Can you explain this big real estate judgment we are hearing so much about? How does it impact us?
Last week a federal jury found the National Association of Realtors ((NAR), and real estate franchises HomeServices of America (under which Berkshire Hathaway falls) and Keller Williams guilty of colluding to inflate real estate commissions. An appeal is, of course, expected. At the heart of this case is the NAR’s Clear Cooperation rule, pursuant to which the listing broker shares their commission with the buyer’s broker. It is this provision of a commission to a buyer’s broker that is what the argument has been about.
In days of yore, listing agents were not required to share their commission with cooperating brokers. So if your home is listed with me at Piatt Sotheby’s International Realty and an offer is brought to me by an agent outside of my brokerage, from Berkshire Hathaway for example, I would not need to share my commission with that agent. It was the wild west, with buyers racing from one listing agent to another trying to get in to see homes. Agents represented the sellers and buyers were on their own. Then came the days of Buyer Agency and Clear Cooperation. Buyers could have representation and they would be paid a share of the commission received by the listing agents.
Those days are changing. In fact, they started changing before the judgment. Listing agents are no longer required to provide any commission at all to the Buyer’s agent. So what does this mean for you?
First of all, please keep in mind that commissions as a general matter are ALWAYS negotiable. This does not mean that you will get your preferred agent and experience level if you only want to offer a lower commission — agents are of course permitted to decline work if their “pay” is not commensurate with what they view to be the marketing and expertise they provide. You the consumer are free to negotiate a lower price from a different agent. It has always been my view that when it comes to human services that you get what you pay for — there is always someone who will do it for less, and when time and expertise are involved, that generally means you get less. However, you do not have to agree to provide any commission to the Buyer’s Agent.
Should you still offer a commission to a Buyer’s Agent? This is a conversation you will need to have with your listing agent, but in my opinion it is only logical that you will see a larger pool of prospective buyers and receive more offers if you do. Why? Because buyers (rightfully) want representation. In my opinion, it is unwise to make what is likely your largest life purchase without a trained and experienced professional working with your best interests in mind. And buyers agents don’t work for free (as is the case with the majority of professionals). One might argue that the buyer can pay their own agent. Some always have, and they have historically deflated the price they pay for the home by the amount they pay their own agent. However, the vast majority of buyers do not have enough cash on hand to pay their downpayment, their traditional closing costs and their agent as well, so if you are not offering to pay the buyers agent, thereby shifting this burden onto the buyer, they may be unable to make you an offer for the simple reason that they can’t afford to pay their agent. Or they may need to ask you for seller assist, whereby you provide cash at closing to help them with their costs (and this reduces your net proceeds), in which case you are still essentially paying the buyer’s agent.
In the end I am recommending that home sellers stay the course and continue to compensate both the listing agent and the buyers agent, as has been the case for my 25 years in practice. If you would like a deeper dive, please reach out — I would love to connect with you. Next week I will address the importance of Buyer Agency.
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