Following a settlement agreed to by the National Association of Realtors in April, changes to the commission structure for agents meant to create transparency in the process are in place as of Saturday, August 17 — but some agents say the changes may work to decrease transparency in specific circumstances.
The NAR agreed to a major settlement of class-action lawsuits in April, paying $418 million in damages and implementing several important changes to the compensation structures for real estate agents. Those suits alleged real estate agents were colluding to keep commission high, but some Realtors say the allegations were not accurate because commission has always been negotiable.
The changes stemmed from a tradition of the buyer agent being compensated by the seller of a given property. Now, details on compensation regarding an individual transaction must be agreed upon before any business takes place.
Sellers are still allowed to offer compensation to the buyer agent as a way to market their property, but seller agents must disclose to the seller, and obtain approval for, any offer of payment a listing broker will make to a broker representing a buyer. That agreement must be made, in writing, in advance of any agreement of payment and must disclose the amount or rate to be paid.
While a seller can make an offer of compensation to the buyer agent, agents representing sellers cannot include such an offer on a Multiple Listing Service, local marketplaces used by buyer and seller agents to share information about properties up for sale. A seller compensation offer can be advertised off MLS, such as on social media.
There are relevant changes for homebuyers as part of the settlement as well. Homebuyers will sign written agreements with their agent before touring a home and those agreements will address buyer agent compensation.
The buyer agreement must include four specific items: a clear disclosure of the amount or rate of compensation the agent will receive; compensation that is objective and not open-ended; a term that bars an agent from collecting compensation for brokerage services that exceeds the amount or rate agreed upon in the agreement; and a clear statement that broker fees and commissions are negotiable and not set by law.
A written agreement is not necessary if a buyer is speaking with an agent at an open house event or simply inquiring about their available services.
Crystal Bullerwell of Keller Williams Coastal Lakes & Mountain Realty said the major changes for agents as a result of the settlement are to language outlining compensation that commission details are no longer displayed publicly on MLS systems. Now, agents need to break down contracts with buyers and sellers in detail before doing business.
These changes should promote transparency, she noted, and underscore the importance of fairness throughout the process of a property purchase or sale.
“I think it could be good that everybody understands how we get paid and that we can’t do real estate for free,” she said.
But some agents say the changes decrease transparency for Realtors, who must take extra steps to determine compensation since that detail can no longer be listed on MLS sites, potentially reducing competition between agents vying to represent seller listings.
Noting the biggest change resulting from the settlement is that buyers must sign a buyer-agency agreement before being shown a property, Brie Stephens of Lake Life Realty said such an agreement can be for one specific showing, any showing for a given time period or any showing with a specific agent or brokerage.
“That’s the biggest change from a day-to-day standpoint,” she said.
But Stephens noted the change disallowing agent compensation rates on MLS systems will decrease transparency and add extra steps agents must take, such as contacting the seller or seller agent of a property before deciding to take on a listing.
Previously, agents were able to log onto an MLS system and view the compensation offered for any given property listing. Now, that information cannot be displayed publicly, therefore reducing one aspect of overall transparency. Agents must also decipher that figure before drawing up the agreement to be signed by parties involved in the process.
And the compensation for a buyer agent has always been decided by the seller of the property, Stephens added. Generally, a seller will offer compensation which is competitive with those being offered by other sellers on their listings in order to attract buyer agents. That rate has always been negotiable.
Realtors are also seeing heightened hesitancy from buyers who may not be comfortable signing an agreement without developing a relationship with a buyer-agent, she noted.
Corina Cisneros of Cisneros Realty Group said the changes do increase transparency for buyers and sellers regarding who within a transaction will compensate Realtors, but the issue is multifaceted and complicated.
“I think the most important difference resulting from the changes is more transparency for sellers and for buyers in terms of who compensates Realtors for their services,” Cisneros said Thursday afternoon.
Noting it’s important for a potential buyer to know what, if any, compensation the seller is offering to a buyer agent, Cisneros said the effects of removing such information from MLS systems degrades one aspect of transparency and puts Realtors in a situation whereby they’ll need to contact every seller agent on every listing to inquire whether the seller is offering buyer agent compensation.
“That is a loss of transparency that I believe is counter to the intent of the spirit of the changes,” Cisneros said.
Prior to the settlement, a seller would hire an agent to sell a property and that agent would advertise which portion of the commission would be shared with a buyer agent. Now, that isn’t directly advertised on MLS systems.
That change negates the previous status quo, when sellers would understand it’s in their best interest to offer to pay a buyer agent directly, especially one who brings a buyer with them. Such an arrangement would theoretically offset the cost to a buyer of paying a buyer agent.
Once a buyer agent calls listing agents to inquire about compensation offered on a particular listing, that dollar-amount is not guaranteed — the buyer agent must write it in as a term in an agreement.
“I think the net effect is positive but it’s an imperfect solution, as everything in life,” Cisneros said.
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