In recent weeks, there has been a great amount of discussion about the National Association of REALTORS®, real estate commissions and a proposed settlement agreement. I have found many news outlets have sensationalized or haven’t reported the true facts.  It is quite concerning and I know many people are confused. I am not an attorney, but I am going to try to dispel some of the rumors about what is found in the twenty-four page settlement agreement. I am also going to tell you why I believe this agreement could do great harm to consumers. 

As written, the settlement stipulates:

• Prohibit any requirement by NAR that sellers or listing brokers must make offers of compensation to a buyer’s representative;
• Prohibit offers of compensation to buyer representatives on MLS systems subject to the terms of the settlement, including the elimination of the current broker compensation field on the MLS;
• Prohibit the disclosure of listing broker or the total combined compensation (i.e., the listing broker compensation and cooperating brokers compensation) on the MLS;
• Prohibit the creation, support or facilitation of any non-MLS mechanism (including internet aggregator websites) for listing brokers to make offers of compensation to buyer representatives. Brokerages, however, would be permitted to include compensation-related information on listings posted on their company websites; and
• Require buyer representatives to enter into a written agreement with buyers prior to the buyer touring any home. These agreements must set forth the amount or calculation of how a buyer representative will be paid and in no event can a buyer representative collect more than what is stated in the written agreement with the buyer. 

In a nutshell, this states that a seller and/or listing brokerage is not required to make an offer of compensation to a buyer’s agent. Quite honestly, commissions have always been negotiable and sellers are not required to pay a certain amount of commission. A commission agreement is included in Texas REALTORS® listing agreement that should be agreed upon and signed by the seller and a representative from the listing brokerage prior to listing a property. While not mandatory to use, Texas has provided a promulgated listing agreement for many years. Many states do not have a similar form, but will be required to under the proposed settlement agreement. The Texas form (with updates) will probably be required within the year.

The settlement agreement also states that offers of compensation to a buyer’s agent or sub-agent can no longer be included on a MLS listing. Furthermore, the compensation has to be clearly broken down as “x” to the listing brokerage and “y” to the cooperating broker’s office. Brokerages can include offers of compensation for cooperating brokerages on their company website, but information cannot be displayed on other non-MLS external sites.

What the settlement does NOT do:

• The settlement does not force brokers to reduce their compensation. It does not address a “set fee.” Compensation is always negotiable.
• The settlement does not prevent sellers from paying a buyer’s agent compensation. Sellers may still elect to pay buyer agent compensation to differentiate their properties. 
• The settlement will not lower home prices. Home prices are set by supply and demand.

In my opinion, these provisions included in the settlement can have far-reaching effects on consumers including, but not limited to:

• A buyer agency/representation agreement must be signed before a buyer tours a property. (This is easy to accommodate.)
• Per Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), agent compensation cannot be incorporated into a mortgage loan. Updates to the lending system and its associated guidelines would likely require both regulatory and Congressional action to implement.
• Under current guidelines for VA loans, a buyer cannot be charged or pay for broker-related fees and/or commissions.
• Buyer commissions that are “traditionally and customarily” paid by the seller could not be considered to be interested party contributions (IPCs). Many times this is referred to as a closing cost or settlement cost contribution.
• Low and moderate income first-time homebuyers typically have less disposable income when purchasing a home. They will not be able to pay a buyer’s agent out-of-pocket.
• With the removal of compensation from the MLS, transparency is removed from the transaction. Transparency is a central theme to all of the litigation this “settlement” is supposed to address.
• Unfair bias may occur when a listing agent doesn’t prefer to work with a buyer’s agent and/or brokerage. For example, if listing agent John works for John, buyer’s agent Jane, and buyer’s agent Sue all have an interested buyer, John may offer Jane 2% and Sue .5%. This could lead to discrimination lawsuits, etc.
• This settlement could cause Fair Housing issues due to offering commissions to agents based on their client’s race, age, sexual orientation, etc.
• There is not a mechanism to ensure transparency between a buyer’s agent and a client since nothing is disclosed in the MLS. 
• When creating a market analysis for either a seller or buyer, agents and appraisers won’t be able to provide fully transparent and informed information if it’s uncertain whether the commission is included in the sales price or not.
• When making appointments to show listings, agents will need to have a discussion prior to showing. This puts consumers at a disadvantage due to the time that can lapse between the desire to make an appointment and confirmation of the appointment.
• Many buyer’s will rely on the listing agent if unable to pay a buyer’s agent. This will result in complaints and lawsuits due to dual-agency and intermediary relationships.

As you see, this settlement greatly impacts the consumer and can have discriminatory effects. The purpose of national, state and local associations is to protect the consumer. This settlement will intensify affordability challenges and put homeownership out of reach for millions.  

In all reality, home prices and rents are determined by supply and demand versus agent fees. That is easily seen in the last few years when inventory has been historically low. Compensation has never been set by any association and has always been negotiable. This will not change, although changing the way commission is paid will quash home buying opportunities for a large percentage of people. Moreover, buyers without available funds for representation, will attempt to move through the home buying process unrepresented, causing great financial harm due to not understanding their rights and obligations.