How Does the Realtors' Lawsuit Impact Homebuyers?

Dear Monty: We are potential first-time homebuyers. While we have not begun looking at homes, conflicting reports on the impact of these lawsuits on homebuyers exist. How has the National Association of Realtors vs. Sitzer/Burnett lawsuit changed things for homebuyers?

Monty's Answer: NAR's Clear Cooperation Policy will be replaced in July. The conflicting reports result from the different competing factions in the proceedings expressing how they believe the new rules may be interpreted and deployed in everyday practice. NAR has its viewpoint. Real estate brokers who have already left NAR and started a competing trade group for agents called the American Real Estate Association have opinions, as do other brokers remaining loyal to NAR. The agreements are now being reduced to working documents, and the devil is often in the details.

THE 5 NEW RULES

No. 1: Online MLS databases

Online MLS databases will no longer display commission rates. This change was implemented to stop real estate agents from steering homebuyers away from properties listed with discount brokers or any discounted commission. Consumers never had access to agents' MLS information, but some agents would not share the reduced commission listings with customers.

No. 2: Prohibition of compensation offers

The NAR will not allow compensation offers to be communicated via the MLS. However, sellers can still offer compensation through negotiation and consultation with real estate professionals. Regulators saw this feature as price fixing to hold commissions at prevailing rates of 5% to 7% of the sale price. It will be interesting to see if sellers' commissions will fall because home sellers could always negotiate the commission.

No. 3: Elimination of cooperative compensation

Sellers will no longer be able to specify the size of the commission they'll pay buyer's agents. In the Clear Cooperation Policy, the seller agreed to pay between 2% and 3% of the sale price out of the total commission to a cooperative sub-agent or a buyer's agent. The Sitzer/Burnett judgment threw that clause out because the plaintiff claimed they lost money by not being able to negotiate the amount the seller agreed to pay directly with their buyer agent. Some mainstream media claim homebuyers will save vast money by negotiating directly with their buyer's agent. It is unclear whether buyer agents will agree to work for less.

No. 4: Written agreements with buyers

MLS participants who work with buyers must enter into written agreements with their buyers before the buyer tours a home. Buyers and their agents will have to explicitly agree about what services agents will provide. Whether buyer agency will survive is a question. Lenders are not permitted to lend money in a mortgage to a homebuyer to finance the buyer agent commission. Homebuyers wanting a buyer's agent must find other ways to pay. Many observers believe buyer agencies will disappear. Many agents believe a buyer agent, or an unrepresented buyer can call the listing agent and negotiate for the seller to pay the buyer agent commission.

No. 5: Payment for agents without MLS subscription

NAR will require real estate agents to be paid for their work without subscribing to an MLS. The impact of this new requirement is yet to be seen. An agent cannot be required to join the MLS, while a few MLSs have allowed nonmembers access to show homes for years.

Only time will tell.

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter(X) @dearmonty or DearMonty.com.

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