There’s been a lot of chatter across the airwaves lately about the National Association of Realtors (NAR) and the lawsuit against them (they lost but will be appealing) specifically addressing agent commissions.
The recent verdict against the NAR has marked a significant shift in the real estate industry, potentially altering how home buyers and sellers engage with real estate agents and their commissions.
The Debacle Regarding Agent Commissions
The case brought against the National Association of Realtors (NAR) in Kansas City underscored the plaintiffs’ argument that the NAR, along with numerous large brokerages, engaged in anti-competitive practices.
They claimed that these actions, including adherence to NAR’s rules, resulted in a manipulation of commission fees, causing an artificial inflation in prices for consumers.
The case could prompt a significant reduction in preset commission rates and shared commissions, potentially up to 30% for both buyers and sellers.
This anticipated change is deemed groundbreaking and, if applied nationally, could lead to substantial savings for sellers.
The Department of Justice is also investigating real estate agent compensation practices, evaluating whether they adversely affect competition and violate antitrust regulations, aiming to bring greater transparency into real estate transactions.
The implications of the ruling for the ties between listing agent and buyer agent compensation are extensive and could have far-reaching effects.
Industry experts, including Steve Murray, a partner at Real Trends Consulting, have suggested exercising caution in the event of an injunction. Murray advises against prohibiting preset commission rates and shared commissions too hastily, emphasizing that the final judgment on this matter is yet to be issued.
He points out that a premature decision could lead to more disclosures nationally rather than a complete overhaul, potentially causing unintended consequences. If you want to go deeper into the weeds on this issue, here’s a good article on the judgment regarding agent commissions.
But let’s back up a second. The real estate industry is rife with lawsuits as purchases, and basically fall under contract law. Under this broad stroke falls a plethora of sandtraps, pitfalls, and dangerous territory buyers and sellers navigate without professional guidance.
That’s not to say every transaction warrants a broker and we can also acknowledge like any industry, we have our share of bad apples. In fact, many of my clients also hold a broker’s license, but they’d rather pay me to deal with their investment purchases.
So let’s get back into agent commissions. Speaking strictly from the California Association of Realtors, the listing contract clearly states in Bold, ‘the amount or rate of real estate commissions is not fixed by law. They are fixed by each Broker individually and may be negotiable between Owner and Broker…”
No doubt this is the standard across the nation, and yet some folks feel they were duped into paying higher commissions. Let’s explore some bullet points regarding this-
Bullets Points For Understanding Agent Commissions
- Understanding Real Estate Agent Commissions:
- Real estate agent commissions are typically a percentage of the final sale price of a property. This fee is negotiable and can vary between agents. It’s essential for sellers to understand the commission structure before entering into a contract with an agent.
- Factors Influencing Commission Rates:
- Commission rates are influenced by various factors, including the local real estate market, the complexity of the transaction, and the services offered by the agent. Sellers should discuss and negotiate commission rates based on these factors and the agent’s experience and track record.
- Dual Agency and Commissions:
- Dual agency occurs when one agent represents both the buyer and the seller in a transaction. In such cases, the commission structure may be different, and it’s crucial for all parties involved to be aware of the potential conflicts of interest. Sellers should discuss dual agency scenarios with their agents and understand how commissions are affected.
- Alternative Commission Structures:
- Some agents may offer alternative commission structures, such as flat fees or tiered pricing. Sellers should explore these options with their agents and understand the pros and cons of each structure. It’s essential to have a clear agreement on the commission structure before the property is listed.
- Negotiating Commissions:
- Sellers have the right to negotiate commission rates with their agents. It’s crucial to have an open and transparent discussion about expectations, services provided, and the commission percentage. Sellers should feel comfortable expressing their needs and finding a mutually beneficial arrangement with their chosen agent.
Whether or not a seller may agree with the commission, experienced agents would most likely walk from a low commission since their time is limited (as they are independent contractors). They should be able to articulate the value they bring to the table.
As an example, if a seller’s property is not properly marketed and tapped into a broker’s network, it could sit on the market much longer. The home eventually becomes canon fodder for low-ballers and buyers being the proverbial liars (as we affectionately refer to some).
Settling on a lower price could swing the pendulum in the opposite direction where a commission the broker initially asked for would have exceeded the net gain.
As they say in Hollywood, “the sizzle is always better than the steak” which is why they spend millions with baity trailers before a movie hits the screen and starts to show some age while stacking up bad reviews.
In Conclusion
Remember, real estate transactions and commission structures can vary based on location and individual circumstances, so it’s important for sellers to seek advice from professionals and thoroughly understand the terms before engaging in any real estate transaction.
