You may have heard about the proposed settlement in the real estate industry. The agreement would resolve claims against NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all association-owned Multiple Listing Services (MLSs), and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below. I’ve been thinking a lot about what this means and decided to share some of my thoughts.
Commissions were never fixed by anyone, including NAR. When I started in real estate, my company wanted me to charge sellers 7% of the sales price, with 4% going to our company and 3% going to the buyer’s broker’s company. But, we had discretion to negotiate that. There were then and still are companies that charge the seller 4% for both brokers’ fees. When the market was super hot, there was a lot of downward pressure on real estate broker’s fees and those fees are still all over the board, some back to where they were before the hot market and some still lower.
Real estate fees and commissions have always been negotiable, but each real estate company has their fee structure that the individual brokers must comply with. For example, in our company we charge 3% of the sales price for each side of the transaction. Not because anyone told us to, but because that’s what we have determined that our services are worth (see this flier: 179 Ways and this one: 105 More Ways to find out all of the things real estate brokers do).
One of the rules stipulated in the proposed settlement agreement is that brokers representing buyers must put their agreement in writing. This is something we have been doing in Colorado for about 30 years, when the broker is representing the buyer as a Buyer’s Agent. As I understand it, this will require a Transaction-Broker (which is a broker who is not a Buyer’s Agent, but is more like a middle-man) to get their agreement in writing now as well. I’m sure if that’s the case, then our state will require it. So this rule is easy to comply with, and this is when the discussion between the buyer and their broker takes place about how the broker will get paid for their services.
The rule that has everyone scratching their heads is the one that says the amount of fee the listing company is offering the buyer’s broker (if any) cannot be stated in the MLS listing. This does NOT mean that the listing company can’t or shouldn’t pay the buyer’s broker’s fee. It will just have to be communicated in some other way.
Does the seller have to offer to pay the buyer’s broker’s fee through their listing company? Of course not! But here are a few reasons why they should:
- The buyer’s broker’s fee is included in the current prices. If sellers don’t pay those, then it’s possible that prices will adjust downward to make up for that, and the amount of that adjustment is unknown.
- Most, if not all buyer’s brokers aren’t going to work for free. (See the links above about what duties they perform.)
- Some buyers may decide to work without a broker. (See the links above and think about what that could mean, as far as the likelihood of a smooth, successful transaction.)
- Not all buyers have enough money saved to pay their own broker.
- Buyers using VA loans are not allowed to pay their broker’s fee.
- Government-backed loans (Fannie Mae, Freddie Mac, FHA) do not allow the buyer’s broker’s fee to be wrapped into the loan.
- Some buyers might be able to negotiate for the seller to give them a concession and use some or all of that to pay their broker’s fee. But, how will that affect the appraised value and the buyer’s ability to qualify for the loan?
- When a seller is selling their property, they probably want to open it up to as many buyers as possible. If the buyer can’t pay their broker’s fee for any of the reasons listed above, and the broker isn’t working for free, then they’ll have to pass on looking at that house. So, the buyer pool becomes smaller.
It will be interesting to see how things change moving forward and I’m sure it will be pretty chaotic for awhile, but we Realtors are in the business of helping buyers and sellers with the changes in their lives, and we will figure out a way to keep doing that.
Rachel Buller, Owner and Managing Broker, Manitou Springs Real Estate
