The NAR Lawsuit: Let’s Dispel Some Confusion
If you follow real estate news—or even if you don’t—you may have heard that there is much current discussion about buyer agency commissions. And for most people, this can be confusing.
Here’s what’s going on. A class action lawsuit, referred to as the Sitzer/Burnett lawsuit, has shed light on how agent commissions have historically been paid to the real estate professional, on both sides of real estate transactions.
The plaintiffs claimed NAR (National Association of Realtors) and others participated in anticompetitive practices. How? By forcing sellers into a system where they pay the commission that is split between buyer and seller agents. The plaintiffs believed this system has led to inflated buyer agents’ fees to the detriment of home sellers, and that home buyers should pay for their own agents.
What happened with the lawsuit?
The jury verdict in this case ruled in favor of the plaintiffs. It’s still a bit unclear what – if any – impact this will have on commissions paid to agents in real estate transactions. But one implication of the lawsuit is that sellers should pay their agent’s, while buyers should pay their agent’s commission.
Of course, one might argue that both buyer and seller already contribute to the commissions paid to their respective agents. These commissions are factored into the listing price, as well as into the selling price. Usually, a 5% fee is baked into the transaction, split equally between buyer and seller agents.
It’s interesting to note that on the heels of the lawsuit verdict, NAR has been at pains to explain that the fee paid to the buyer’s agent has always been negotiable. Yet despite this, in 9 cases out of 10, it has been customary for the commission due to both agents in a transaction to be equal. And we believe this will continue to be the case.
Our current point of view
For as long as I have been practicing real estate (almost 20 years) sellers have signed contracts with their listing agents to pay a commission to both the listing agent and the buyer’s agent who complete the sale. But there certainly has been some misunderstanding around this. In fact, I have seen many buyer’s agents erroneously educate their buyers that their services are “free” or that the “seller pays my commission.”
So, bringing clarity to this subject is a good thing. But as always, there is much in the news media that is flat-out fear mongering: The real estate industry is going to be upended! Buyers are going to be on the hook to pay their agent’s commission if they want representation! To this we say, take a breath.
Those of us in the real estate trenches every day simply don’t see this as the inevitable result of the lawsuit. Our plan instead? Continue to encourage our sellers to consider the value of the buyer commission as a portion of the sale proceeds.
