Homeowners in the U.S. may see a change in the cost of buying and selling their homes due to a landmark settlement agreement poised to reshape the housing industry.
On March 15, the National Association of Realtors (NAR) reached a settlement agreement in the Burnett v. NAR lawsuit.
The lawsuit began when Missouri home sellers filed a class-action lawsuit against the NAR. The sellers claimed that the real estate commission rates were too high, and they were required to pay the full commission for both the buyers’ and sellers’ real estate agents said Karen Leonardo, a Hernando County, Florida attorney.
The jury found the NAR guilty of violating antitrust laws by forcing sellers to list their homes on the multiple listing service, even if they would prefer to sell their homes through other means and inflating the commissions paid to real estate agents.
The NAR oversees all of the state-level associations of Realtors, Leonardo said. It is the largest trade association in the United States, and its membership includes Realtors, brokers, salespeople, property managers, appraisers and counselors.
After the jury found that the NAR was violating federal law, Leonardo said, the NAR negotiated with the sellers to pay less money. Instead of having to pay the initial amount of $1.8 billion, the NAR negotiated for the sum to be lowered to $418 million, to be paid over four years. In exchange, the NAR agreed to change how it does business.
“Because the National Association of Realtors is forced to change how it does business,” said Leonardo. “It will affect everybody who is in the real estate industry. So, the transaction is going to be treated differently as soon as the changes come into effect.”
The NAR has had to make two significant changes because of the lawsuit settlement agreement, said Marilyn Pearson-Adams, broker/owner of Century 21 Alliance Realty, based in Spring Hill, Florida. The first change is real estate agents’ compensation will be removed from the MLS.
The MLS is a database of homes for sale in a specific area that real estate brokers maintain and pay for. It allows brokers to share listings and connect homebuyers with sellers.
In the past, sellers had to pay the entire commission for both the buyers’ and the sellers’ real estate agent, said Pearson-Adams. When the listing agent placed the property on MLS, the price included the professional fee. However, because of the settlement agreement, real estate agents can no longer offer compensation inside MLS. The professional fee must be removed from the home price.
Another change that has arisen because of the settlement agreement is that real estate agents must provide buyers with a buyer-brokerage agreement, Pearson-Adams said. The agreement outlines the terms of their working relationship and lets buyers know that they may have to pay the commission.
If there is a property a person wants to buy, and the seller is not offering to pay the commission, the buyer would have to come up with the money for his or her part of the commission.
Lisa Gurske, CEO of the Gainesville-Alachua County Association of Realtors, said the changes from the lawsuit will be universal across Florida.
The settlement agreement changes may differ in other states depending on the state’s licensing laws, said Pearson-Adams. However, because the change depends on the state’s licensing and agency laws, in Florida there will not be much change across the state.
Pearson-Adams said one misconception arising from the lawsuit settlement agreement is that it will lower the cost of housing. The cost of housing never had anything to do with the commission; it was just the cost of selling. No additional money was added to the compensation. The market sets pricing based on supply and demand.
“As Realtors, we do not set pricing,” said Pearson-Adams. “We react to the market whatever the market is telling us; that’s what we go out, and we react to that. So, it is not going to reduce the home prices, and I think that’s a really big misconception that is out there.”
Another misconception is that the commission is a fixed price. Pearson-Adams said the professional fee is negotiable, and there is no standard market fee that everyone charges.
A consequence of the settlement agreement is that it may impact VA buyers who cannot afford the compensation and the seller refuses to pay the commission. Even if the VA buyer could pay the commission, they are not allowed to, said Pearson-Adams.
A home loan is based on the purchase price of the home and does not cover paying the commission, said Lisa Lombardi, senior loan officer for Highlands Residential Mortgage NMLS# 174476. This may impact younger and first-time buyers who do not have the money to pay the professional fee if the seller refuses.
Jeanne Gavish, CEO of Nature Coast Real Estate School, said that the changes made by the lawsuit will not impact what she teaches in her real estate school.
“As far as I can tell the only changes in my instruction will be the buyer brokerage agreement becoming mandatory,” said Gavish. “My curriculum is mandated by the Florida Department of Business and Professional Regulation, not NAR. There is a lot of misinformation out there that will be addressed.
The cooperating commission to the buyer brokerage will no longer be listed in the MLS, but all brokerage fees paid are and always have been negotiable, and the training is rigorous regarding price fixing and federal antitrust laws.”
Finance companies are still waiting to see how the NAR settlement agreement will impact the loan process. “As long as the charges are customary, we should be fine, and it should be business as usual,” said Lombardi. “However, all the agencies are waiting to see what’s going to happen.”
In this context, customary means that neither the buyer nor the seller is being overcharged. Pearson-Adams said the changes should not affect home buying in Hernando County. The biggest problem that might occur is that the buyer wants to buy a home but cannot afford the professional fee, and the seller refuses to pay it or negotiate a smaller fee.
“We don’t really see that happening,” she said. “I mean, sellers want to sell, and buyers want to buy.”
