What is Happening with Those Lawsuits?

I am getting asked about this from clients, want-to-be clients, and friends at social occasions.

For those who don’t know about these lawsuits, there was a verdict in October in a Missouri court that went against the National Association of Realtors® (NAR) and some big real estate companies. Then, in late March, NAR proposed a settlement. The settlement has not yet been accepted. It is proposed to go into effect at the end of June, so we are getting ready, in case.

I am not willing to play lawyer or court observer. There’s this proposed settlement, and there are  more lawsuits in the queue, including one involving our local Multiple Listing Service.

What are Multiple Listing Services (MLS)? They are database platforms that agents and brokers pay to subscribe to. The agents and brokers use it to share information about properties for sale. Subscribers agree to rules about cooperating with and compensating all brokers who subscribe to it. If you are seeing listings on other sites (like Zillow), chances are, those sites are getting a feed from their local MLS.

Lawsuit relevant information:

  1. Some MLS systems require that a broker must belong to (and pay dues to) the National Association of Realtors®. This practice was called out by the lawsuit. Our MLS – MLSPIN – does not require Realtor® membership.
  2. Our MLS — MLSPIN – changed its policy recently to publicize all commissions offered by the MLS. It was thought that buyers and sellers should know what other buyers and sellers are paying for these services. The Missouri court thinks that publicizing commission rates encourages the idea of a “typical commission” and leads consumers to pay a fee set by the industry. The NAR settlement proposes to stop all published communication between companies about broker fees in the MLS.

What will change? The Miissori case settlement proposes that MLS will not publish commissions. That is the likely outcome. 

MLS and Commissions:

Since the beginning of buyer agency, the buyer broker’s commission has been built into the sale price of the property. The buyer paid for the house and the seller paid outstanding bills, then collected their profit. Responsible seller’s brokers used a form called a “net sheet” to show sellers what their final profit was. Broker fees were deducted from the sale price along with taxes, water bills, or other costs of the sale.

The MLS system built commissions into the price. The seller, through their broker, published their offered commission to buyer’s broker on the MLS. Our company, as buyer’s brokers, had a contract with our clients that instructs us to accept the commission offered in the MLS, and adjust it — plus or minus – to match the commission amount in our contract. We were not happy with the sellers making the decision about what we were paid; adjusting it via our contract was our best practice.

If the settlement is accepted and all offers of compensation are removed from the MLS system, we need ways that buyers can continue to pay our fees without undue burden. These are the solutions coming down the pike:

Mass. Association of Realtors addendum

  1. The Massachusetts Association of Realtors® has an addendum to their Offer to Purchase template. It requests that the buyer broker fee be included in the sale price. This creates a way that the buyer broker commission is paid for in a mortgage, as part of the house purchase. Functionally, this is exactly the same as it has been. The buyer pays for the house, and the buyer’s broker fee is subtracted from the seller’s profit at closing. 
  2. Lenders are seeking ways to create financing options for buyers, so that they can finance the buyer broker commission, if it is not included in the sale price.
  3. Some – very rare – buyers may instruct us to not include a commission request to the seller during negotiations. They could choose to pay us outside of the closing. But, that is not a viable option for most buyers.

This sounds good, so, what’s the problem?

The biggest problem is the chaos caused by ill-informed conversations about these changes. Real estate brokers, agents, and consumers are getting some incorrect information and unsupported predictions about what is going to happen.

We hope to keep you informed. Please write me with further questions, and we will attempt to answer them.