There’s been a lot of chatter about the Sitzer-Burnett lawsuit/verdict and the subsequent NAR settlement. Below are our thoughts. We apologize for getting a little technical, but we bring it “home” in the end. (See what we did there?)
The NAR lawsuit originated in markets where buyer agent representation agreements (aka “buyer agency agreements”) did not exist and buyer agents often did not disclose their commission to their buyer clients. Even worse, many buyer agents told buyers that their services were free. The claim was buyers were paying for a service without any opportunity to negotiate the price for that service.
In 13 states (including the DMV), agents use buyer agency agreements when working with buyers. Buyer agency agreements clearly outline each party’s respective rights and responsibilities as well as the amount of compensation to be paid to the broker agent/broker at settlement. The buyer agency agreement also states that in the event the listing agent or seller offers compensation to the buyer agent, then the amount of compensation the buyer owes the buyer agent is reduced by the amount of the offered compensation.
How this works in practice is that the listing agent/broker offers a “cooperation fee” in the Multiple Listing Service (MLS) that they will pay the buyer agent/broker if that buyer agent brings the buyer and closes on the sale. By folding the buyer agency commission into the purchase price, it allows a buyer to finance the cost of their buyer agent.
The NAR settlement agreed to two changes. First, starting in July 2024, agents must have signed buyer agency agreements with their buyers before showing properties. We believe this is a good change because it will force buyer agents to have substantive conversations with their buyers about their services and costs. Of course, it will be a more formal opportunity for a buyer and agent to discuss/negotiate commissions. The second change is that listing agents will no longer be allowed to use the MLS to communicate the amount of the buyer “cooperation fee” (if any). Going forward, buyer agents will have to contact listing agents and ask them if there is an offered compensation and how much. We believe this change, while well-intentioned, is silly and will not have its intended effect. We are big believers in transparency and believe a far better change would have been making the buyer compensation amount publicly available (previously it was only visible to agents and not consumers).
Going forward, the thing that really matters is whether the buyer agent commissions will continue to be included as part of the purchase price (as it has for decades). We are admittedly biased but we believe it will. The reason is because consumers need/want buyer agent representation. Real estate is inherently an inefficient market. By inefficient, we mean it is not easy to tell what the value of a particular property is, how to find properties, how to evaluate a particular property’s strengths and weaknesses, how to write offers, how to find the best inspectors, how to navigate all the twists and turns of a settlement period, etc. All those inefficiencies mean that any given property has typically, in our market, let’s say, a 5% to 15% swing in the potential value range of where it can end up. Because of that significant differential, the agent has a tremendous ability to add value or not add value. For buyers, in particular, the risks are substantial, and sadly, those buyers most unable to cover the upfront cost of quality buyer agents will be most at risk of making poor purchasing decisions. The old saying is that “you make the mistakes on the buy side, not the sell side”. Location, property condition, macro and micro market dynamics, personal timeline are all factors that can mean the difference between a great purchase decision and a disaster.
We’ve always worked hard to deliver outstanding results and help our clients make good decisions. We even wrote a book trying to help consumers make more informed decisions -
Inside the Sell. Ultimately, we suspect the NAR settlement will create a “flight to quality” where consumers are going to invest more in researching the value proposition of a particular agent. They will want agents who can help find purchase opportunities (both on market and off market), evaluate those opportunities, write/negotiate intelligent offers and then navigate the process through to a successful settlement. If you’re one of those consumers, call us. We’re here to help.
