Real Estate Commission Rules to Change

It’s difficult to say whether the settlement reached by the National Association of Realtors (NAR) on commissions will have any effect on the price of housing, Santa Barbara agents say. “Buyers and sellers will retain the same power they had in negotiating their respective agents’ compensation,” said Brian Johnson of the Santa Barbara Association of Realtors. “The important thing is that the process remains transparent.”

The settlement comes out of a lawsuit in Missouri, in which a jury awarded $1.7 billion to plaintiffs in October for conspiracy to inflate commissions, an award that could have tripled under antitrust laws. The NAR settled in March for $418 million, joining the real estate firms that had settled out of the case earlier for about $200 million. The settlement included about 10 similar lawsuits and all NAR-affiliated national, state, and local Realtor associations, whether they’d been sued or not. The Santa Barbara Association of Realtors is in the last category. Nonetheless, as a member of the NAR, the settlement affects how the local group will operate.

The plaintiffs in the Burnett case objected to the buyer agent fees contained in a seller agent commission agreement, under the argument that homes for sale were easily found online without the help of an agent. According to the National Association of Realtors, two results emerged from the settlement: The MLS, or the Multiple Listings Service, an encyclopedia of what’s on the market, would no longer contain information about commissions. Second, agents must have written agreements with buyers before touring homes.

When it comes to agent commissions, both on the seller and the buyer sides, in California, compensation amounts have been transparent for many years, real-estate agents in Santa Barbara said. Home prices in the local MLS clearly state what commission is included to agents for the buyer and the seller, and to any brokers. And they’ve always been open to negotiation.

In the current system, “The ‘unilateral offer of compensation’ to any buyer’s agent did a good job of leveling the playing field,” Johnson commented. In other words, California’s rules about disclosing commissions across the board meant any agent could represent any homebuyer for the same percentage as any other agent or buyer. But that’s going away with this settlement, whose terms are to go into effect in mid-July.

The agents the Indy spoke with were reluctant to go on the record as the settlement must still be approved by the court. Many said, however, that removing the commission information from home listings would complicate negotiations. While 2 to 2.5 percent is likely to remain the usual number of points for buyer and seller — often paid by the seller as part of the closing costs — the agents will have to start asking each other what they’ll accept and who will pay it.

A buyer agent agreement is in use by some already, though after July, it will be another item that agents will need to communicate to their clients, the agents said. As for a zero point sale, they indicated that was likely only in the case of an agent or broker buying or selling a property for themselves.

The work a seller’s agent undertakes in marketing and showing homes seems clear. But the agents we spoke with agreed that good buyer’s agents were necessary, especially to new buyers. They have experience about the market, what to watch for, and how to get help. “When I call my plumber, home inspector, electrician, they show up the next day,” said one agent.

With the median price of a home in Santa Barbara last month at $2.3 million, if commission amounts were calculated at 6 percent instead of 4 or 5 percent, the change to the total paid for a home would be “negligible,” said one longtime real estate agent. Downpayment amounts, loan interest, and insurance rates would all factor into the total costs, and they vary greatly with buyers and with time.

Whether the settlement results will be reflected in home prices remains to be seen. Chances are good, however, that agents and brokers will still want to be paid for the services rendered.