In case you haven’t heard, or are a bit confused…
As of August 17, 2024, several changes were made to the way homes are marketed, the way home buyers are represented, and the way real estate commissions are paid. These changes were the result of the settlement of a class-action lawsuit against the National Association of Realtors.
Nearly a year later, it seems that many people haven’t gotten the memo, or don’t understand what these changes mean. I’ll try to clarify.
How Did We Get Here?
First, a look back. For about 100 years, when homeowners listed their properties for sale, the most common practice was for the seller to hire an agent to market their property, find a buyer, and see the contract through to close. The listing agent would charge a commission, usually 6%, and would give half of that, or 3%, to the buyer’s agent.
Why? The listing agent had the product, the buyer’s agent had the consumer.
Sellers got their homes sold, agents got paid, and buyers got a new place to live.
There was no internet, and local boards would hold weekly meetings where listing agents could get up and pitch their listings, and make the offer of the buyer’s agent commission. If an agent in the audience had a buyer for the property, they’d have the opportunity to show it and make an offer.
The buyer’s agent represented the buyer at no cost, with the seller paying his/her agent, who paid the buyer’s agent. The system worked.
Introducing the MLS
In addition to the weekly meetings, some local boards started collecting listing data and entering it on lists or notecards. Member agents could then go to the board headquarters to see what was on the market. This was inconvenient, but that was the technology of the day. In time, they started printing the books and allowing agents to pick them up, or get them by mail or courier. In the following years, fax, email, and eventually online MLS systems made it easier and easier to share and market listings.
To make the system fair to all member agents, the MLS systems had rules that if a member participant/subscriber obtained a listing, they would put it into MLS within a certain timeframe, usually 24 to 48 hours. This ensured that agents wouldn’t try to keep the listings private, selling them to their preferred buyers, marketing to their favorite agents, or try to keep the sale in the same office/brokerage.
Another rule of the MLS was that listing agents had to offer a buyer’s agent commission, and state the amount or percentage, when they listed properties. Agents would know what they’d get paid if they brought the buyer. In some cases, such as a very competitive market, or unusually high list price, the listing agent might agree to a lower commission, with 5% being fairly common, and would offer 2.5% to the buyer’s agent.
Then Came the Lawsuit
In 2019, a homeowner in Missouri listed his home for sale. He was told that he had to pay his agent commission in order to get the listing into MLS, and that agency charged 6%. The seller reluctantly agreed, but after completing the sale, filed a lawsuit against the NAR (National Association of Realtors) and 6 real estate companies, accusing them of price-fixing and violating the Sherman Anti-Trust Act. The lawsuits hinged on the premise that sellers were essentially forced to pay the buyer’s agents, at fixed rates, and if they refused, they could not market their homes through the MLS, reducing their exposure to buyers.
In October 2023, the jury ruled in favor of the plaintiffs and awarded them $1.8 billion in damages. In March of 2024, NAR agreed to settle the suit rather than appeal, agreeing to pay $418 million and change some of their practices.
Ch-Ch-Changes
The changes that most affect and confuse buyers, sellers, and sometimes their agents are:
- MLS systems cannot require listing agents to offer buyer agent commission, and cannot display any compensation offers on their platform.
- Agents must make it clear, and in writing, that commissions are not fixed, and are negotiable.
- Buyers must sign a representation agreement in which the broker specifies the amount they will charge for the service, but there is a line that says ‘If Broker receives compensation from Seller or others, for Broker’s representation of Buyer, the amount shall be credited against Buyer’s obligation to pay Broker.’
In other words, buyers must agree to pay their agents, but they can ask the seller to do so with the offer, so they don’t have to.
There is no way around this rule, and in fact, it became state law in January 2025, that agents could not represent a buyer without that written agreement. No more working on a promise and a handshake.
These new rules are apparently here to stay, and although we may see tweaks and changes to some documents and procedures, the core of the agreement will remain for the foreseeable future.
There’s been some resistance from sellers who might now feel emboldened to not pay anything to the buyer’s side, and some from buyers and their advisors who think it’s wrong for them to take on the obligation, and may have not even heard about the changes until they went to buy a home. Still, the changes are mandatory.
Some FAQs
As a seller, I don’t HAVE to pay the buyer’s agent’s commission? Then why would I? It’s true that you don’t HAVE to pay the buyer’s agent, but if you don’t, you’re going to limit the buyer pool, and may end up getting less for your property, and it may take longer to sell. You see, many buyers, particularly first-timers, have been saving up, and it may have taken them years to do so, to get enough money for a downpayment and closing costs, which can be as little as 3% of the purchase price. They may not have the extra cash to pay their agent.
I’m a buyer, what if the seller refuses to pay your fee? Now I have to? Yes, you do. Note however that I personally have not run into such a situation. My colleagues and I have been finding sellers understand the benefit of paying the buyer side, and are doing so. Note that since commissions are no longer reported through MLS, there is no data on how often or how much, but a survey of homeowners found 89% of respondents said they were willing to pay the buyer’s side in order to get their home sold.
Is there a way to find out in advance if the seller is willing to pay? Your agent can ask the listing agent. As noted, with the right offer, sellers seem willing to pay.
As a buyer, why don’t I just use the listing agent to represent both sides? You can. It’s legal to do so in California (illegal in some other states, may some day be illegal here). The same rules apply though. You will have to sign a representation agreement, hiring and promising to pay the listing agent to also be the buyer’s agent, and will then have to ask the seller to pay it.
So, other than these new procedures, it’s business as usual. Sellers are still listing properties for sale, and buyers are still making offers. The major difference now is that nearly all offers come with a request for the seller to pay the buyer.
Here’s a more detailed explanation of the changes, along with FAQs from the National Association of Realtors.
For more information, or to pick my brain, drop me a line.
Steve Heard – eXp Realty of Northern California, Inc – 916 718 9577 – steve@myfolsom.com