For those of you who have not been following the lawsuit news, a ruling came down Burnett v. NAR, et al. on October 31st, 2023, regarding Realtor commissions. I want to share with you a bit about the lawsuit itself and what it means. I am not a legal expert on this but have written this to the best of my knowledge and understanding. Please do not hestitate to reach out to me if you have any questions.
What happened?
The jury determined that NAR (National Association of Realtors), Keller Williams, and HomeServices of America were guilty of colluding over commissions. The core of the lawsuit was over NAR’s rule that all listings on REALTOR® operated MLSs communicate an offer of compensation to the buyer’s agent.
The class action argument against NAR (The trial was in the United States District Court for the Western District of Missouri and the outcome applies to all home sellers who listed homes on a number of MLSs present in the Missouri and Kansas region since 2015), was that the cooperative compensation rule created a conspiracy to keep commission rates higher than the market would otherwise have created.
What is the MLS?
The MLS is the Multiple Listing Service that “broadcasts” a property for sale. MLSs operate locally so that all Realtors can share their listings/properties for sale with other Realtors – and also that Realtors helping buyers can view and share properties for sale with their buyers.
The local MLS is a powerful tool that promotes equity and transparency in the market place. It is also the tool by which aggregate, consumer faccing sites such as Zillow, Realtor.com, Refin and others access data/ information about homes for sale. Both buyers and sellers benefit from the MLS services and consumer facing sites. All of this supports market-driven pricing and business competition. This ensures consumers get comprehensive, equitable, transparent and reliable home information and that brokerages of any size, service or pricing model get a fair shot at competing.
What is the cooperative compensation rule?
The core of the lawsuit was over NAR’s rule that all listings on REALTOR® operated MLSs communicate an offer of compensation to the buyer’s agent. As part of a listing / sale agreement, the commission paid by the seller can be “shared” with the buyer’s agent – thereby compensating the buyer’s agent for their work on bringing the buyer to purchase the property. (In short, the commission paid to both the selling agent and the buyer’s agent is paid by the seller.)
Essentially, the plaintiffs argued that NAR and the various MLSs worked together to ensure payment of Buyer Agents happened, thereby inflating the amount of total commissions paid by sellers.
NOTE FROM ME: It’s imperative for both home sellers and for buyers to know that commissions are negotiable and set between brokers and their clients. There is no set commission structure for either what the seller pays – or what the selling agent shares with the buyer’s agent.
In my opinion…
Why does the seller pay all the commission? Again, the commission is paid to the selling brokerage. The selling brokerage, if it lists the property on the MLS, then must share a portion of that commission to the buyer’s agent. Listing the property on the MLS ensures the largest distribution of the property that is for sale. I do believe is a huge benefit to the sellers. Without it, my job as a selling agent would be nearly impossible because the property would not appear to local realtors nor would it appear on the consumer facing sites like Zillow and Redfin.
Both the selling agent and the buyer’s agent are critical during a real estate transaction. As a NAR Realtor, agents must abide by the Realtor Code of Ethics. Continuing Education and Code of Ethics training are required. In addition, we help both buyers and sellers through the complicated process of property pricing, price negotiations, navigating the escrow process, condo and HOA docs and the legal disclosures and inspections that are part of buying and selling a home in Hawaii (and much, much more!)
In the future, if buyers have to pay compensation to a Realtor directly, I do believe that the real estate transaction process would suffer. Buyers already pay large amounts of money out of pocket to purchase a home including down payments, inspection fees, lender fees and mortgage points and more. If required to also pay buyer agent commission, they may choose not to buy at all, or to make a purchase but not have proper representation from a Realtor that could hurt both the buyer and the seller in the long run.
What's next? The verdict as regional only and will be appealed. We do not foresee any changes in the commission structure of process until the appeals have gone through their process. It will likely be several years before this case is finally resolved.
A bit more:.
The National Association of REALTORS® believes that the jury reached an outcome that is neither supported by the law nor the facts presented in the case and plans to appeal.
The trial had to do with a very pro-consumer rule for local MLS broker marketplaces where listing brokers make offers of compensation to buyer brokers who identify someone who wants to buy the sellers’ home.
Those offers can be any amount, can vary over time, are based on things like service and the market, and are negotiable. Neither the buyer nor seller broker gets paid until the home sale and purchase close based on what the seller and buyer have agreed to in writing.
The offer of compensation practice ensures efficient, transparent and accessible marketplaces where sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation.
Plaintiffs have said wealthy people could still afford representation without the practice, but that hardly seems fair. The National Association of REALTORS® is going to continue to advocate for this pro-consumer practice and, as noted, plans to appeal the jury’s verdict.
Know that agents who are REALTORS® will still and always be there for clients to guide you through the financial, legal and community complexities of buying and selling a home.
The verdict doesn’t change the many choices buyers and sellers have when deciding whether to hire a real estate agent who is a REALTOR®. Compensation will continue to be negotiable and set between a broker and their respective client, as it always has been.
If you've made it this far, MAHALO for taking the time to read through this. Again, please call or email if you have any questions about this or Kauai real estate.