Lawsuits are such fun aren’t they?
A few years ago a lawsuit against the National Association of Realtors and a couple of huge brokerages was filed, claiming, in essence, price fixing. I first became a realtor in the early 90’s and the common commission rate was a 6% split between the seller’s agent and the buyer’s agent. When I came back into Real Estate, that was still the standard. Please keep in mind, I am a licensed Realtor that works under a broker. The broker is the one who ultimately decides the commission on listings or gives the agent leeway to adjust it. The 6% Commission rate can usually be explained like this: 6% commission, always paid by the seller in the Listing Agreement contract, is split between the listing agent, and the agent who brings the buyer. This incentivizes both agents to get your home sold. The 3% commission is typically split 3 ways between the broker, the agent and of course the IRS. In recent years with some of the newer brokerages, they have gone to a flat fee for the agents which has allowed the agents versatility in this structure. For instance, when an agent lists a house, instead of a percentage split with the broker, they pay a flat fee regardless of the price of the home. This allows the agent to pay less to the broker and therefore they can negotiate a little more with the seller on the commission. More traditional brokerages still use the full 6% model simply because it covers all of the overhead needed and really incentivizes the buyer’s agent to bring someone to your home. The results of this lawsuit is over $1 Billion (yes that is a ‘B’) in damages and now bringing the commissions into a state of flux. Closer to home, other lawsuits have been filed against Texas Realtors, the state licensing organization and we are already seeing changes in commissions. One of the outcomes is that some realtors are having the seller only pay commissions to the listing agent and none, that is 0, to the buyer’s agent. This brings another dynamic into play where the buyer will have to pay the buyer’s agent their commission. I have actually seen some listings recently like that in the metroplex. It is really hard because most buyers only have enough money for downpayment and closing costs, not extra to pay the realtor. This actually disincentivizes the buyer’s agent to show that home. Remember, buyers’ agents may show many homes, drive many miles, and work for hours with a buyer to find the right home. They also help the lender and title company, negotiate with the seller’s agent, and much more, so they work hard for their piece of the pie. While our licensing requires that we don’t discriminate against certain properties if the commission is low, it puts the agent in a tough situation to recoup their costs of working with a buyer. If a buyer finds a home that they want to look at, and the seller is not willing to pay the commission, that buyer may have to go directly to the seller’s agent to see the home. Then if they want to purchase the home, they will have to work with the listing agent directly. The listing agent is bound by the listing agreement to ONLY represent the seller, which means that the buyer has no representation to protect their interest. There is no one who can legally walk them through, giving wise advice or counsel, and help them truly understand the process. When one agent works both sides, it is called ‘Intermediary’ and I have had to do it a few times. It is really tough. The only time I will do it is if the buyer is a very savvy home buyer, having bought multiple homes and fully understands the process. All I can do for them legally is give information, no counsel or guidance. This makes it very tricky for buyers and can put them in a difficult position with no trusted advisor to help them. All of this said, the landscape of real estate is changing and who knows where it will land. We are in a different time and that calls for different tactics and understanding of how to sell or buy a home. Just make sure to have good conversations with realtors when reaching out. Make sure you understand exactly how the compensation will work and what the best strategy is to buy or sell a home. When looking online at homes, this information isn’t readily available to buyers. Don’t be afraid to ask your realtor about it. It may help you make a better decision in the long run. Remember, a realtor is a trusted advisor and having open conversations about the entire transaction only benefits you as a buyer or seller. Here are links with more information. NAR lawsuit: After a $1.8 billion verdict, the clock is ticking on the 6% real estate commission | CNN Business What the Compensation Lawsuits Filed in Texas Mean for You – Texas REALTORS® (texasrealestate.com)
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