After the Sitzer Verdict – What Next?

The Sitzer-Burnett verdict in Missouri was announced earlier this spring, with the heart stopping verdict against the real estate brokerages for over $1 billion dollar (trebled to $5.4 billion).  Since then various parties have offered to settle with the plaintiffs, proposing to pay various amounts (which will not add up to $5.4 billion.)  This is all in front of U.S. District Court Judge Stephen Bough who must decide whether to approve the settlement amounts and the various changes proposed by the National Association of Realtors.

NAR has agreed to put in place a new rule prohibiting sellers from  offering buyer agent commissions on the MLS.  This does not prohibit sellers from paying buyer agents’ commissions but instead prohibits predetermined commissions in the MLS.   Compensation by the sellers to buyer agents could continue to be an option buyers can pursue off-MLS through negotiation during the contract process. In addition, sellers still can use the MLS to offer buyer concessions such as for buyer closing costs. This change is expected to go into effect August 17, 2024 – but it may slip.

A second important proposed change by the NAR after the Sitzer verdict is that all MLS participants (most Realtors) will be required to enter into written agreements with their buyers before touring a home.  The mandatory buyer agency agreement will also address the buyer agent’s compensation and the scope of work to be performed.  This change also will go into effect August 17, 2024.  In the DC metro area, this is not a new requirement.  While it is possible that 30-40% of homes nationwide are sold without a buyer agency agreement in place between the buyer and his or her agent, that number is significantly lower in the DC metro area.

As if life after the Sitzer verdict was not challenging enough, a recent ruling allows DOJ to reopen an investigation into NAR which it had closed several years ago after the NAR had agreed to some changes.    DOJ has signaled that it wants to see even more sweeping changes in the industry than what NAR had already agreed to make.  While the NAR has agreed that buyer agency compensation will not be included in the MLS, it had been expected that individual brokerages and agents would be able to advertise buyer agency compensation on their websites.  The Department of Justice has proposed in another commission suit that  offers of buyer agency compensation be banned from publication in any venue.  Clearly there is a lot to sort out.

Beginning in August, mandatory buyer agency agreements will lay out what the Realtor will do for the buyer and what the buyer will pay the Realtor for those services. Even though the buyer is agreeing to pay the Realtor a certain commission, the buyer is not precluded from asking the seller to pay the commission as part of the contract to purchase.  If the buyer’s agent fails to negotiate their commission with the seller (or the buyer does not ask the seller to pay the buyer agent commission) the buyer will be obligated to pay that agreed commission.  Regardless of the amount or percentage agreed to, this can strain first-time homebuyers who may be exercising their max budget to buy a home in the price point and area they desire.  I am concerned that this push some first time home buyers to skip buyer agency representation, even though they are probably the ones who most need that helping hand going through the buying process. .

The changes could also have benefits, though, allowing buyers more freedom to pay for the services they want – and avoid paying for those they want to do themselves.    Buyers who desire a more flexible structure allowing them to pick and choose which services they want from a buyer’s agent will appreciate the changes as will buyers seeking a lower fee overall.  Some brokerages and Realtors were already offering this “menu” of services and reduced commissions and no doubt options will become more popular going forward as consumers adjust to the new system.

There was confusion and concern among some in the industry that rule changes included in the settlement might be inconsistent with lending procedures.  Defining seller concessions to include payment of buyer agent commissions is fine — but lenders traditionally place limits on what concessions can be financed based on the type of loan and the amount being financed.

Fannie Mae and Freddie Mac, the federal finance giants, recently affirmed that commissions will remain excluded from limits on seller concessions — a key question that emerged in the wake of the litigation.  FHA and conventional loans limit the amount of seller contribution to the buyer in order to ensure that the buyer has some equity in the property.  Fannie and Freddie clarified that seller paid buyer agent commissions will continue to be excluded from limits on seller concessions, making it easier for home sellers to have the option of contributing to buyer agent commissions.

Veterans Administration policy states that while a veteran is allowed to use a buyer broker to purchase a home using their VA loan benefit, they “may not under any circumstances, be charged a brokerage fee or commission in connection with the services of such individuals.”   The Veterans Administration will soon release a circular announcing the start o that “bridges the gap” on an agency law that prohibits a VA buyer from paying their real estate agent compensation,

I was proud of my local multiple listing service last summer when it made it clear that sellers do not have to offer any commission to the buyer agent as a condition of their listing agent offering the home for sale in the MLS.  I thought that this was a good move, demonstrating that commissions to the buyer agent are negotiable and always have been.  At some date in the future, as noted previously, it is expected that all listings will be published in the MLS’s across the country with no mention of buyer agency commissions.  However, many sellers are expected to still be willing to offer a concession toward closing costs and/or a buyer agent commission to help out the buyer and make that particular listing more appealing.  Therefore, Bright MLS, the local listing service for the Mid-Atlantic, is giving listing agents the option to enter Seller Concessions* when entering a listing. These will be optional fields that to communicate with potential buyers what the seller may be willing to contribute as part of the transaction.  There still will be fields in the MLS to indicate seller concessions that actually occurred which will be filled in after closing occurs.  These changes are expected to take place on June 12.

If you sold a home with a Realtor in the last few years, you may be wondering whether this verdict applies to you.  Here is a link to the website which explains how you can file to participate in the settlement agreement.  You will need to reference the file number on your settlement agreement and fill out a form provided on the website.

It is important to remember that even though you may have signed a listing agreement which acknowledged the amount that you were authorizing your listing agent to pay to the buyer agent, you are not barred from filing under this settlement.  Even if you were happy with the outcome of your sale and with your Realtor, you can still file for a portion of the settlement.  The brokerages involved and the National Association of Realtors have agreed to pay this money to the court for the settlement.  This money is not coming from your Realtor.  Your participation in this settlement does not reflect on your Realtor.

Whether you are planning to buy or sell, you can surely see that the rules have changed and they are going to be confusing for the foreseeable future.  I think it underscores the value of a Realtor like me who knows the rules and has lots of experience in a changing market.  Even if you aren’t thinking of buying or selling but you know someone who is, I would appreciate an introduction to them to see if I can help.