All About Compensation

August 7, 2024

You may have heard that agent compensation within the real estate industry has changed, that Realtors are no longer being paid to represent buyers, or that sellers are saving on broker fees. Well, this complicated class action case (which has not been fully settled) has definitely caused a lot of chaos, but now that the dust has settled, we see the path forward clearly and are ready to implement new policies within our business. Let’s review what shook up the industry, what exactly has changed from before to after the ruling, and most importantly, what this means for you as a buyer or seller.

The National Association of Realtors (NAR) faced a significant class action lawsuit that challenged the organization’s commission policies. Filed by home sellers, the lawsuit alleged that NAR’s rules inflated commission rates by requiring sellers to offer a set commission to buyers’ agents, which they argue restricted competition and artificially maintained high fees.Â The National Association of Realtors (NAR) vigorously defended itself against the class action lawsuit, asserting that its commission policies were both lawful and beneficial to the real estate market. NAR argued that its guidelines foster transparency and cooperation among real estate professionals, ultimately benefiting consumers by streamlining the home buying and selling process. In a rapid judgment, the NAR lost the suit, paid significant damages, and was ordered to change the way the industry does business.

Before the settlement, when you listed a home in the state of Arizona, your listing contract would include a commission payout to the listing broker, this negotiable fee was listed as one lump sum on the contract. From the “lump sum” listing broker fee, a commission was then offered to the buyer broker. For example a 5% commission on the sale of a home, 2.5% would be offered to the buyer broker. This commission was communicated through the MLS (Multiple Listing System) which is how properties are listed then syndicated to all the sites like Zillow, Redfin, Realtor.com, etc, in order to communicate to the buyer’s broker the rate being offered to the cooperating parties representation.

Moving forward, the listing contract looks different and splits up the commission, now referred to as “compensation,” between listing broker and buyer broker. The forms also include language to let the seller know that fees are negotiable, not set by law. Now, seller’s offer listing brokers a compensation for their services, and if they choose to, a compensation to the buyers broker. There is also a new section for unrepresented buyers, which happens when the buyer does not have a broker, and wishes to employ the listing agent services as a dual agent. Buyers will now be under contract to compensate their broker/agent a negotiated amount for representation, this was an option prior to the suit, but not widely used. Due to the compensation changes, the purchase contract also looks different. When a buyer makes an offer, they may also ask for the seller to compensate their agent, amongst other seller concessions like closing costs, pre-paids, etc. The MLS will not display compensation offered to buyer brokers anymore, which means that prior to showing a home, the buyers agent should call and inquire if compensation is being offered and communicate this information with their buyers.

The big difference is in the paperwork, preparation to show homes, and presentation of offers. It requires more time and definitely more discussion between brokers and their clients. Once this new way becomes second nature, we’ll wonder how it was done any other way, but until then you should expect the following as a buyer or seller:

Buyers:

Negotiate and enter into a Buyer Broker agreement detailing the compensation to your broker
Discuss with your broker/agent what happens if the seller is not offering compensation
Potentially set compensation offer thresholds for homes you are willing to view

Sellers