Many people utilize the services of a buyer’s agent when purchasing a house, especially first-time buyers, who are more likely to need help navigating the process. Buyer’s agents provide valuable services. Some of them are time consuming. They do not work for free nor should they.
Up until now, buyer’s agents were commonly paid with a commission from the seller’s real estate broker. A long-standing practice of the National Association of Realtors(“NAR”) required listing brokers to compensate the buyer’s agent as a condition to listing a property on a Multiple Listing Service. Multiple Listing Services are joint ventures among brokers used to advertise houses for sale in a certain geographic area. Most house sales involve a Multiple Listing Service.
A group of home sellers successfully sued the NAR over its requirement that listing brokers compensate a buyer’s agents. They claimed it artificially drove-up the cost of selling a house. The Plaintiffs alleged they had no say or power to negotiate the terms of those commissions. The parties ultimately settled the suit. As part of the settlement, the NAR agreed to stop requiring payment of a buyer’s agents commission as a condition of listing a property on an MLS platform. That practice is scheduled to end next month.
Unfortunately, the uncoupling of a commission to a buyer’s agent from MLS platforms will not make much of a difference in driving down the cost of purchasing a house. The biggest factor currently influencing the cost of purchasing a home is supply. The number of potential buyers greatly exceeds the number of willing sellers. That is the classic definition of a “seller’s market.” The lack of supply is pushing prices up and encourages bidding wars, usually won by persons willingly to pay cash in some amount above the asking price, possibly accompanied by concessions such as forgoing inspections. These are the type of market conditions that make the services of a competent buyer’s agent even more valuable.
In a seller’s market, I would suggest the buyer’s commission is already baked into the sales price. As such, buyers are indirectly paying for their agents’ commissions already in the form of an inflated purchase price. Those who continue to utilize the services of a buyer’s agent’s services will continue to pay for them. The only thing that might change is how they get paid.
The NAR settlement does not eliminate payment of commissions to a buyer’s agent. It only prohibits offering one on an MLS platform. Sellers can still agree to pay a commission to the Buyer’s agent. If the Seller or its broker is unwilling to pay a commission, a buyer will have to pay their agent directly. Whether the buyer’s agent is compensated indirectly with a commission from the seller, or by a payment directly to the agent, the buyer ultimately pays for it.
From that perspective, the NAR settlement should have little effect on Buyers. The bigger question is that now that a commission cannot be advertised on an MLS platform, will that cost be backed out resulting in a reduction in the purchase price of a property or will sellers use it as an opportunity to put some extra money in their pockets. With the current market conditions, I think you know the answer.