Agreement between National Association of Realtors in March means home buyers/sellers can go lower than 6% for commission to real estate agents
By Billy Liggett | billy@rantnc.com
The thousands of homes that have been bought and sold in Sanford in the last several decades have shared one common thread — aside from the skyrocketing prices. They have all come with a 6 percent commission paid out to the real estate agents who worked behind the scenes to make those transactions happen.
That commission rate is no longer set in stone, a result of the March 15 settlement of a landmark antitrust lawsuit that forced the National Association of Realtors to pay $418 million in damages to home sellers and essentially end their rules on commissions.
The settlement, which is subject to court approval, makes clear that NAR continues to deny any wrongdoing in connection with the Multiple Listing Service cooperative compensation model rule that was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation.
More importantly to future home buyers and sellers, the NAR has agreed to prohibit agents’ compensation from being included on MLS listings. Under the current model, sellers are most often required to pay both their broker and their buyer’s broker, which critics say has played a role in the rising costs to buy a home in the U.S.
John Ramsperger, owner of Sanford Real Estate, said he believes the move will make commission rates more competitive. North Carolina real estate agents, he said, have to disclose whom they represent in a transaction (buyer or seller).
“What a lot of consumers don’t know, or simply ignore in a real estate transaction, is that the buyer’s agent commission is ‘baked into’ the transaction. The seller’s agent and buyer’s agent split the commission on a sale. Most buyers don’t think about the compensation to their agent, because they do not write them a check. The buyer’s agent commission is debited from the seller proceeds on the sale,” Ramsperger said. “If a buyer’s agent has to negotiate and agree to compensation, they should be more shrewd in agreeing to compensation in a transaction. Real estate agents need to be competitive to secure the trust of the buyer in a transaction. This means agents may be getting less money.”
Some experts estimate rates could fall as much as 25 to 50 percent in the new market. But the ruling could also mean bad news for first-time homebuyers, Ramsperger said.
“If they are stretching to afford their first home and qualify for a mortgage, they may not have the additional funds to pay a buyer’s agent,” he said. “For sellers, I imagine they will be relieved to talk with licensed real estate agents to list their home for 3 percent, instead of 5 or 6. The marketing of the home should not change.”
According to a March report by CNN, citing analysis by T.D. Cowen Insights, the average price of a home for sale in the U.S. was $417,000 at the beginning of the year. At that price, sellers would pay more than $25,000 in brokerage fees.
Under the new rules, that fee could fall by as much as $6,000 to $12,000.
There’s fear nationally that the changes could mean the end of smaller real estate companies, but Ramsperger sees positives for agents like himself, particularly those with experience.
“Competition is a good thing, and consumers should have an awareness of all the variables that go into the largest purchase of their life,” he said. “I think some agents who are not skilled at obtaining listings may not like openly negotiating their compensation with prospective buyers… [and] I think newer agents and/or part-time agents may choose to leave the field as their opportunities for making money get smaller. This favors the agents who have been practicing a long time.”
Another rule change, Ramsperger said, is that the buyer’s agent must enter into a written representation agreement with the buyer before touring the home. That means each agent has to present paperwork and obtain a signature from the buyer prior to looking at houses.
“Up to this point, we have to disclose whom we represent in a transaction but are not required to enter a buyer’s agency agreement prior to showing the home,” he said. “Many consumers will be slow to sign papers with an agent they just met. They simply called about a home they saw on the internet, they didn’t call to meet the agent at the office to discuss agency law and sign papers.”
Cindy Ortiz, Realtor and the managing broker for Coldwell Banker in Sanford, agrees that the big change that will come from the settlement is the prioritization of “up front discussions” between agents and buyers/sellers regarding commissions.
Buyer-agency agreements, she said, have long been standard in North Carolina and will become more common nationally.
“Despite these changes, buyer’s agents will remain essential,” Ortiz said, “necessitating comprehensive up front conversations with buyers and cooperation with listing agents to determine compensation terms. This adjustment aligns with the aim of fostering transparency in real estate transactions.”
Like Ramsperger, she sees the changes as a positive and doesn’t foresee a negative impact on agents like herself, at least not in the foreseeable future.
“No immediate effects have been observed, and it is unlikely to significantly disrupt operations,” she said. “Agents will continue to articulate the value of compensating co-brokering agents to sellers, emphasizing the benefits of working with qualified buyers. Until further clarity emerges, business operations will proceed as usual at Coldwell Banker Advantage, with agents staying informed and adaptable.”
Some of the statements above are what really irks me about some real estate agents. First of all, both buyers and sellers should be properly educated concerning commissions. Some agents apparently do not see any value in an educated client. In NC, a seller is NOT required to pay a buyers commission. It is not “baked” into the transaction. And commissions in NC have ALWAYS been negotiable; it is never set in stone. So the 3% figure mentioned as relief for the seller is totally negotiable and could theoretically be 0 up. And last time I checked there is a specific line in the Buyer Representation agreement that specifies commission expectations which may or may not become buyer responsibility. Where “Agents will continue to articulate the value of compensating co-brokering agents to sellers, emphasizing the benefits of working with qualified buyers” means agents would push for sellers to continue to pay commissions to buyer’s agents. Huh? If a buyer wants proper representation then to me it becomes the agent’s responsibility to explain and demonstrate why he/she should be hired and not expect another party to pay for services received. Should a prospective client decline then let them get what they pay for.
Buyer’s agents are going to have a tough time. Under the new rules, sellers who offer 0% to a buyer’s agent will not have their offer (or lack thereof) on the MLS. No more presenting buyer’s agency as “free.” Glad that the Sitzer lawsuit achieved its goal.
The change in fees sound like a good deal for homeowners but, hold on, as a buyer and seller over 26 years of military moves, I am a little skeptical. In most cases there will be new charges to negotiate for buyer and seller and what was before a very seamless process could wind up costing more to both buyer and seller as they navigate the various pieces of the process. I always felt that realtors certainly earned their fees during our moves, so I am taking a wait and see attitude for what’s ahead for home selling and buying. Ron Hewett
We could also go backwards 25 years and do Seller sub-Agent where the seller is not represented at all like it used to be.