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Realtors grappling with changes to how commissions are paid
EXIT Realty sign ceres
Selling real estate in Ceres and the United States has been complicated by the issue of how buyers' agents are compensated. - photo by Contributed to the Courier

The real estate market is headed for a big shakeup because of changes to the way agents are compensated in property transactions.

While many professional services like attorneys or accountants charge by the hour, real estate agents work for a commission as a percentage of the money exchanged in a transaction. Agents only get paid when the deal closes.

In residential home sales, the total commission paid by the seller is typically 6% of the sale price. This amount is split as a “co-op” between the broker representing the seller and the broker representing the buyer and is advertised on the MLS as so. Agents then receive a portion of the commission split among the brokers.

The plaintiffs of the lawsuit successfully argued that they should not be responsible for paying the buyer’s broker’s commission.

As a result of recent antitrust lawsuits, the National Association of Realtors has agreed to settle by paying $418 million in damages and is eliminating its rules on the standard six percent sales commission model, pending court approval.

The lawsuit asserted that it was not fair for MLS to require real estate brokers to advertise payment to the buyer agent’s commission from the sale of their seller’s property.

That also will no longer be the case. Brokers will not be allowed to offer a commission on the MLS, rather agents will have to communicate and negotiate outside of what the MLS previously dictated.

The fallout of the settlement could mean that homeowners could see a drop in the cost of selling their homes.

This marks the biggest change to the housing market in a century, said Norm Miller, professor emeritus of real estate at the University of San Diego.

Resulting from the lawsuit is a new form, the “Buyer Representation Broker Compensation agreement,” between buyers and their agent that must be signed before going out and showing property.

According to Ceres realtor Renee Ledbetter, her brokerage, EXIT Realty Consultants, has been advising its agent to include the Buyer Representation Agreement when meeting with buyers since last year when it was first introduced by the California Association of Realtors. Starting in July the form will be mandated by all brokerages that are members of NAR.

“We anticipated this day would come,” said Ledbetter, who said many agents are still not clear on what’s happening as the news continues to unfold from Friday’s settlement.

The changes are set to begin in July.

“Moving forward, if the seller chooses not to pay any portion of the commission resulting in zero percent to the buyer’s agent, then it is up to the buyer to pay their agent out of their own pocket.”

Making the Buyer Representation Agreement mandated for all brokerages, will require buyers to “commit” to their agents or forego representation from a buyer’s agent altogether. Ledbetter is hoping it will help level the playing field in one way, however it still does not mean buyers will commit to agents other than the listing agent.

“This may result in situations where a listing agent now works in a dual capacity, representing both the buyer and seller, which is currently legal in California. However, it is sometimes difficult to get the most money for a seller and a deal for the buyer when you’re representing both sides. That’s why lawyers don’t do it,” explained Ledbetter.

She predicts it will soon be the next move – making agents choose to represent one side of clients or the other, eliminating dual agency altogether. Some states already require brokerages to choose either to be a listing or selling brokerage – but they can’t do both.

“In the past when I went on a listing appointment I would explain to the seller what my commission amount is and then ask, ‘What would you like to pay the buyer’s agent?’ Now I’m going to explain my commission amount and ask the seller if they even want to offer the buyer agent’s commission.”

Prior to Friday’s news Ledbetter said she started seeing certain listings at a zero percent commission to the buyer’s agent.”

“Honestly, this is going to be challenging for many buyers if they have to come up with their EMD (Earnest Money Deposit), their down payment, to pay for closing costs and now their agent’s commission? That’s a huge expense for buyers.”

There is also industry talk of possibly incorporating the commission into the loan on the home purchase.

“It’s going to be challenging for a lot of buyers to be able to buy in the future if it goes in that direction because they will have to qualify for an even higher amount,” she said.

The situation is frustrating to brokers and agents like Ledbetter.

“You don’t negotiate with your dentist. When you go to a lawyer, you don’t tell them what price to set. People don’t treat us as professionals sometimes and it gets kind of frustrating that they think we’re just doing this as a hobby or something. For many of us this is our livelihood and we put in a lot of work to do this job.”