The National Association of Realtors’ settlement, reached in March, is most likely to affect those looking to purchase a home.
The Minnesota Star Tribune April 29, 2024 at 11:01AM
After the recent National Association of Realtors settlement about commissions, many buyers, sellers and their agents are left wondering what this means for their bank accounts amid the busiest real estate market in recent memory. (Kim Maxwell Vu/The Minnesota Star Tribune)
On Friday, Edina-based HomeServices of America agreed to a $250 million antitrust settlement with homeowners who filed a lawsuit that essentially says they were forced to pay inflated commissions. That settlement follows a similar $418 million agreement in March with the National Association of Realtors, which on Tuesday received preliminary approval by a judge.
The issue has been top of mind in the midst of one of the busiest spring markets in years. Many full-service agents in Minnesota charge sellers a 5% to 6% commission paid to the listing broker who splits it among the various agents and brokerages involved in the deal. The March settlement — which aims to quash (but not admit to) longstanding concerns about whether the current commission structure is akin to price fixing but doesn’t specifically challenge the percentages charged — requires agents to have a written representation agreement that specifies compensation before they can show buyers a home. It bans real estate agents from advertising the compensation
Those changes won’t go into effect until July, but here is the latest on what the ruling means for those diving into Minnesota’s real estate market this spring and summer:
A recent poll of thousands of homebuyers by Redfin, an online discount brokerage, asked consumers what they know about agents’ payment. Here’s what they said:
“Many Americans make the biggest purchase of their life without knowing precisely how the professional they hired to guide them through the transaction is getting paid,” said Redfin chief economist Daryl Fairweather, in a statement.
The responses were similar in a recent Lending Tree poll focused on how often buyers/sellers and agents negotiate commissions:
Though some changes are abundantly clear, how the settlement will impact everything from home prices to agent income remains unknown. Both Carrie Chang, CEO of the Minneapolis Area Realtors (MAR), and Jamar Hardy, MAR president and a longtime Twin Cities sales agent, stressed that the compliance process is complicated and uncertain.
“There’s not a lot of there there yet,” Chang said. “But there is a lot happening.”
While the national organizations sort through the settlement, Chang said staff at both Northstar MLS — which manages all the home listings — and the Minnesota Association of Realtors are still working to understand how the national ruling will affect state rules.
In some cases, Minnesota law already addresses some of the new rules. For example, the settlement requires all contracts to contain a statement that commission rates are negotiable: Minnesota law already requires such a statement, Chang said. And the settlement requires listing brokers disclose any compensation shared with or offered to a buyer’s broker: Minnesota forms already include that requirement.
Chang reiterated the settlement does not dictate agent commissions, which a buyer/seller technically pays to a broker who then takes a share before splitting the rest among the listing agent and the buyer’s agent.
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“The settlement does not say anything about changing commissions or compensation,” she said.
She, Hardy and others said agent commissions have always been transparent and negotiable, but the settlement is raising new questions about whether buyers and sellers should negotiate their agents’ compensation.
“I do think more agents are preparing themselves for those conversations,” Hardy said.
Chang said those discussions are productive.
“I want people to know that the agents who are operating professionally out there, we’re not fighting this,” she said. “We’re confident that this will improve us and support people better.”
NAR agreed to create a rule that prohibits listing agents from including the buyer’s agent compensation on the Multiple Listing Service (MLS) raising concerns that buyers will have to find a way to pay the agent hired to represent their interests.
On that front, there’s good news for buyers: Last week, Fannie Mae and Freddie Mac offered clarification about whether sellers can compensate a buyer’s agent without running afoul of a longstanding policy that limits how much a seller can contribute toward a buyer’s financing costs. The clarification means seller-paid buyer’s agent commissions/fees won’t count toward the established cap on seller concessions.
“Buyer agent fees have historically been paid by the property seller or property seller’s real estate agent, and, as such, they are currently excluded from these financing concession limits,” according to Freddie Mac.
Currently, the policy allows sellers to contribute 2% to 9% of the property value in borrower’s financing costs.
