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Change is a constant in any industry, but some changes are big enough to alter how an industry operates forever. Many observers believed the real estate industry was about to experience that kind of change after a legal settlement with the National Association of Realtors (NAR) that took a sledgehammer to the industry’s traditional commission structure. Real estate brokers reflect on how the industry has changed since the settlement took effect.
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If you have ever sold a piece of real estate, you are likely familiar with “standard” broker compensation, which has traditionally been 6% of the purchase price. This compensation to the broker would be split in half with any other real estate broker who produced a buyer, meaning both brokers got 3% each. Although this was traditionally pitched to buyers and sellers as a standard practice, some people began questioning whether it was fair to the seller.
After all, paying equal compensation to a buyer’s broker, whose job is to negotiate the price of your property downward, does seem somewhat counterintuitive. However, sellers didn’t have much choice because their broker had to agree to split the commission in half with the buyer’s brokers as a condition of listing the property on the multiple listing service (MLS).
Before the internet, the MLS, operated by the NAR (or a local branch affiliated with the NAR), was almost the only way to mass-advertise a property for sale and attract qualified buyers, most of whom were represented by NAR-member brokers. The conflict revolved around whether that system created a closed loop that gave the NAR a monopoly on information and encouraged price fixing among brokerages, who almost universally charged a 6% commission.
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The End of the 6% Commission
After years of avoiding legal action, the NAR (and several of America’s largest real estate brokerages) settled a massive case in 2023. The settlement included $418 million in compensation for the plaintiffs and a pledge by the NAR to reform its business practices.
Under the settlement, which took effect on Aug. 17, 2024, sellers are no longer responsible for paying buyers’ agent commissions. If the seller offers a commission split, the seller’s agent can’t include the split percentage in the MLS listing. This requirement ensures that buyers’ agents don’t steer their clients toward MLS-listed properties with the highest commission split (which would violate the buyers’ agent’s fiduciary duties).
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When the settlement was announced, many brokers who specialize in representing buyers in real estate deals feared their compensation would be significantly reduced. However, the early word from many brokers is that the market remains largely unchanged. Sellers’ agents can offer commission splits, but buyers must now sign individual buyer-broker contracts with their agents that specify the broker’s compensation package.
Blake Blahut, a broker for Orlando, Fl-based Realty One Group Inspiration, told Business Insider, “I have yet to come across a listing that hasn’t offered at least some level of compensation.” This makes a lot of sense when you think about it. After all, if you’ve got a $600k property for sale and another broker brings a qualified buyer to the table, it’s probably still in your best interest to pay that buyer’s agent some compensation.
The biggest difference seems to be the negotiation regarding the compensation the buyer’s broker will receive. Because of tradition, it’s no longer a 50% split of a commission fixed at 6%. Today’s sellers are free to tell their brokers that they will pay them 3% to represent the property and then negotiate how much, if anything, will go to the buyer’s broker.
Theoretically, buyers could pay their brokers directly, but that’s unlikely given how expensive houses are in much of the US. The most likely major change will be that the MLS, a relic of pre-internet commerce, will fade away and be replaced by websites like Zillow. That could result in a big win for shareholders of Zillow (NASDAQ:Z). Keep an eye on this stock. As for home buying, it’s business as usual.
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This article Real Estate Brokers Describe How The Landscape Has Changed Since Landmark Settlement On Agent Commissions originally appeared on Benzinga.com
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