Collins: The changes in the real estate industry you need to know

On March 15, the National Association of Realtors (NAR) announced an agreement that would end litigation of claims brought on behalf of home sellers related to broker commissions. This proposed settlement ended a series of copycat lawsuits throughout the country following an unfavorable decision in the Sitzer-Burnett class-action lawsuit.

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” Nykia Wright, interim CEO of NAR, said. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”

So, in the simplest of terms, the settlement requires compensation to be removed from the Multiple Listing System (MLS) and that buyers have a signed contractual relationship with their agent. According to the terms of the proposed settlement agreement, these changes need to go into effect by the end of July. There was already state legislation in the works to make a buyer representation agreement mandatory. The substantial change is removing compensation from the MLS.

Today, the listing agent shares a portion of their compensation with the buyer representative when a successful transaction has occurred. This level of compensation is included in the listing information and clearly outlines the amount of compensation the buyer representative will receive. Sometime before the end of July, this compensation field will be removed from the MLS to comply with the terms of the proposed settlement. This will require buyer representatives to negotiate up front with their clients and sign a buyer representation agreement.

For many agents, this will be the first time they will have to list out the full range of services they perform and the level of compensation they charge for those services. While compensation has always been negotiable, this change will result in new business models emerging. You may see a flat rate model, perhaps even an hourly rate model as other professionals charge. Agents may offer a tiered pricing plan based on the level of service their clients require. Regardless of what the business model is, the buyer will have increased transparency of what they are committing to because of the buyer representation agreement.

Today, the buyer representative gets paid at closing from a predetermined portion of the seller’s agent commission. This percentage is negotiated in advance with the seller. While the percentage of compensation has always varied, the concept is the same. The offer of compensation is meant to entice more buyers to make an offer.

After July, the seller may still choose to offer an incentive, such as a fixed dollar amount or percentage of sale price commission, to help offset the cost for buyer representation. However, this offer may no longer be listed in the MLS. Only concessions such as closing costs will be allowed moving forward. Without the seller’s help, buyers will need to produce other ways to pay for their representation. A buyer could make it part of the offer or pay their representative out of pocket. However, with buyers already challenged to produce the finances to purchase a home, this could increase burdens specifically for first-time home buyers.

While a buyer is not forced to use an agent, it is highly recommended that each party have skilled professional representation. Back in November my column on why buyer representation matters outlined just a few of the critical services a buyer’s agent offers.

While it is human nature to look for a “deal” or someone who will do the work for the lowest price, experience and skill does matter. Purchasing a home is a life-changing experience. You should want the absolute best representation to help navigate you through this turbulent and challenging housing market.

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. Contact Neil at [email protected] or follow @neilvcollins on X, formerly known as Twitter.