Arizona Realtors react to class action settlement

A landmark court case is going to change the way homes are bought and sold in this country, and local experts say the effects will hit Arizona.

The National Association of Realtors recently announced an agreement to end a class action law suit out of Missouri, resulting in the elimination of a longtime NAR rule requiring an offer of compensation in which home sellers must pay commissions of the buyer’s agent in addition to their own agent in order to show their home on the Multiple Listings Service, which is where the majority of homes in the country are listed for sale.

NAR will pay the plaintiffs $418 million over about four years, according to the agreement.

Although not always the case, home sellers are typically represented by a Realtor who negotiates the offer of compensation, which is often a 5% to 6% commission split between the buyer’s agent and the seller’s agent, a longstanding custom. The commission for both agents comes out of the seller’s pocket, regardless of how much work either agent does to close the deal.

Local Realtors say this will no longer be the case when new rules are effective in the coming months. The coupling of buyer and selller agent commissions will no longer be required.

Greg Hague, CEO and founder of 72SOLD, said sellers will no longer feel pressure to offer a buyer agent commission in MLS, fearing that if they don’t their home won’t be presented to buyers by buyer agents. The elimination of the buyer agent field in the MLS will make it impossible to make such an offer, thereby removing any pressure to make an offer.

He said buyer agents refusing to show homes where they don’t make as much as they want is a reprehensible practice that has been going on for years and it damages buyers and sellers.

Overall, he said, the settlement will dramatically reduce the number of Realtors in the U.S. because it will reduce the amount of commission money flowing into the industry.

Many buyers will simply bypass having an agent and go directly to the listing agent to see homes, he said.

“We already have more than five times the number of Realtors we need to service the existing business. For example, in the Phoenix market there are over 40,000 Realtors competing for about 6,000 new listings a month. That means the average Realtor only lists one home every seven months,” Hague said. “This is the end of traditional real estate commissions. It needed to happen. Consumers have spoken.”

On the other hand, Realtor Rebecca Durfey said it is still difficult to say how things will pan out relating to broker fees/commissions for sellers and buyers.

She said sellers can certainly still offer a commission to their listing agents with an expectation that the listing agent will offer fair compensation to the buyer’s brokers in the market. Since it can no longer be included in the MLS listing, Durfey said it will be negotiated outside of the contract and the MLS, but it does not mean it has to go away, and could result in “flat fee” buyer agent models popping up.

“What I don’t want to see happen is that buyers decide to be unrepresented. I don’t see that as a service at all to buyers, yet they will have to now consider that they have a buyer’s broker fee/commission on top of the cost that is required when purchasing a home. If that starts to be the expectation, I would expect there to be ways where it can be a financed cost,” Durfey said.

The class action settlement stems from a federal trial last October in which a jury ruled NAR and other big real estate brokerages conspired to artificially inflate commissions. Home sellers were awarded $1.8 billion in damages.

The settlement, which is subject to court approval, prohibits offers of broker compensation on the MLS and adds a new rule that will require MLS participants working with buyers to enter into written agreements with their buyers.

It also makes clear that NAR continues to deny any wrongdoing in connection with the MLS cooperative compensation model rule.

“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers. 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,” interim NAR CEO Nykia Wright said in a news release.

Durfey said she hopes sellers will still recognize there is a benefit to creating a “marketplace” around their home and that offering a buyer’s commission enables more buyers to qualify for their home, which brings more buyers to the table.

That is the best way to ensure the seller gets the highest dollar in the most efficient manner with, hopefully, the best terms, she said.

With misinformation out there, Durfey said there is no validity that home prices will “dip or tumble” based on agent commissions.

“I have never seen an appraisal or comparable properties rely on agent commission to determine value,” she said. “I don’t think it is relative from what I see, and I expect the prices to continue to be strong over the coming years.”

Philip Haldiman can be reached at phaldiman@iniusa.org, or on Twitter @philiphaldiman. We’d like to invite our readers to submit their civil comments, pro or con, on this issue. Email AZOpinions@iniusa.org.