It is a landmark class action lawsuit many consumers are unaware of but it may change many aspects about how we buy and sell homes.
Last week, The National Association of Realtors (NAR), a trade group representing the industry, agreed to a $418 million settlement in an antitrust lawsuit. A Federal Jury found the NAR and several large real-estate brokerages worked together to artificially inflate agent commissions on the sale and purchase of real estate.
The lawsuit was brought by a group of Missouri home sellers who alleged the trade group artificially inflated realtor commissions that home sellers pay — which, in turn, helped inflate home prices. The NAR and several major brokerages listed on the Multiple Listing Services propped up agent commissions. It appeared agents representing buyers avoided showing listings if the seller’s broker offered a lower commission to the buyer’s agent.
Settlement
In the settlement, the NAR has agreed that “they can no longer require a broker advertising a home for sale on MLS to offer any upfront compensation to a buyer’s agent. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms. However, the home seller’s broker must disclose such compensation arrangements. The trade group also agreed to require agents or others working with a homebuyer to enter into a written agreement with them. That is meant to ensure homebuyers know what their agent will charge them for their services.”
Kevin Sears, President of the National Association of Realtors, explained, “There was no perfect option. Despite what people may have said, we have always been open to settlement.”
Sears talked about the options that were available to them once the verdict was delivered by the Federal Jury. NAR could appeal and felt they would be successful, but they would have had to post a $5.4 billion bond. The National Association of Realtors did not have the resources to do this. Another option would be bankruptcy and Sears believed bankruptcy was not something they could do to the organization. The best option was settlement.
The lawsuit stated that NAR, and brokerages that required their agents to be members of NAR, established an industrywide standard commission of 5 or 6 percent. The percentage is one of the highest rates in the world. Not having a guaranteed rate leaves agents in an environment that makes it difficult to succeed financially and adds the option of having to compete with other agents for the job.
However, what does all this mean to the person wanting to buy or sell his or her home?
Lower prices? Maybe – maybe not
Routinely, home sellers pay about 6 percent of the sale price toward a fee. This fee is usually split between the seller’s agent and the buyer’s agent. If you consider the median sale price of a house in the State of Georgia to be around $360,000, at 6 percent, the agents would split a commission of $21,600, giving payment to each agent of $10,800.
Experts are split on how much impact this will have on home buyers. More than likely, the buyer will now have to start paying their agents themselves. Others say the prices won’t change, the seller will simply pocket more. However, for the most part, it is too early to know what this settlement means to the consumer.
The lawsuit claimed that the selling agent would tell the customer, “If you want to sell your house, the buyer’s agent will need to offer 3 percent.”
It claimed the buyer agents would not show the house to their clients. If the buyer’s agent doesn’t show the house – it won’t sell. Under the settlement agreement, there will be new ways to compensate the buyer’s agent. Possibly a flat service fee will be implemented or maybe the percentage of the deal will come out of the buyer’s pocket. There is much to be seen and heard as people scramble to find solutions.
Dissemination of information
Diane Brown, partner/broker of the Norton Agency in Clarkesville, GA, talked with Now Habersham about the settlement which is still awaiting court approval. “I have been in the real estate profession since 1978. There has never been a time when commissions have not been negotiable between all parties to a transaction.”
Brown emphasized the mainstream media’s dissemination of information that is not true such as “fixed rates of commission.”
“Realtors adhere to a code of ethics which we take very seriously and this code requires honesty and integrity to everyone,” Brown added.
Now Habersham reached out to many local realtors who wanted to comment but couldn’t for various reasons. Some were uncomfortable because it was difficult to say what would actually happen. Others were silenced by the brokers of their agency or the attorney for the agency. Regardless of the reason, it isn’t something realtors are free to discuss simply because they do not know what the impact will have or if it will have an impact.
Roger Glenn, President of the Georgia Mountains & Lakes Realtors® Association, said, “The 450+ members of the Georgia Mountains & Lakes RealtorsⓇ Association remain committed to providing exceptional service and representation to our clients. While we understand the interest in the proposed settlement, we have always been very transparent regarding all aspects of real estate transactions.”
He reiterated that the Georgia Brokerage Relationships in Real Estate Transactions Act provides detailed guidance for navigating financial, ethical, and legal interactions between brokers and their clients to ensure everyone understands their rights and responsibilities while engaged in real estate transactions in Georgia.
“I think it is unfortunate that the media has characterized the recent proposed settlement as a watershed development given Georgia’s long-standing commitment to transparency. We are your neighbors, guardians of property owner rights, and committed to ethics in the conduct of representation,” Glenn added.
Harm to consumer
Lee Ann Evans, a 20 year Real Estate Agent for Coldwell Banker in Dublin, Georgia, spoke about the ruling, “As far as the ruling goes, it will hurt buyers in our area because we live in a rural community where the majority buyers do not have enough for the down payment and their closing cost much less paying a Realtor to help them.” She emphasized that commissions have not ever been a set fee in her area. They are negotiated all the time.
The settlement is scheduled to go into effect in July of 2024. Whether or not it will open doors to a more competitive housing market is arguable and remains to be seen. Some experts say homebuyers will be asked to sign a contract that spells out how much the agent will be paid and when they will be paid. Sellers will have to be diligent to make sure they comply with the new rules.
For those who work in the industry as Realtors, the outcome could be a hardship. Realtors are not compensated for the work they do until the transaction closes. As it stands now, an agent could work with a particular person in an attempt to find a home for days, weeks, months, or years with no guarantee of ever accomplishing a sale. With the addition of uncertainty about commission, Realtors will find making a living will be tougher than ever.
With the addition of the internet and various Real Estate websites such as Zillow, it is more difficult for a scenario where the buyer’s agent is only showing homes where the agent is also the seller’s agent. The consumer always can see available homes that fit their needs.
Until the court approves the settlement and the regulations go into effect in July of 2024, many are waiting to see what types of impact the decision will make and what the next step might be for the many agents in Georgia.
