered heavily in our licensing courses that way and anytime you talk about commissions in any training it’s forbidden to use numbers (so we usually see “x%” in scenarios).

The buyer’s agent’s pay historically comes from the listing agent agreeing to share part of their commission with the buyer’s agent. To be transparent with their seller, the listing agents include this break-down in their listing agreements. If there was no buyer’s agent commission being offered, buyers would often increase the purchase price on the home to cover their agent’s compensation, so in effect, the buyer was paying their agent.

Conclusion

Ultimately, like all “major” disruptions to an industry, this will take some time for agents and consumers alike to adjust the new environment in which we’re operating. It’s going to require a lot of re-education, explanation for specific circumstances and finding other ways to ensure buyers can still buy and sellers can still sell while benefiting from an advisor to guide them through the process in a way that will benefit everyone.

Personally, I’m happy to see the requirement that the buyer-side agreements will become a national norm, as that’s been a need in our industry. Too often, there is no clear understanding between an agent and the buyer they “represent.” I’m also pleased that this starts the conversation with the consumer to really understand how the elusive commission works. While this settlement will require adjustments, I truly believe it’s a step toward more transparent and fair transactions in the real estate industry.