Consumers may have more negotiating power after a recent settlement with realtors

Salt Lake City, Utah – The way normal commissions are paid to real estate brokers is anticipated to alter as a result of a recent legal settlement with the National Association of Realtors. This could potentially provide consumers more negotiating power with real estate brokers and change the way that properties are bought and sold.

Real estate brokers have been depended upon for years by both property sellers and buyers. These agents usually demand commissions ranging from 5 to 6 percent of the sale price of the home. Nonetheless, the NAR agreed to significant modifications after a series of lawsuits in many states claimed that commission rate rigging had occurred.

“This is fantastic for consumers. I’m thrilled about this,” said Andra Ghent, a finance professor specializing in real estate at the University of Utah.

According to Ghent, the commission-paying structure in place has driven up housing costs.

“It raised it not to the benefit of the buyer or seller, but of realtors,” she said.

Ghent disagreed with NAR’s denial of commission fixing, arguing that buyers and sellers always had the option to negotiate. She maintained that since commissions were essentially decided amongst brokers, consumers’ negotiating leverage was practically nonexistent in practice.

Sellers complained in the cases about having to pay commissions to both their agency and the buyer’s agent. Multiple Listing Service (MLS) brokers frequently offered to split the commission with the buyer’s agent; this encouraged buyer agents to show customers properties with larger commissions.

NAR consents to stop listing commission offers on the MLS as part of the terms of the settlement agreement with the court. Brokers will also provide written disclosure of any commission arrangements upfront.

The Utah Association of Realtors’ counsel, Kreg Wagner, pointed out that the state already mandates written seller agreements with commission disclosure.

“It sets clear expectations for the listing agent and the seller,” he said.

It’s yet unclear how these adjustments will affect the real estate sector. It is unclear how agents will adjust if commissions are no longer advertised on the MLS. It’s been speculated that instead of using traditional full-service brokers, purchasers would choose to use less expensive Internet realtor services.

Wagner said he continues to suggest that purchasers get assistance from an agent for contracts, inspections, and other aspects of the transaction.

He advised sellers to have an upfront discussion with their broker regarding services and compensation if they decide they no longer wish to pay the buyer’s realtor commission.

“Those are questions that before the settlement, the consumer should be asking,” he said.

Wagner did, however, note that if a seller wishes to employ buyer broker fees as a tactic to draw in buyers, they will still have that choice.

This summer’s court approval is still pending for the NAR settlement agreement.
Professor Ghent expressed her hope that it will spur innovation and new real estate models that provide buyers greater clout.