If you’re considering selling your home, you may have heard about the outcry surrounding buyer’s agent commission brought to the fore by a recent class action lawsuit against the NAR.
The outcome could have far-reaching effects on the industry as a whole, particularly when it comes to commission structures going forward.
Keep reading to find out more about the proceedings and how they could impact the future of real estate transactions.
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Introduction to Buyer’s Agent Commission
Buyer agent commission refers to the fee that a real estate brokerage acting on behalf of the buyer collects at closing. It compensates them for their efforts during the various phases of the sale.
The buyer rarely pays this commission. This is because it’s in the seller’s best interest to encourage more showings of their home by incentivizing the buyer’s agent.
The payment usually comes out of the proceeds of the sale, although the negotiating process can impact who pays the buyer agent commission.
At first, commission rates in the real estate industry comprised a significant fixed portion of the sale price. This made real estate transactions expensive for buyers and sellers alike.
Yet, it did not quell the average American’s desire to own their own home. This insatiable demand for real estate inevitably led to more competitive commission rates, benefiting sellers and creating increased liquidity in the market.
Before long, variable commission structures based on location, property types, and other factors emerged, creating more flexibility when negotiating home sales.
As the industry evolves further, driven by consumer preferences, technology, and regulatory changes, commission practices are certain to follow suit.
Impact of Agents’ Commissions on Home Prices
High commission rates impact sellers by reducing their net proceeds from the sale. The seller typically pays the agents’ commissions, so this can influence pricing decisions as sellers must consider commissions when deciding on their sale price.
In this way, they indirectly affect buyers, too.
When sellers take commission costs into account, they might be less willing to negotiate on the sale price. This can drive home prices higher, depending on the current commission rates.
The Impact of Commissions on Market Dynamics
The relationship between commissions and home prices also depends on supply and demand dynamics. In markets with limited inventory, sellers unwilling to negotiate commission rates keep prices high.
In a buyer’s market, sellers are more willing to re-examine their pricing regardless of commission costs to attract more buyers.
How Commission Percentages Impact Sales
High commissions motivate sellers’ real estate agents to work harder toward securing a sale at the best possible price. Since these professionals play a vital role in marketing and selling properties, this can lead to more aggressive pricing strategies.
Buyer’s agents also stand to earn more from the deal when their clients purchase a more expensive home. This may tempt them to steer clients toward higher-priced properties.
Current Status and Norms Regarding Buyers Agent Commission
For the last 50 years, the real estate commission percentage has been between 5% and 6% of the home’s sale price. In most cases, the seller’s agent and the buyer’s agent split their commission in half, i.e., they receive 2.5% to 3% of the commission each.
These costs cover the following range of services, including:
- Negotiating a realistic home price
- Marketing the property online and offline
- Presenting the home to potential buyers
- Negotiating the details of the transaction
- Overseeing appraisals and inspections
- Closing the sale
There aren’t any laws or regulations dictating real estate commission rates. Commission rates and structures may also vary depending on the home’s location and the agent.
That leaves room for negotiations between agents and buyers or sellers, depending on various factors. These may include their relationship, the type of transaction, and the services provided.
When an agent represents both the buyer and seller, they may accept a lower percentage of the home sale price as a commission.
Legal Challenges and Potential Changes
All this time, home sellers have simply accepted the real estate commission structure as a given when selling a home. However, with the advent of technology, particularly the MLS, things have changed.
Now, buyers no longer rely on their agents to carry out intensive home searches on their behalf; they can simply view any of the multiple listing sites available online. While this adds convenience to the home selling and buying process, it also brings into question what the seller is paying for and raises issues about fair competition in the market.
All this has come to light in a recent multibillion-dollar class action lawsuit in Missouri. In this case, an 8-person jury found the National Association of Realtors (NAR), along with Keller Williams and HomeServices of America, guilty of violating antitrust laws.
Realogy Corp. (Re/Max and Anywhere Real Estate) were originally included in the suit, but they settled out of court. The brokerages paid a combined fee of $140 million and agreed to make changes in their business models, i.e., not requiring agents to join the NAR.
The accusations leveled against these parties revolve around their conspiring to keep real estate sales commissions artificially high by monopolizing the MLS. This database comprises 88% of home listings and is instrumental in matching buyers and sellers.
In return for listing their clients’ properties on the MLS, brokers must agree to share their commissions with other MLS participants.
While the NAR plans to appeal this $1.8 billion ruling against them, the floodgates have already opened in several other states, where homeowners are pursuing similar lawsuits.
In a separate case, the Justice Department has also since appealed a judge’s ruling, preventing further investigation into two NAR policies related to competition in the real estate market.
Potential Future Implications of this Case
While the appeals process follows its course, speculation is rife about what the implications of the Michigan case might be. Experts predict one of two scenarios:
Buyer Agent Commissions Become Optional
This scenario represents minimal change and was already implemented for the Northwest MLS. The rule had a minimal impact on home price dynamics or agent commissions.
Due to this, the DOJ and the courts will likely push for more comprehensive changes in the industry.
Buyers Will Pay Their Agents Directly
This kind of transformative shift will ban sellers from offering buyer agents preset commissions. Instead, buyers would carry these costs, and sellers might potentially compensate them at closing.
There are also rumors of buyers paying agents per hour for their services.
These changes could come from brokers or the MLS themselves in an attempt to avoid further lawsuits, or the DOJ might make them mandatory.
How Will This Impact Buyers, Sellers, and Realtors?
If the second scenario does come into effect, it could have far-reaching effects for all parties involved in real estate. These include:
The NAR, buyer agents, and brokerages would certainly be the biggest losers in this case.
If the NAR survives the massive legal costs heading its way, it might not survive. Brokers are already fleeing from any association with the NAR, leading to losses in subscription fees for the real estate giant.
Brokerages are likely to lose their leverage over commission splits without the MLS as a bargaining chip. Real estate agents will likely migrate toward working in teams instead of under the banner of a broker.
Buyers agencies will face strain if they force buyers to pay their agents out of pocket. Many buyers may forgo representation, and buyer’s agent commissions are likely to feel the squeeze, forcing buyers agents out of the industry.
Companies that specialize in buyer lead generation are bound to suffer as a result of low commissions, too.
Finally, inexperienced, first-time, and low-income buyers will likely forego the services of an agent to save money. This can lead to costly mistakes during the home-buying process.
There will also be winners if this scenario comes to pass.
Seller agents will be in a good position if these changes happen. They’ll also have more opportunities to represent both parties in sales, which is a win for the listing client.
The fierce competition for listings will become even more intense.
At face value, it seems like sellers will benefit from the new ruling, but that isn’t necessarily the case. A reduced commission could simply bring down the price of homes by 2.5%.
Low-cost specialists will likely step in to assist price-sensitive buyers with attractive rates for things like ‘door opening’, purchase advice, and contract negotiations.
iBuyers, like Offerpad and Opendoor, will benefit from considerable savings on commissions due to the sheer bulk of their transactions. They’ll also find it easier to generate sales leads, which is vital for their business.
Tech automation powered by AI could take off and prosper thanks to buyers opting for self-service functionality when buying homes.
If the MLS collapses, this opens the door for other portals like Zillow to expand their offerings to suit price-sensitive buyers or force listing agents to pay for their services.
This paves the way for a new type of self-serve real estate solution complemented by the human touch when necessary.
ZeroFeeListed is an innovative service that’s poised to take advantage of the current uncertainties surrounding real estate agents’ commissions. It’s also an excellent way for sellers and buyers to save money during real estate transactions.
This online platform is easy to use and offers abundant flexibility for sellers. The process works as follows:
Register for Free MLS Listing Services
To begin using ZeroFeeListed.com, sellers must complete a simple sign-up process. They only need to enter their name, contact details, a few photographs of the property, and some details about it.
Information Processing and a Bonus Cash Offer
ZeroFeeListed may request additional information while preparing the listing for the MLS. It’s easy to upload these to the company’s website.
During processing, ZeroFeeListed submits the home for a no-obligation cash offer from its pool of cash investors. The buyer receives this offer within 24 hours.
If they’re happy with the offer, they can sell their home almost immediately and close in as little as seven days.
Listing the Property on the MLS
If the buyer doesn’t want to accept the cash offer and their home passes the verification process, they can proceed with listing their property. They don’t pay anything for the MLS listing.
ZeroFeeListed creates a comprehensive listing based on the details provided and posts the listing with a sponsored registered agent. It’s uploaded to ZeroFeeListed’s database, where a large network of real estate professionals and buyers can view it.
Receive Offers on Your Home
The registered agent receives offers from the MLS. ZeroFeeListed verifies and reviews all these offers on the seller’s behalf.
Once approved, the agent forwards the offers to the seller. The seller can evaluate these offers, knowing they’re from legitimate buyers.
Assistance With the Sale
The ZeroFeeListed document library provides access to a variety of documents for members. These documents are central to the contract and closing process.
If they decide to accept one of the offers, members can also request assistance from a registered agent at any stage of this process.
The Benefits of Using ZeroFeeListed
ZeroFeeListed might be the way of the future for real estate transactions based on recent upheavals in the industry. It offers several free benefits to home sellers:
- Unlimited MLS listings and edits
- Superior visual listing
- Document support
- Free online home valuation
- Cash offers from reputable cash buyers
- Customer support
When you use a Free MLS listing, you can avoid paying conventional real estate commissions, but you’ll still pay to list your home.
This real estate service allows homeowners to list their properties on the MLS for a fixed upfront fee, rather than paying a traditional real estate commission, which is typically a percentage of the final sale price.
It’s a cost-effective alternative to traditional real estate services, although sellers must market their properties on their own and handle all the showings, negotiations, and paperwork themselves.
While ZeroFeeListed does offer a free MLS listing service, they support the seller throughout the sales process.
Don’t waste time waiting to find out what happens in the realm of real estate, or pay a buyer’s agent commission when you don’t need to. Check out the ZeroFeeListed website to see if this service is a match for you.