Changes to Real Estate Commissions
Most folks who are not real estate professionals or are not currently involved in a real estate transaction are not aware that there are some changes coming to how Real Estate Agent commissions are handled. These changes are coming about as a result of a class action lawsuit a group of consumers filed against the National Association of REALTORS® and a few of the major brokerages.
I belive these changes are good for buyers and sellers, and therefore good for the industry as a whole. Here I am going to summarize these changes and what they mean for you at a very high level. I will not go into much detail because there are plenty of other places you can get that information. If you would like more detail, the below article on Yahoo! Finance is a good explanation. I chose this article from Yahoo! because it seems to be fact-based and not slanted toward any specific party.
What the NAR settlement means for home buyers and sellers
Good News For Buyers and Sellers
Not everyone will agree with me, but I strongly believe that this is good for everyone involved. I’ll start with some background on how I think about working with clients and the importance of a customer-first philosophy.
My first professional job was with a company called A.G. Edwards. It has since become part of a larger company. I was a goofy and clueless 24-year-old when I started working there. I learned alot and I credit much of who I am today to what I learned in the early years of that job. One of the best things I liked was their strong client-first philosophy. They strongly believed that if you put clients first, you will win.
“What is best for the clients is what’s best for all of us,” the CEO would say.
That stuck with me. I still keep an A.G. Edwards sign and my old name plate where I can see it to remind me of that idea.
These changes will make the amount of commissions charged and who is paying it more clear, more transparent and will force conversations with buyers to ensure that everyone has all the information about commissions. I believe this is the best thing for buyers and sellers.
The Issue
Currently, the standard practice is that the seller of a home is charged a commission by their agent that is a percentage of the sale price of the home, usually 5-6%. Some portion of that, usually 2.5-3% is shared with the buyer’s agent. Before an agent officially lists a home, they agree, in writing, with the seller, how much that total commission will be. The buyer’s agent takes the percentage that is offered. Normally, none of this is discussed with the buyer becuase they are not paying anything directly.
The lawsuit that was won by the plaintifs, alleged that this was unfair to buyers becuse they are actually paying a commission, albiet indirectly, because that additional expense is baked into the home price.
The Changes
The settlement awards $418 million to some parties who have sold homes since 2014. If you sold a home after 2014 and think you may be entitled to compensation based on the settlement, you can go to the below website to see if you qualify.
https://www.realestatecommissionlitigation.com/
The settlement also requires that REALTORS® have an explicit conversation with all buyers and sellers before beginning any transaction; namely with buyers before showing the first home. It requires that a discussion be had and an agreement be reached with buyers as to how compensation will work if the seller does not offer a commission to the buyer’s agent. It also prohibits REALTORS® from mentioning commissions in the Multiple Listing Service (MLS).
The most important thing you should understand is that Commissions are Negotiable. You may negotiate the commissions you pay as a seller, as a buyer and who pays those commissions. As a seller, you may choose to not offer a buyer’s agent any commissions. It is important that you understand that there are no minimums or commissions “set” by the National Association of REALTORS®, the Saint Louis Association of REALTORS® or or any other authoriative body.
Real Estate Brokerages do set their own commission guidelines that their agents must abide by. In other words, different brokerages have different prices. You are free to shop brokerages to determine the one that works best for you.
Competition Is Good
A natural result of these changes are that, by increasing transparency and forcing conversations about commissions, it will increase competition, which will be good for consumers and the industry. Increased competition will result in lower commissions.
In regards to the commissions I charge on transactions, I believe we are currently quite competitive. I also do not intend to compete on price. I am confident that we provide a strong product, do great work for our clients and that our services are worth what we charge. In other words, we will not be the cheapest REALTORS® in the game, but will always provide very good services at a great value.
One of the reasons that I am proudly with Worth Clark Realty is because they offer great value to agents. Not only do I get unparelled support from them (they help me help you), they also offer me more flexibility in the prices I charge than any other brokerage I know of.
In Summary
Since I first got my license in 2016, I’ve been a little bit uncomfortable with how commissions are charged. While at first, this news scared me, the more I learned about it, the more I felt it was good for everyone involved. I’ve never been more confident in the services we offer as a REALTOR® and the high value I provide to buyers and sellers.
If you are looking to buy or sell your home, give me a call or text at 314-265-0015 or email jeff@essentialstl.com. I look forward to talking with you!
Photo by Tingey Injury Law Firm on Unsplash