November 21, 2023

On Halloween, a Missouri jury’s verdict found the National Association of Realtors (NAR) and several national brokerages guilty of colluding to inflate or maintain high commission rates. It is often explained that, at the heart of the issue, the buyer broker fees and the financial burden it places on sellers is subject to negotiation rather than “set in stone.” While agent commissions have been a source of debate in the real estate industry for years, it’s important to consider the consequences of eliminating compensation for buyer’s brokers and other ramifications.


Orion believes that it is important that our broker clients understand that these cases challenge the long standing home selling market norms and control by those in the real estate industry of tying listing a house for sale on the multiple listing services (MLS) to the sellers’ agreement to pay buyers’ brokers’ commissions. Real estate brokerage companies are now facing an industry-wide onslaught of these cases.


Because ofthe way they’re paid, real estate brokers are primarily motivated to see the closing occur even if it might not be the best thing for the buyer or the seller themselves. Real estate brokers often provide essential and highly valuable functions and information, however, for buyers and sellers that enhance order and liquidity in the housing markets and peace of mind through shared knowledge and experience.


Realtors are now going to have to put more work into convincing consumers about their value instead of just controlling access to the market. Selling and shopping for homes in the U.S. has been controlled by the Realtors who have dominated access to home sale listings through the local MLS. The basic deal in most places has been that if you want to get your house exposed to all potential buyers, you need to list the house with a Realtor to get it on the MLS. And Realtors' listing agreements have also required sellers not only to agree to pay the selling agent a commission, but also to pay the buyer’s agent’s commission too.


A real estate agent will say that a buyer’s broker plays a crucial role in real estate transactions, guiding homebuyers through the complexities of the process, negotiating on their behalf, and ensuring their best interests are protected. Internet search engines have already impacted the process, allowing shopping at home for properties rather than driving around with an agent. Companies like Zillow and Redfin have sought to enter the internet space by obtaining their own real estate licenses and then serving as a tool for both consumers and real estate agents to use.


Brokers know that this has value. The buyer has really been paying their own broker because that commission expense is included in the purchase price. Put another way, selling and buying consumers were served by agents who split a roughly 6 percent commission on the purchase price. It would be unusual for a buyer to offer 3 percent less, saying that the seller didn’t have to pay the buyer’s agent their 3 percent.


Orion and mortgage brokers know that the typical consumer needs professional guidance in the home buying and selling process, and it is something that we specialize in. Professional advisory/counseling services brokers currently provide in the home purchase/sale transaction can be of great value. Whether consumers are willing to pay for those advisory services (if not opaquely buried in the sales priceas it has been), however, is an open question.


Brokers, and Orion, are already largely aligned with an advisory role on the buyer’s side since they want to make sure their borrower doesn’t over pay for the house, buy a home with costly repair issues, have a problem repaying the mortgage loan, allow a minor issue to cloud their judgement on the broader transaction, and become an unhappy or unsuccessful home owner.


There will be a lengthy appeals process for litigation, so nothing has changed quite yet. But changes are already in motion in many markets seeking to separate out the buyer’s broker commission from the listing and seller’s obligations. Real estate brokers everywhere must reassess their consumer disclosures and engagement/listing agreements to be explicit about the relationships, commissions, and obligations of the parties. We can expect new models for real estate shopping and sales. Listing agents are going to have to make the case how they can enhance value beyond just putting a house on an MLS type marketplace.


The ruling potentially puts an added financial burden on buyers and further prevents those with less finances from purchasing a home: After saving up for a down payment, must the buyer now save up to pay a 3 percent commission? Obviously, diverse sectors, which already have much lower homeownership rates than non-Hispanic whites, will face an oversized challenge. This is especially problematic as future generations of homebuyers will be more and more diverse. Be sure to ask your Orion AE if you have any questions about this.

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