Are Real Estate Commissions Really Dead?

 

Perhaps you've seen the recent headlines about the real estate industry, such as "6% Commissions are Gone" or "Buyers Agents Are Going Away."

There's been a ton of misinformation being tossed around, and I feel it's necessary to weigh in on the conversation.

Let's start by talking about what happened.

In simple terms, a class-action lawsuit in Missouri, initiated in 2019, argued that home sellers were forced to offer compensation to buyers' agents as "cooperative compensation" and that buyers never really could negotiate their own agents' fees.

Additionally, because buyers' compensation was posted in the MLS, owned by the National Association of Realtors (NAR), by listing brokers, it implicitly created a set standard across the industry.

Side note: Commission was and will continue to be negotiable. But, sellers' and buyers' fees will be de-coupling. Read on...

The jury agreed with the plaintiffs and ordered NAR and many other major real estate companies, that were also named in the lawsuit, to pay $1.78 billion in damages, exceeding $5 billion in treble damages.

Re/Max, among other major companies, settled.

The Department of Justice chimed in, saying "not so fast. This violates Anti-trust laws, so we want to weigh in on this as well."

Ultimately, with the ruling and the DOJ's inputs, NAR offered a settlement of $418,000,000 (paid over 5 years), along with some major provisions for how real estate is conducted in the United States.

Among holding 1 million NAR Realtors harmless and admitting to doing nothing wrong, the NAR proposed the following provisions to how agents do business:

1. All buyers providing real estate services shall enter into a buyer's agency agreement before providing real estate services to the buyer.

This checks the box of allowing buyers to negotiate directly with their agents on how they get paid and how much. Many agents have been doing this for decades anyway. Now, everyone will have to do it.

2. Listing agreements are no longer allowed to make a buyer's agent commission part of the total commission. There MUST be separate places on the contract where the Listing Fee is outlined as X and the buyer's agent fee as Y.

 

This is the decoupling of commissions and removal of "cooperative compensation."

But nothing else really changes here. A seller can offer whatever they want to a buyer's agent who brings a buyer. It just needs to be in a different place on the listing agreement.

This was already implemented in Washington State NWMLS in 2023. We didn't see any dramatic changes.

And finally, the big one...

3. No buyer's agent commission can be posted publicly in the MLS. Though the commission was always negotiable and there never was a set amount, this change addressed the "assumed" standardization of buyer's agent compensation.

 

Initially, it was thought this would be the most dramatic change, and it still might be if it didn't currently apply just to the MLS and not every other portal where someone searches for homes.

A seller is incentivized to offer a buyer's agent commission ultimately because they want to encourage agents working with buyers to try to sell their home.

This doesn't change, except that agents and buyers using the MLS directly won't be able to see if the seller is offering a buyer's commission. Commissions can be posted anywhere else. 

Keep in mind, that this settlement has not been approved by the court yet.

But assuming it is, let's explore the impact of this.

I hope by this point, it's clear how misleading the headlines have been. Last year, you could have offered 5%, 0%, 10%, or a flat fee of $1 to sell your home. Next year, you might offer 5%, 0%, 10%, or a flat fee of $1 to sell your home.

There's still going to be a range of services and prices that agents negotiate with their clients. That doesn't change.

But buyers will have more say in how their agent is compensated, and the listing contracts make it more clear that sellers are not obligated to pay a buyer's agent commission if they don't want to.

It's possible, in certain circumstances, buyers will be forced to pay their agents directly or opt not to have representation and work with the listing agent directly.

First-time homebuyers who can't afford an agent and VA buyers who are not allowed to pay an agent have the potential to get pushed into this camp more now than before.

However, it's much more likely these changes will feel more like a raindrop than the monsoon the media has made it out to be.

There will be more transparency, and the consumer will have more options. 

Buyers' agents will be required to prove their worth. Those that can't will likely wash out of the business - a good thing when the barrier to entry is so low.

But the idea that buyers' agents will become irrelevant like travel agents, is nonsense. Buying a house is and will always be different than buying a plane ticket.

In conclusion, this will eventually be seen as a win for consumers and agents alike as it forces transparency and forces agents to convey their value.