As the Bible says, separating the wheat from the chaff on real estate commissions.
The October 2023 ruling on a class action lawsuit regarding commissions paid to real estate agents has had people buzzing about the impact.
The lawsuit that started in Missouri alleged an anticompetitive agreement that resulted in sellers paying inflated commissions to real estate agents and brokers.
The defendants, including the National Association of Realtors, denied the allegations and the court has not decided the defendants did anything wrong.
At issue is the allegation sellers or buyers were required to pay a 6% commission to their representative in real estate transactions.
“First of all, nothing can be further from the truth,” John Chambers, Executive Vice President and General Manager of Meybohm told ABD. “Their commissions are negotiable. They’ve always been negotiable. It’s a competitive market.”
He said the thought was the lawsuit would do away with the alleged fixing of commissions and that in turn would drop home prices. However, commissions are just one of myriad factors that play into home prices.
“There are a whole lot bigger factors that determine home prices, such as supply and demand. It’s got nothing to do with our commissions,” he said. For example, right now, there’s the Augusta MLS (multi-listing service), there are close to 1,800 active homes for sale in the market. A few years ago, there were 2,500. But during COVID time, we dropped to around 600 houses on the market. So, where supply and demand kicks in, you’ve got more buyers than you do inventory. All of a sudden, you have multiple competing offers for every house, and many of those were above the asking price.”
The agreement, which will take effect in July, pending court approval, means agents and brokers can no longer advertise the buyer’s representation feel through the MLS.
ABD columnist, Shawna Woodward of Re/Max Reinvented Evans, outlined the impact on sellers in her March 21 column.
“For sellers, this change may not significantly impact the total expenses associated with selling a home, but could result in a shift in how concessions are structured and outlined in contracts. As for buyers, the decision to engage a buyer’s agent upfront or rely on listing agents carries implications for their level of representation and advocacy in the transaction.”
Chambers believes the greater impact could be felt by first-time buyers, lower price range buyers, and up to middle-class buyers.
“If a seller says, ‘I’m not going to pay a co-op fee, I’ll pay my listing broker 3%, but buyer can pay their own.’ The problem with that is a $300,000 buyer, they have usually worked pretty hard just to get the downpayment, they may or may not have the money to pay their closing cost, and they may or may not have the money to pay for representation. So what do they do, they either got to get that from the seller, or a lot of times, they can’t buy,” he explained.
Chambers said there is another potential issue, especially for first-time buyers who are most likely to need assistance navigating the process. If that buyer decides to go straight to the listing agent, that agent has to agree to being a dual agent, representing both buyer and seller. The seller would have to agree to that while the buyer could be treated as a customer, rather than a client.
He said, while waiting for the court’s final decision, it is important buyers and sellers ask their agent or broker how the deal will be structured. Equally important is for agents and brokers to provide clarity on what each side can expect during negotiations.
