Significant changes for the world of real estate

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By Gary A. Miller
Real Estate Columnist

The trial for the class action lawsuit known as the Sitzer-Burnett case concluded in October 2023. While complex, this case argued that the defendants, including the National Association of Realtors (NAR) and several national real estate brokerage chains, were breaking antitrust laws with their existing approach to commissions.

On Friday, March 8, the National Association of Realtors agreed to settle multiple lawsuits that accused its members of colluding to keep commission rates artificially high.

It is possible that the settlement could lower the commissions all real estate agents are paid as part of a home sale. In comparison to the time-honored model of home sellers paying the buyer’s agent, it could also mean more homebuyers directly paying their realtors.

The background

For decades, real estate commissions have primarily come from home sellers who contracted with a listing agent, who in turn agreed to share a portion of the total commission with the buyer’s agent involved in the transaction.  These commissions were always negotiable between the seller and the listing agent – a fact that national media have frequently misreported over the past week – although a total commission of five to six percent has been relatively consistent in our market for quite some time. 

So far, in 2024, there have been 198 sold homes in the Southern Orange County zip codes of 27510, 27514, 27516, and 27517.  Among these, buyer commissions ranged from a low of 1 percent to a high of 4 percent, with 2.4 percent and 2.5 percent being the most common amounts offered.

The plaintiffs argued, among other things, that commissions have been artificially inflated due to the cooperative compensation approach of Multiple Listing Services (MLS). The jury favored the plaintiffs in October of last year, and the NAR proposed a settlement last week. If approved by the court, the settlement would go into effect in July 2024.

What does the settlement mean?

The proposed settlement included a provision that commissions will no longer be advertised in any MLS. This settlement also included actions related to other aspects of real estate transactions, including requiring all buyer’s agents to use written agreements—something that is already required in North Carolina—and requiring NAR to pay $418,000,000 in damages. 

There will be a period of uncertainty, assuming court approval, once it goes into effect. The standard North Carolina real estate forms, created by the NC Real Estate Commission in conjunction with the NC Bar Association, will need to be updated, and conversations with buyers and sellers will need to change to reflect the new, uncertain reality. But exactly how that all comes together has yet to be determined.  Kyle Williams, the broker in charge with local brokerage Flex Realty, says, “The industry is still digesting the recent announcement from the National Association of Realtors.”

Williams says, “The future will leave sellers with more direct options in the sale of their home.” Sellers can continue to offer commissions to buyers’ agents, understanding that most buyers will have an agent helping them in the process and that not participating in compensation could potentially reduce their pool of buyers. In this instance, the process would move forward very much as it does today. 

However, it will also be more explicit that sellers are not compelled to participate in the buyer’s agent compensation at all, leaving it to be addressed between the buyer and their agent. There are also a variety of options in between these two ends of the spectrum, such as sellers sharing a portion of the buyer’s agent commission or offering a flat fee toward that end. 

Potential outcome

Although not certain, it is possible that additional competition in the marketplace and innovation from agents and brokerages trying to stand out could push agent commissions to lower levels, which would generally be a win for sellers. 

However, in this new environment, buyers will need to enter the purchase process with the understanding that the possibility of them needing to provide some or all of the compensation of their agent has increased. Previously this occurred less commonly, such as in situations where a “for sale by owner” home was being purchased or some other type of “off-MLS” transaction was occurring.  It is understandable that sellers might view this as more equitable. However, such a change could add a significant burden to buyers when compared to the current environment in which it is relatively uncommon for a buyer to pay agent fees.

“Unfortunately, if this turns into a situation where buyers are having to pay for the realtor’s commissions, then it is going to make buying a home less achievable for first-time home buyers who are struggling to come up with the necessary funds to buy a home,” says Noah Asbill, senior loan officer with CrossCountry Mortgage here in the Triangle.

It could also make home-buying more difficult for United States veteran buyers using loans from the Veterans Administration, which currently do not allow them to compensate their agent directly.  Other loan programs can have similar restrictions on how buyers can compensate their agent and generally do not allow the costs to be rolled into the mortgage payment. 

Any buyer struggling to save for a downpayment would naturally have more difficulty if the seller asks them to take on the cost of their own agent.  Asbill says, “We rely on realtors to ensure the contract, any addendums, negotiations, and many other aspects of the home buying process go smoothly.  From a lender’s perspective, we worry that this ruling, if implemented, may cause more clients to want to go into the home-buying process unrepresented.  I expect that to lead to many more headaches during the loan process, potentially causing delays and added stress for the home buyer and seller.”

National media outlets such as CNN, the New York Times, Axios and others, have argued the settlement could bring housing prices down.  While our market could certainly use relief in that regard, it may be an argument that does not hold up to scrutiny locally.  The national narrative is predicated on the idea that sellers will pay less commission, which will result in lower home prices.  However, since home prices are generally set through a comparative market analysis and vetted through a lender appraisal, market demand is the primary driver of home prices.

As such, in a market like southern Orange County, where demand currently outpaces supply significantly, a more likely outcome could be that sellers who choose not to participate in buyer’s agent compensation will simply and understandably keep the additional profit from the sale for themselves. 

An unintended consequence of the settlement may also be that an opening is created for discrimination in the compensation of agents.  Currently, commissions are part of a cooperation agreement and are available for all agents to see.  The Sitzer-Burnett lawsuit argued that this cooperation could result in agents steering clients toward homes providing a higher commission rate.  However, by removing the consistent availability of this information, human biases may subsequently come into the equation.  Without the rate being in the MLS for all agents to see, there will be no documented means for groups who have historically been exposed to discriminatory practices to confirm fairness.

With this proposed settlement having just been released, there is a lot of work to be done between now and the proposed date of enactment in July to allow the housing market, already hobbled by a lack of inventory and high mortgage rates, to run smoothly in the second half of 2024 and beyond.

“Helping enact changes to lending rules and ensuring that fair housing remains a core part of buying a home will be things that need to be focused on,” notes Williams.

Gary A. Miller is co-owner of Red Bloom Realty.  He has lived and worked in Chapel Hill off and on since 1994, is an avid musician and traveler, and is a former educator of 25 years.

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