Major Change for Residential Buyers Coming

You may have read about it: last month, the National Association of Realtors (NAR) has chosen to settle a lawsuit brought by home sellers regarding residential commissions. Lacking objective and correct public media coverage I can’t refer you to a good press article. So here is a summary of what we know per early April, to be updated as needed:

If approved by the courts, from July on
• Buyer’s agents commissions – the so-called “co-broke” offer – will not be displayed on MLS* listings anymore,
• Buyers must sign an agreement when working with a buyer’s agent

In detail:
1. Compensation offers must be moved off the MLS by mid-July 2024
In current practice, every residential property on the MLS shows a commission offer to the buyer’s agent. In July, this will disappear.

The Effect on Buyers and their Agents
If buyer’s agent's commissions are not offered on MLS listings anymore, how will agents know if they receive a commission when bringing a buyer?

The way it looks right now, they may have to ask the seller’s agent of every property the buyer is interested in.
Since the nationwide settlement does not prevent a buyer’s agent commission from coming from the seller, just as it previously has, it can still be included as part of the seller’s costs in negotiation. For example: a seller could pay a 6% commission, split 3% and 3% to each agent. It just can't be offered as "co-broke" on the MLS.

One possible workaround instead, sellers can offer a closing credit equal to the buyer brokers commission. This way, buyers aren't coming out of pocket for commissions. It's still paid out of the purchase price, just written differently.

Options
However, since a seller paying a buyer’s agent’s commission will no longer be the necessity or 'requirement' it once was, some sellers may not agree to these terms and will only pay the commission of their seller’s agent.

Wishful Thinking by the Press, Act I: Sellers, if not offering commission to the buyer’s agent, will lower the prices by the amount they save. – Right. And Elvis Presley just gave birth to triplets. More likely: home prices may see little change overall beyond the usual market trends.

Wishful Thinking Act II, floated by many public media outlets, even serious ones such as the NYT: buyer's agents might happily work for no or little money. This hope seems hallucinogenic-induced. Realistic it is not.

However, it will be possible to negotiate commissions – just as it is now already. Commissions have never been dictated; long before this settlement they already were entirely negotiable between brokers and their clients. And housing prices are dictated by market forces – beyond Realtors’ control.

...and their Results
So if a buyer’s agent’s commission is not paid by the seller, responsibility will fall on the buyer. For some prospective buyers in the market, this creates a new affordability barrier to home ownership in an already expensive market such as South Florida.

If a buyer can't cover the buyer’s agent’s fee (or doesn't want to), no agent will work with that buyer. As a result, some buyers may try move forward in the market without an agent.

But: besides not having access to the MLS database with its full search options and myriad filter capabilities (e.g.: "bedroom on the ground floor") , there are just a few drawbacks to foregoing professional assistance in what is typically the biggest investment a person makes in his/her life: No explaining the purchase process, no area and property selection, no market analysis, no contract guidance, no offer-writing, no price negotiation skills, no contract timeline supervision, no recommendations for building inspectors and trades, no coaching with paperwork, no closing assistance and no after-closing support. You get the idea.

2. A Written Agreement becomes Mandatory for Buyers
Up to now, Florida was one of the few states that did not require a mandatory buyer’s broker agreement. This will change for residential transactions nationwide if a buyer wants to work with an agent (versus finding a property and acquiring it without a Realtor's assistance and guidance). Most brokerages will institute this rule immediately if they haven't already done so.

The advantage for both parties: a clear definition of services, values, duties and responsibilities, including a fee and commission agreement – and an increase in buyers' loyalty to the agent they are working with. In those cases where a buyer does not wish to sign a BBA, an agent will simply not work with and for this buyer.

Questions? Please contact me anytime by phone, email or in a personal consultation.

Important for you to know: this summary is based on material provided by NAR and FAR, abbreviated and edited for clarity from the perspective of a licensed Florida real estate broker with 32 years experience, however it does not offer a legal opinion or constitute any legal advice.

*MLS is the Realtors’ property database, accessible only to Realtors = members of the NAR.