Wells: Block the noise. Make sense of real estate headlines

Recent headlines regarding the residential real estate industry and its practices have created a state of confusion. We’d like to provide some clarity so our customers, friends, and communities can cut through the noise and better understand what has changed and what has not changed when it comes to selling and buying homes.

Here’s what’s at the root of the confusion:

On March 15, the National Association of Realtors reached a preliminary settlement with class action plaintiffs in a civil lawsuit known as the Sitzer/Burnett case. This case challenged the business practice of the home seller hiring a real estate agent/broker to represent them for a commission-based fee, and then offering compensation — via an association-owned multiple listing service — to the agent/broker who represents the buyer in the sale. 

Here’s what is true about the impact of the settlement: 

• MLS systems can no longer show what a seller is offering for buyer’s agent compensation. Pending final approval of the settlement, any seller-offered commission to a buyer’s agent is communicated between the agents, and then negotiated as part of the purchase contract between buyer and seller. No offering of compensation is allowed to be listed in the MLS.  
• Buyers must have a signed agreement with a buyer’s agent. Prior to showing any property, a buyer’s agent must have a written agreement with the buyer that clearly outlines the fee that the buyer’s agent is charging. This fee can still be determined in various ways, including negotiation with the seller, paid by the buyer, or a combination of both. Buyers will need a clear understanding of how their agent is compensated and should know what services they are receiving in exchange for that compensation. 
• All commissions and concessions are fully negotiable in the purchase contract. A buyer and seller must agree on all the terms of the purchase, including how buyer’s agent commissions are paid, and any concessions the buyer requests. 

Now, here are some examples of current misconceptions:

• Sellers are prohibited from providing compensation to the buyer’s broker/agent. This is false. Sellers ultimately get a choice if they want to provide compensation to a buyer’s broker/agent. A seller will need to explore with their listing agent to come up with the best strategy for attracting buyers, and achieving the end goal of selling their home. Buyers may be more interested in homes that do not increase their financial burden, such as paying for the service of a buyer’s agent. Sellers must also weigh the risks and potential liability of having an unrepresented buyer try to navigate the complexities of the transaction. 
• Realtors are forced to reduce their compensation. Also false. A Realtor must disclose the fee/commission for services when representing either a buyer or seller. A written agreement defines those fees and how the agent will be paid. Real estate agents have the right to establish their fees for service, and brokerages have the right to create policies around their agent’s fee for services. It is important for both buyers and sellers to understand what services they are receiving in exchange for the fee they are paying. 
• Housing will become more affordable as a result of the settlement. False again. Commissions make up one of many expenses of a real estate transaction. Home prices are fundamentally controlled by supply and demand economics. A change in negotiated real estate commissions is a small part of a wide range of expenses, including property taxes, mortgage-related expenses, title fees, insurance, and association fees.  

While we are still waiting on final court approval on these settlements, the primary message we want to convey is that real estate and housing will continue to be bought and sold in the United States. We believe buying and selling real estate has not become easier as a result of these changes but has introduced more transactional friction. And when anything becomes more complex, the need for a trusted adviser to help you navigate the nuances of a difficult process becomes more pronounced — no different than sorting out the complexities of tax law, accounting, medical benefits, etc. Realtors are here to continually serve you and our communities to reduce that friction and provide the clarity needed to accomplish your dreams and goals. 

Brandon Wells is president of The Group Inc. Real Estate, founded in Fort Collins in 1976 with six locations in Northern Colorado. He can be reached at bwells@thegroupinc.com or 970-430-6463.

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