There has been significant media coverage of a recent legal settlement regarding the real estate industry. Last week the National Association of Realtors® entered into a settlement agreement in the Sitzer-Burnett case, agreeing to pay a $418 million fine. We’d like to clarify what this means for home buyers and sellers.

First, note that the settlement is pending approval by the courts, and if approved, won’t go into effect until mid-July. Thus, it has no immediate impact. If it goes into effect, buyers and sellers will see brokerages and agents adopting new policies nationwide.

Since the 90’s, seller’s agents have shared their commissions with buyer’s agents. This settlement will, in short, encourage buyers to pay for – and negotiate – compensation with their agents. Here’s how this will likely affect buyers and sellers:

SELLERS

• The seller does not have to offer compensation to the buyer’s agent. This has always been the case and has not been affected by the settlement. There is no pre-set amount; it can be set at the initial marketing of the property or negotiated directly with the buyer’s representative prior to ratifying a sales contract. There are strategic implications to consider when taking either approach and how then may impact the value, timing, and logistics of the sale.
• A seller will still be able to offer compensation for an agent who brings a buyer to the property and facilitates the sale for that buyer. The compensation amount, however, will no longer be published in the MLS, which feeds to all major portals like Zillow and Realtor.com, and is the de facto platform for searching available properties. Cooperating commissions can still be shared publicly on brokerage marketing materials including flyers, websites, and social media.
• Sellers have always been – and will continue to be – able to negotiate commissions with their agent based on the exchange of services that agent is offering.
• There will be changes made to the California Association of Realtors contract and forms to clearly delineate not only the amount, but how, when, and where offers of compensation will be exchanged.

BUYERS

• By mid-July, before being shown any properties, buyers will be required to enter into a written agreement with their agent representative, which clearly defines the compensation that will be due in exchange for their agent’s service. Compensation must be a percentage or dollar amount and cannot be open-ended. For example, the agreement cannot say, “buyer broker compensation shall be whatever amount the seller is offering to the buyer.” An agent cannot receive compensation for brokerage services for more than the amount or rate agreed to in the buyer representation agreement.
• The compensation may be paid by the buyer, offset in the future by a seller willing to cover the amount, or covered within the loan structure in the form of a seller concession as part of the terms of the sales contract. There are limitations to the concession percentage allowance determined by the loan based on the buyer’s down payment that could impact the overall amount received.

Buyer compensation has historically been folded into the purchase price; as these changes go into effect, it remains to be seen how payment will be applied. Furthermore, it is unknown if and how these changes will impact home prices, particularly given the historically low supply and high demand in our competitive market.

In sum, the major news headlines and stories, from the New York Times, to CNN, have misrepresented and inaccurately reported this story. While change is inevitable in any industry, we are confident that you, our clients, understand and value our work, and we will continue to go above and beyond to exceed your expectations.