Last year, the multi-billion dollar commission lawsuit settlement the National Association of REALTORS (NAR) accepted triggered great expectations of commission relief for home sellers. That was until the REALTORS Association rolled out its plan to implement the settlement practice changes effective August 17th, 2024. Six months later, we are seeing, as you might expect, the 1.5 million-person association adjusted to make the settlement agreement work in favor of its members.
The class-action lawsuit contended that NAR members conspired to create an environment that allowed members to easily lock sellers into artificially high commission rates, half of which went to brokers working against the seller’s interest as buyer-contracted agents. The jury agreed that an anti-trust conspiracy existed and awarded the plaintiffs damages of $418 million, which would have caused NAR to go bankrupt. Lawyers quickly went to work on a settlement. Everyone may not agree, but when lawyers from opposing sides work on a class action settlement, the interests of the class can get lost in the weeds.
So, what happened?
NAR did not go broke. Lawyers got paid, and the public got little or nothing. For all their angst, complaining, projecting fear, and worrying, REALTORS did not lose a thing. It’s looking like they may have come out ahead.
A key settlement component was eliminating the broker-to-broker publication of cooperating commissions on Multiple Listing systems. Today, instead of a REALTOR being able to look at a listing on their MLS and see that the listing broker is offering a 3% commission, paid by the seller, to the buyer-broker, the REALTOR working with a buyer has to enter an agreement separately with the broker representing the seller. The expectation of buyer agents that they collect a 3% commission has not changed. The approved purchase agreement forms used in Wisconsin now include a provision to facilitate a uniform method for buyer brokers to make their commission a part of the transaction. It works like this: the purchase agreement names a purchase price, say $500,000, and if the seller wants to accept the price, they must also take the provision that calls for the seller to pay the buyer broker, in most cases, still 3%.
The seller can negotiate the commission.
There is some upside. Sometimes, sellers can negotiate their commission costs in the purchase transaction. Because I know how the MLS commission system works, where brokers have an internal method available to collect a disputed commission, I confidently suspect that commissions remain steady or trending up from pre-settlement days.
Who’s Losing?
Not REALTORS. The old system allowed a seller to advertise, on the MLS, a commission amount that, at one time, was 3.0% of the purchase price 90% of the time. The few sellers allowed to offer less than 3.0% stood a good chance of saving some percentage of the purchase price by providing less than 3.0% commission by retaining their ability to negotiate. When the market grew tight, and competition grew fierce, sellers who didn’t promise to pay top-of-the-market commissions profited. Buyers didn’t spend more money due to commissions. Sellers didn’t get lower prices or fewer offers, but REALTORS collected lower commissions.
Under the new system, regardless of what the seller is willing to pay to a buyer agent, purchase agreements are easily written to include a 3% commission to buyer agents. Sellers can decide to negotiate the commission or the purchase price. Either way, the price or the commission will determine the seller’s net. So, what’s a seller to do? Negotiate the commission or the price?
Negotiating the price results in the buyer paying a higher purchase price. However, agreeing to the buyer agent’s commission might help gain the agent’s support for encouraging the buyer to accept the seller’s terms. Negotiating the commission makes it harder for the buyer to understand the counteroffer. I would not expect the buyer agent to help them understand or encourage them to accept a counteroffer that doesn’t meet the agent’s expectations. I don’t know that for sure, but I will trust the evidence I have gained over decades.
You Can Win.
The REALTOR MLS system works well for consumers. Of course, like anything, it could work better. The way to make the system work for you is to work with us. We created Essential Real Estate to give our friends, family, past clients, and their networks thoughtful, insightful guidance on buying and selling real estate. We want you to know what we know about how the system works and how it doesn’t work. With our knowledge, you can save money, negotiate better terms, and avoid stress.