By Mike Bodeen · 25 March 2024
Last week we began to address the news which is real news – the lawsuit settlement known as Sitzer-Burnett vs NAR (National Association of Realtors) and various real estate companies. I’ve again posted the WSJ article here.
NAR settled this lawsuit for $418,000,000. It’s not the size of the award that’s the news, though 418M is not chump change just yet. The news is the wholesale change to the industry that will be transpiring in the months and years ahead.
To reiterate, the heart of the contention revolved around the NAR rule termed the “cooperative compensation rule.” The rule mandates listing brokers to offer compensation to buyer brokers to list on a Realtor affiliated Multiple Listing Service.
When a buyer’s agent looks at the MLS listing, it states the amount of the fee that the buyer’s agent will receive. That can be any amount, including $1.00. If the buyer’s agent doesn’t like that number, they have two options: 1) Not show their buyer that home, or; 2) Have an agreement with their buyer (Buyer Broker Agreement) to pay their fee, whatever is agreed upon by the parties.
If a seller is not willing to help remunerate the buyer’s agent, will this reduce the number of showings for a seller’s home? Perhaps, at least for awhile.
This may surprise some, but agents don’t get paid for advertising a home, qualifying a buyer, holding open houses, etc. No, they get paid to supply a buyer who is ready, willing and able to buy the home. And until that happens and the deal closes, no one gets paid.
The lawsuit settlement, which goes into effect later this year, stated that the MLS should not state that the seller is to pay any amount to a buyer’s agent, because that compensation should be between the buyer and their agent. The seller shouldn’t have to pay for the buyer’s agent’s representation, which was customarily paid by the seller out of their closing proceeds. If a buyer’s agent requests the seller to pay for their fee, and the seller wants to do that, that’s okay, they can do that, but it must be outside the MLS.
An unintended consequence of this ruling is that buyers will get the short end of this buying stick (dagger) – again, especially first time home-buyers, veterans, and low to moderate income buyers.
Why is that Mike? Check it out – these buyers usually have to rely on low or no down payments. Apart from seller’s concessions, if allowed, this will further crimp (crush?) our buyers.
VA allows a veteran buyer to buy a home with a zero-down payment. FHA and some conventional loans, 3-3.5% down. Now, the buyer will either need to pay their agent out of their pocket, or see if the seller will agree to give the buyer a “concession” amount to cover the buyer’s agent’s fee – which is technically the way it is now – but it’s no longer automatic.
And unfortunately, our veterans really get kicked here as VA loans do not allow the use of seller’s concessions to pay an agent’s fee and a VA buyer cannot pay an agent’s fee out of pocket. For VA deals like this, we hope the seller will compensate the buyer’s agent as they do now. Will that prohibition change soon? Hopefully, but that is not now. Thank you, Regina Whelan of Fairway Mortgage, for your always timely assistance.
Next week we’ll answer the questions: 1) Should buyers buy before July before the status-quo goes bye-bye? 2) Should sellers wait until July to sell? 3) Does it even matter one way or another?
There are many changes ahead. Stay tuned.
Mike Bodeen