The real estate industry is undergoing significant changes this month, driven by recent settlements and policy shifts aimed at increasing transparency and consumer choice in agent compensation. These changes stem from a series of high-profile lawsuits and settlements involving the National Association of Realtors (NAR) and several major real estate brokerages.
Background on the Settlements
Earlier this year, the NAR, along with other major brokerages, agreed to pay over $950 million to settle lawsuits alleging that they forced homeowners to pay inflated commissions. The settlements include significant policy changes designed to improve transparency around broker compensation, with NAR agreeing to a $418 million payout and new rules that will affect how real estate transactions are conducted.
Key Changes for Homebuyers and Sellers
1. Compensation Transparency: Offers of compensation are no longer displayed on MLS platforms. Agents and brokerages can post compensation details on their own websites, but this information will only pertain to their brokerage’s listings and cannot be syndicated from the MLS. Compensation must now be negotiated directly between the buyer’s agent and the buyer, ensuring buyers have a clear understanding of their agent’s fees upfront.
2. Written Agreements: MLS agents working with buyers must now have signed agreements before showing homes. This practice ensures that buyers are fully aware of the services they will receive and the associated costs.
This reflects a common requirement in many Multiple Listing Services (MLS) across the country, where buyer-broker agreements are often mandatory before agents can show properties to prospective buyers. These agreements clarify the relationship, outline the agent’s duties, and disclose any compensation arrangements, thereby promoting transparency and protecting both parties.
3. Impact on Commissions: While the overall impact on commission rates remains to be seen and will likely vary by market and individual negotiations, these changes offer more flexibility for buyers and sellers to negotiate compensation directly, potentially leading to more competitive rates.
4. Sellers’ Options: Sellers can still offer compensation to buyers’ agents, though these offers cannot be listed on the MLS. This remains a valuable tool for attracting buyer agents and can be discussed during the listing agreement process.
Specifics for REBNY-RLS Members
For members of the Real Estate Board of New York (REBNY), the changes have significant implications. As of January 1, 2024, offers of compensation to buyer’s brokers in the REBNY Residential Listing Service (RLS) must originate directly from the seller. While these offers of compensation can still be displayed on the RLS, the ability to search and sort listings by compensation levels will be restricted. Agents must ensure that all compensation details are clearly documented in the listing agreements.
Settlement Terms at a Glance
– MLSs are prohibited from displaying any offers of compensation to cooperating brokers.
– For MLS memberships, sellers may still offer compensation to a cooperating broker through the listing broker, who then handles the payment. However, under REBNY’s RLS rules effective January 1, 2024, sellers must offer compensation directly to the cooperating broker, and the listing broker cannot facilitate this payment.
– Sellers can negotiate or deny requests for compensation from cooperating brokers as part of the purchase offer or separately.
– Brokers may advertise compensation to cooperating brokers on their own websites.
– Listing agreements with a seller and buyer agreements must contain a conspicuous statement that broker fees and commissions are not set by law and are fully negotiable.
– Written buyer agreements must contain specific provisions pursuant to the settlement.
– MLS participants must have written buyer agreements that include specific provisions required by settlements or regulations.
Long-Term Implications for Agents
These rule changes represent a significant shift in the real estate industry. For experienced and full-time agents, these changes can be navigated with professionalism and diligence. However, part-time agents or those with fewer transactions may face challenges adapting to the new landscape.
In short, the recent settlements and rule changes aim to create a more transparent and consumer-friendly real estate market. Both buyers and sellers should engage in open discussions with their agents to fully understand and negotiate compensation terms, ensuring a fair and efficient transaction process.
Sources:
– NAR Settlement FAQs:
– National Association of REALTORS® Reaches Agreement to Resolve Nationwide Claims Brought by Home Sellers
– What Does This Big Settlement About Broker Commissions Mean for New York?
– NAR Agrees to Major Rule Changes Beginning in July, Pays $418M To Settle Commission Suits –RISMedia
