A lawsuit in Missouri alleged that it was unfair for sellers to pay the commission of the buyer-agents. A class action group of Plaintiffs sued NAR and several prominent brokerages claiming sellers were forced into this payment arrangement and that various prominent brokerages had price fixed the commission percentages. Although sellers have been successfully paying buyer-agent commissions for more than 40 years, those commissions were reflected in the price of the home so that buyers could finance it. Moreover, sellers have always had the right to negotiate the amount they were willing to pay and, in my experience, did in fact negotiate those amounts.
The case was badly defended by NAR and, therefore, the jury agreed with Plaintiffs and awarded them an enormous damage amount. Due to the large damages, NAR cut its losses by settling on terms demanded by Plaintiffs’ attorneys. Those demands have little practical effect on real estate agents in DC, Maryland, and Virginia because most of those terms were already in effect prior to the verdict. For example, buyer-agents have long since been required to obtain a signed buyer agency agreements with their clients so that representation and compensation terms were clear at the outset.
There is one term of the Settlement Agreement, however, that will change how residential real estate business is done in the DMV. Once the Settlement Agreement is approved by the Court, the Multi-list Service (BrightMLS or MLS) must omit any information regarding seller-offered compensation to buyer-agents. Thus, in effect, buyers are going to agree in advance as to what their agent will earn before purchase decisions are made regarding any particular home. And, where a seller wishes to contribute toward the buyer-agent’s compensation, it must find another way to advertise that contribution, thus putting that seller at a competitive disadvantage. This endeavor is further frustrated by the fact that the Settlement Agreement prohibits any party receiving the MLS feed via IDX or otherwise from adding the seller’s payment terms for buyer-agent compensation.
As a practical matter, the removal of the seller‘s offer of compensation from MLS will cause a lack of transparency and, in turn, will effectively allow fair housing violations to occur under the cover of dark. It is likely that some sellers and their respective listing agents will be able to offer different payment terms to different buyer-agents and different buyers. Thus, this new nationwide rule — as dictated by a handful of attorneys — will encourage disparate treatment between various buyers and/or buyer-agents and there will be no way to police it.
This new policy will also mean that buyers will have to pay their respective buyer-agent a commission out of their own pocket when sellers do not without the benefit of being able to finance it as they had before. This fact will have a disproportionately negative impact on first-time homebuyers, low- and moderate-income homebuyers, and others where funds are limited. Moreover, the policy will significantly disadvantage Veterans using their VA loan benefits because that loan product forbids the inclusion of additional fees such as buyer-agent commissions. Without ample funds, these buyers may choose to forego hiring an agent and/or may agree to dual agency with the listing agent – both of which will avail buyers to less protections as they blindly attempt to buy a home on favorable terms. These rules will also cause more work and legal exposure for listing agents, who will have to deal directly with unrepresented buyers or otherwise serve as a dual agent, which is an area rife with liabilities for all parties (which is why it is a practice forbidden by many brokerages and frowned upon by the real estate community as a whole). In essence, this new rule will suppress access to homeownership for millions of Americans.
The effects of the Settlement Agreement are particularly disheartening when one considers the existing seller’s market and the continuing housing shortage nationwide. Even though the previous system effectively baked commissions into the price of the home so that buyers could finance these costs, home prices are continuing to rise at an alarming rate. Thus, sellers will be unjustly enriched by the double-whammy of increasingly escalating home prices while at the same time being relieved of paying buyer-agent commissions. Conversely, buyers will continue to suffer rising home prices while having to choose between finding funds to pay a professional or risk cultivating a less than fair deal on their own.
While there are many unknowns in the marketplace right now, Omnia remains committed to maintaining the highest level of integrity, honesty and service to both its buyers and sellers – regardless of income bracket or home value. Omnia recognizes the impracticalities of not having a buyer-agent involved in a deal: it will slow the home buying process, increase liability for both buyer and seller, expose buyers to predatory and unfair practices, double the workload of the listing agent, invite non-compliance of various consumer protections and regulations, and result in many transactions dying before ever making it to the closing table. The good news is that most listing agents are also buyer agents and they know too well the value of a really good buyer agent, who is truly the work horse of the residential real estate industry. With a staff of experienced, savvy professionals, Omnia believes the cream will rise to the top. For these reasons, Omnia is working on answers that will best serve all of our clients first and foremost. Stay tuned!
