In April of this year, there was a lot of media attention around the settlement between the National Association of Realtors (NAR) and plaintiffs in a class action lawsuit over the commissions that real estate professionals can expect their clients to pay.
While the commission for buying and selling agents before the lawsuit was often split between the buyer and seller according to terms detailed in the purchase agreement, sellers could have been held responsible for the entire amount if they could not negotiate a split.
Such commissions have recently averaged about 5% of the home’s final sale price. That can add up to a lot of money given the prices of homes in areas like Naples. Plaintiffs in the lawsuit complained that commissions have been unreasonably high.
The lawsuit was settled and as a result, in addition to NAR paying a hefty sum, several new rules are being implemented. The rules received final court approval in November.
Buyers must have a contractual agreement for their agent to show them homes
Agents can no longer show a home to a potential buyer unless they have a contract in place. That contract must include their fee. An up-front contractual agreement wasn’t required in the past. However, many past agents drafted up a contract anyway before showing their clients properties to avoid wasting their time with people who were “just browsing.”
This new rule increases fee transparency for home buyers. As one Florida bank executive notes, “It’s always good when people understand what they are and are not paying for.”
The new contracts won’t always mean that the buyer will end up paying the quoted fee in full. As an executive with Sotheby’s in Naples explains, “Buyers may easily write into any offer a contingency requiring that the seller cover the cost, or may request other concessions, such as closing cost assistance…”
Commissions are now in buyers’ hands rather than sellers’
Prior to the new rules, home sellers (typically directed by their agents) included the buyer agent commission in the Multiple Listing Service (MLS) listing for the property. That practice is no longer allowed. Now the commission is in the buyer’s hands, meaning they can negotiate it directly with their agent before contracting with them.
It is too early to know whether the new rules will have a net positive or net negative effect on the residential real estate market and the process of buying and selling a home. It will almost definitely make things more confusing for everyone, at least initially. Now, more than ever, having legal guidance as you buy or sell a home can help you protect your rights and your bank account.