National Association of Realtors Commission Lawsuit

You might have heard about the recent National Association of Realtors (NAR) commission lawsuit. It will impact how Realtors are paid and the costs borne by home buyers and sellers. Let me try to explain my understanding of the lawsuit.

In California, the seller could decide how much to pay the listing agent and the buyer’s agent. The listing agreement clearly specified this. Although negotiable, NAR mandated offering a commission to a buyer’s broker for listing a property in the Multiple Listing Service (MLS). The lawsuit argued that homeowners had to pay a buyer’s broker commission for MLS listing. The seller’s offered commission is advertised in the MLS, a practice that will soon be prohibited.

As per the settlement terms, sellers will no longer be obligated to pay a buyer’s broker commission to be listed in the MLS. Sellers still have the option to pay the buyer’s broker commission, but it can now be a negotiated term when they receive an offer from a buyer.

In California, the process starts when a buyer signs a Buyer Broker Agreement with an agent. This agreement states that the buyer will pay the broker a commission if the seller doesn’t. Once the buyer has an agent, they can ask the seller to pay the commission in their offer, a crucial step in the negotiation process. The seller can agree, disagree, or offer a partial payment. If the seller agrees, the transaction proceeds as usual, with the commission coming from the seller’s net proceeds.

If the seller refuses to pay the buyer’s broker commission, the buyer will have to pay their broker according to the terms of the Buyer Broker Agreement or opt not to purchase that home.

While these mandated changes officially take effect in July, pending approval by the Department of Justice, many agents are already implementing them. This is why California buyers and sellers need to understand the process now. The change could mean saving on commission costs from buyer negotiations for home sellers, a potential benefit. However, it might also lead to fewer buyers if they can’t afford to pay the commission. In addition, it could mean additional expenses for home buyers if they have to pay their broker. It may limit their options if they only consider homes offering a commission to a buyer’s broker. In this instance, it could impact the number of showings a seller receives if the seller does not pay a buyer’s agent.  This change isn’t favorable for buyers, especially first-time buyers operating on tight budgets.

I firmly believe that successful real estate transactions stem from strong, positive relationships between me and my clients. We build our relationships on trust and mutual respect.  A well-established working relationship with the right agent can lead to more successful and satisfying transactions, obviously benefiting the client.