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Published 2 September 2024
Aug. 17 was a landmark day for the 1.5 million-plus real estate agents who are members of the National Association of Realtors (NAR) and its state and local affiliates. That day marked the most sweeping change in the way agents do business since NAR’s formation 116 years ago. There are 54 such state-wide NAR affiliates throughout the U.S. and its territories and possessions, including Washington, D.C. The New Mexico Association of Realtors (NMAR) oversees 14 local associations, including the Las Cruces Association of Realtors. The change affects how Realtors are compensated.
The impetus behind the change was triggered by a U.S. Department of Justice (DOJ) lawsuit alleging that NAR violated the Sherman Antitrust Act of 1890, which serves to ban businesses from “colluding or merging to form a monopoly”. The suit more specifically alleges that multiple listing (MLS) rules governing NAR and its affiliates “constitute agreements among competing real estate brokers that reduce price competition among brokers and lead to higher prices and lower quality service for American home buyers and sellers.”
According to the DOJ, the rules and practices in question include “Prohibiting multiple listing services (“MLSs”) from disclosing to prospective buyers the amount of commission that the buyer broker will earn if the buyer purchases a home listed on the MLS, allowing buyer brokers to mislead buyers into thinking that buyer broker services are free, enabling buyer brokers to filter MLS listings based on the level of buyer broker commissions offered and to exclude homes with lower commissions from consideration by potential home buyers, and limiting access to lockboxes that provide licensed brokers physical access to a home that is for sale to only those real estate brokers who are members of a NAR-affiliated MLS”.
To remedy the violations, DOJ ordered the decoupling of commissions paid in a transaction. Traditionally, a listing agent would negotiate a total selling commission expressed as a percentage of the sales price, with the listing agent typically agreeing to share half of the negotiated fee with a buyer’s agent who brings an acceptable offer to the table. While the amount of the shared commission was visible in MLS to buyer’s agents, it was not included in the publicly viewable portion of the listing for buyers to see. As of August 17, buyer-agent commissions are no longer published in any part of an MLS publication. Seller’s agents may, however, publish them on their websites or other non-MLS advertising venues.
Going forward, commission splits will have to be negotiated separately. Sellers will first negotiate the amount of compensation paid to their listing agent, then decide what sort of compensation, if any, they will offer to a buyer’s agent. It is at this point where confusion currently reigns. Let’s say a seller refuses to offer any compensation to a buyer’s agent. How will the buyer’s agent be compensated? Enter the mandatory buyer-broker agreement buyers must sign before touring a property, either virtually or in person. Buyers will have to negotiate their agent’s compensation prior to looking at even one home.
Buyer-broker agreements stipulate for how long the buyer and agent agree to work together (like a listing agreement), how much the buyer’s agent is to be paid, and that the buyer agrees to work exclusively with the buyer’s broker and no other during the term of the agreement. Compensation may be based on a percentage of the sales price, a flat fee, an hourly rate, a fee for each property shown, or some combination of the four; and may even provide a menu of services from which the buyer can choose. Irrespective of the method chosen, the buyer will owe the agent the agreed upon amount when the transaction closes.
In the above example, the buyer will be obligated to foot the entire bill. He or she may, however, ask the seller to provide a concession amounting to all or part of the commission owed to the buyer’s agent just like any other term of the offer. The buyer will be responsible for any difference between the two amounts.
To complicate the issue even further, buyer broker agreements in New Mexico offer two options for compensation. One is the method described above. The other is where the buyer’s agent agrees to accept whatever commission is offered, with no obligation for the buyer to pay anything. This is perilous for the agent, however, who will not be compensated at all if no buyer broker fee is offered by the seller.
Well, there you have it. A real estate transaction by its very nature can be complicated. The new rules add additional complications that will take months if not years to fully comprehend and iron out.
See you at closing!
Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces, New Mexico. He loves to answer questions and can be reached at (575) 642-2292 or Gary@GarySandler.com.
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About Author
Gary Sandler
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