Seller Paid Commissions in Real Estate – Gone!

Sitzer-Burnett was a class-action lawsuit filed in Missouri Federal court by a group of home sellers against NAR and other defendants, including Berkshire Hathaway HomeServices, Keller Williams and RE/MAX. The plaintiffs claimed that real estate commission rates are too high, buyers’ representatives are paid too much, and NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants’ practices, lead to inflated commission rates.

At the October 2023 trial, the plaintiffs took particular issue with cooperative compensation, i.e., when a listing broker makes an offer of compensation to the cooperating broker. “Offer of compensation” does not mean that a specific amount must be paid—the offer can be any amount, including in many cases, $0. NAR introduced evidence to show how the real estate market-place works and how cooperative compensation benefits consumers. NAR also showed that its rules prohibit anticompetitive behavior and encourage the free market and competition. However, the jury found for the plaintiffs.  As a result, after August 17, seller paid commissions are no longer included in the multiple listing services nationwide.

NAR has agreed to put in place a new rule prohibiting offers of seller paid commissions on an MLS. Offers of compensation could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. While seller paid commissions are no longer allowed in the MLS, sellers can offer buyer concessions on an MLS (for example—concessions for buyer closing costs). This change will go into effect August 17, 2024.

The Greater Capital Area Association of Realtors (GCAAR – the Realtors’ association in DC and Montgomery County Maryland) has implemented changes to reflect the NAR settlement banning the offering of seller paid commissions. These changes will go into effect on August 17, 2024.  GCAAR is removing any offer of compensation in the multiple listing service so that any compensation to the buyer’s agent by the seller – if any- will be negotiated in the contract itself.

Changes to the listing agreement address the new rules on buyer broker compensation.  There is still a subparagraph for the seller to indicate willingness to pay a buyer broker – and how much that is.  There also are subparagraphs which indicate whether the seller will compensate the listing broker if the buyer is unrepresented and whether the seller will compensate a subagent of the listing broker.  These changes make it clear that the seller is paying the buyer broker directly rather than the previous arrangement in which the seller paid the listing broker and the listing broker paid the buyer broker (in accordance with the seller’s direction in the listing agreement.)   The biggest difference is that the amount of compensation that the seller is willing to pay is not provided in the MLS.  However, it can be published in other locations such as the listing agent’s website or discussed at an open house.

Changes to the buyer agency agreement address the new rules on buyer broker compensation as they impact the buyer.  The buyer agency agreement specifically states what the buyer is agreeing to pay their agent – and how that will be done.  Either the buyer will pay the agent directly or the buyer will seek compensation for the buyer agent through the contract negotiation.  If the seller does not agree in the contract negotiation to pay what the buyer has committed to pay the agent, then the buyer acknowledges that the difference (or the full amount) will be paid by the buyer at closing.   If the buyer and agent agree to compensation of X amount, but the seller is willing to pay more in compensation, the buyer agent can not receive that additional compensation under the terms of the buyer agency agreement.

A new form, Addendum for Seller to Pay Buyer Broker Compensation, can be included in the buyer’s offer to purchase.  This form allows for agreement between the seller and the buyer to pay either a percentage of the sale price, a set dollar amount or a combination of the two to the buyer’s broker at closing.   When presented as part of the buyer’s offer, it allows the compensation to be factored into the seller’s bottom line and negotiated just as any other concession would be.  The buyer does not have to ask for the seller to pay the buyer broker compensation – and in some instances such as a multiple offer situation, the buyer may choose not to make that request.   It is recommended that buyer agents share this form with buyers at the first meeting so that buyers understand that this is an option in the negotiation process.

If the buyer chooses to pay the buyer agent at closing rather than asking that the buyer agency fee be paid by the seller, there is another form (in an addendum) which makes clear that the buyer is compensating the buyer broker directly.

Seller paid commissions are gone after August 17.  What does that really mean when you are trying to sell your home?

• You still have the choice of offering compensation to buyer brokers. You may consider doing this as a way of marketing your home or making your listing more attractive to buyers.
• Your agent must conspicuously disclose to you and obtain your approval for any payment or offer of payment that a listing broker will make to another broker acting for buyers.
• This disclosure must be made to you in writing in advance of any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment.
• If you choose to approve an offer of compensation, there are changes to how this can happen.
• You as the seller can still make an offer compensation, but your agent cannot include it on a Multiple Listing Service (MLS)—MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.  The NAR specifically agreed that this would be prohibited.
• Your agent can advertise your listing via off-MLS platforms such as social media, flyers and websites.
• You as the seller can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs) but you can’t call it a buyer agent commission.

Here is what the settlement means for homebuyers:

• You will sign a written agreement with your agent before touring a home.
• Before signing this agreement, you should ensure it reflects the terms you have negotiated with your agent and that you understand exactly what services and value will be provided, and for how much.
• The buyer agreement must include four components concerning compensation:

1. A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined.
2. Compensation that is objective (e.g., $0, X flat fee, X percent, X hourly rate)—and not open-ended (e.g., cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”).
3. A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and,
4. A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.

• Written agreements apply to both in-person and live virtual home tours.
• You do not need a written agreement if you are just speaking to an agent at an open house or asking them about their services.
• The seller may agree to offer compensation to your agent. This practice is permitted but the offer cannot be shared on a Multiple Listing Service (MLS)— MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.
• You can still accept concessions from the seller, such as offers to pay your closing costs.

These practice changes will go into effect August 17.

Listing agents can advertise seller willingness to pay buyer broker compensation or to give closing concessions listing via off-MLS platforms such as social media, flyers and websites.  You can probably expect to see riders on for sale signs saying that the seller will provide concessions. If you have questions please feel free to call me at 240-401-5577 or email me at lise@lisehowe.com.