On March 15, 2024, the National Association of REALTORS® (NAR) reached a settlement agreement with plaintiffs that could potentially end ongoing litigation regarding broker commissions. The $418M antitrust settlement took effect on August 17, 2024, and the final approval hearing is scheduled for November 26, 2024. It’s important to note that consumers will continue to have choices regarding real estate services.
While the legal intricacies of this lawsuit are complex—and many might argue that attorneys benefit the most—here are the key changes that will impact consumers starting August 17th:
1. Buyers Must Sign a Written Agreement
Before August 17, buyer's representation contracts were uncommon. Typically, the agent who wrote up the purchase contract was considered the buyer's agent, leading to ambiguity about who represented whom or what kind of compensation was paid.
TEAM KE’s View: While this adds another step to the process, we believe it’s a positive change. A written agreement fosters commitment from both sides. It also requires agents to communicate the value to buyer clients better before entering escrow. We’ve developed KE Team Brochure to clearly outline the steps and responsibilities to help understand what we do. While a written agreement will specify a compensation rate (e.g., 2.5% or 3.0%) that BUYERS pay to the buyer's agent, this is to set the maximum amount we can receive. Typically, our professional fees (aka commission) will be negotiated in the purchase contract, so the seller pays this fee from the sale proceeds—another point of negotiation, but one that adds clarity. The big change is that Buyers will know exactly how much the buyer's agent receives. Also, buyer agents now have to disclose that buyers may be responsible for buy-side professional fees should the seller deny to pay compensation.
2. Broker Compensation Must Be Clearly Disclosed as Negotiable
Before August 17: It wasn’t uncommon for agents to rely on the commission display on MLS and say, “BUYERS DON’T PAY,” or refer it as a “STANDARD FEE.”
TEAM KE’s View: We’ve always emphasized that our compensation is negotiable. In Hawaii, the Listing Agreement noted the buy-side commission separately from the seller-side. However, for the buy-side, the compensation discussion was not always the important topic, as it was determined by the seller and seller's agent. Now, it is determined by the buyer and agent.
3. Compensation Will No Longer Be Listed in the Multiple Listing Service (MLS)
Before August 17: The buyer-side compensation was listed in the MLS.
TEAM KE’s View: Moving forward, we’ll need to inquire directly with the listing agent to check compensation and communicate that with buyers. For our listings, the Buyer agent compensation rate is already displayed on the Compass website. We are also working to have it on the TEAM KE website to maintain transparency. There may be instances where the seller offers no compensation; we will disclose this to buyer clients. Buyers can then decide if they still want to see the property.
4. Sellers Must Approve the Specific Amount or Rate of Buyer Side Compensation in Writing
Before August 17: The responsibility to pay the buyer’s broker fell on the listing broker.
TEAM KE’s View: We’ve always informed sellers of how much the buyer’s broker would receive when we take listings, and this amount is clearly noted in the escrow seller statement. There have never been any questions or issues with us. While Buy-side compensation can now be negotiated in the purchase contract, ultimately, Buyers need to understand it is the buyer's responsibility to pay the buyer's agent.
Here is Infographics by National Association of Realtors.
The Ultimate Question: Will The Change Eliminate Buyer Broker Commissions?
The short answer is likely “NO.” We don’t anticipate significant changes. Here’s why:
- National statistics from 2023 show that 89% of buyers were represented by REALTORS®. If a seller doesn’t offer compensation, the buyer may instruct their agent to exclude the property from consideration since the responsibility to pay buyer agent compensation could fall on the buyers. A larger pool of potential buyers typically leads to a higher selling price. It is in the seller's best interest to offer compensation to the buyer's agent.
- Buyers can negotiate in the purchase contract for the seller to pay the buyer-side compensation. This is crucial for first-time and younger buyers who might struggle to afford our professional fees. Sellers can factor our professional fee into the sales price to make the transaction happen. In reality, nobody is losing money.
Our Commitment
As listing agents, we believe that cooperating with buyer agents gives us the best chance for success. As buyer agents, we ensure our value is clearly communicated before entering escrow so we can navigate any obstacles we face during escrow. We’re confident that our value far outweighs our services' cost.