It was certainly big in the news for a spell. But will a pending legal settlement over real-estate commissions make a major difference in the lives of future home buyers and sellers?
The answer, according to a recent forum hosted by the Washington area’s multiple-listing service (MLS), seems to boil down to maybe, but more likely not.
Some coverage of the recent court action has “greatly overstated” how the dynamics of the home-sales process could evolve, said Brian Schneider, an attorney with Arent Fox Schiff and legal counsel to Bright MLS, the area’s multiple-listing consortium.
He and Bright MLS chief economist Lisa Sturtevant offered their views on April 12, about a month after the National Association of Realtors (NAR) on March 15 agreed to pay $418 million over four years to settle multiple lawsuits related to how compensation offers for listing agents have been made.
The agreement, if ratified over the coming year in multiple courthouses across the nation, would resolve claims against NAR, NAR members, all state and local Realtor associations, all association-owned MLSs and all brokerages with an NAR member as principal that had residential-transaction volumes of $2 billion or less in 2022.
(At least one major real-estate firm has opted out of the settlement and will continue to fight the lawsuits. Others could choose to do so.)
In addition to the financial payment, NAR has agreed to put in place a new rule prohibiting offers of broker compensation on multiple-listing services, as currently is the norm in the Washington region and many other areas. Going forward, those compensation offers would need to be negotiated separately through those representing buyers on one side and sellers on the other.
That alteration will enhance transparency, but in the end “may not be quite as big a change” as some expect, Schneider said (while acknowledging he did not possess a crystal ball). The new rules will likely take effect later this year, he said.
While negotiable, total commissions on residential-home sales in the Washington area tend to be in the range of 5 to 6 percent, paid by the sellers and split between buyers’ and sellers’ agents and the brokerages they represent. One of the lawsuit’s contentions is that Realtors representing buyers are more likely to steer buyers to homes that have higher compensation percentages for the agents. But Sturtevant said an analysis of more than 1 million homes sales in the Mid-Atlantic over the past four years doesn’t substantiate that conclusion.
“We just can’t see any relationship,” between commission levels and how quickly or for how much a home sells, Sturtevant said. “You really can’t see a difference.”
The age of a home, its size, location and existing economic conditions all seem to have more impact on how long it takes a property to sell. “There’s no consistent evidence” to suggest commission levels have that strong an impact, Sturtevant said.
Regardless, change is coming. The net result of the changes likely will be that sellers will continue footing the costs of commissions for both sides of the transaction, yet there will be more paperwork involved. But it’s all “still an open question,” Sturtevant said, to see how it plays out in a real-world environment.
As part of the draft settlement, NAR also has agreed to enact a new rule that would require MLS participants working with buyers to enter into written agreements with those buyers. That change will have little impact locally, as it has been the norm in the Washington region for years.
In the end, it appears leadership of the National Association of Realtors decided it would be more cost-effective to settle the various class-action lawsuits than continue to fight them across the country.
“Ultimately, continuing to litigate would have hurt members,” interim NAR CEO Nokia Wright said when the settlement was announced in March. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”
“While the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” Wright said.
NAR officials were critical of some media coverage of the March draft settlement, saying reporting suggested that the organization sets the commission rates on transactions conducted by its members.
If true, that would effectively be a form of price-fixing. But it is not true and never has been, NAR officials said.
“The National Association of Realtors does not set commissions – they are negotiable,” the organization said in a March 19 statement. “The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount.”
Under the settlement, “commissions remain negotiable, as they have been,” the trade organization said.
