How could the settlement in the real estate commission fight affect consumers?
Sellers won’t be required to pay the buyer’s agent, so what could this mean for first-time home buyers?
On March 15, the National Association of Realtors reached a settlement in a class-action lawsuit that calls for them to pay $418 million over four years and institute changes in how it handles commissions.
Some fear those changes will make it harder and more expensive for buyers.
Every real estate sale is different, but the way it typically works in Massachusetts is this: When a homeowner chooses to list a property for sale with a real estate agent, the two sign a contract. In that contract, the seller agrees to pay the agent a certain percentage of the sale price when the deal closes. That percentage is negotiable, but that tidbit of information hasn’t always been shared with the seller.
If the buyer has an agent, the listing agent usually agrees to split the commission, which sometimes is built into the asking price. Home sellers argue that they shouldn’t have to pay the buyer’s agent, who didn’t represent their interests.
In 2019, sellers sued the National Association of Realtors, Keller Williams, and HomeServices of America in a class-action suit over how commissions are paid. They were awarded $1.78 billion in October 2023, but NAR vowed to appeal.
Similar suits have popped up all over the country, including in Massachusetts. The “Nosalek Case,” so-named after its lead plaintiff, was filed in December 2020 against the Multiple Listing Service Property Information Network and multiple real estate agencies over a rule that required seller’s agents to offer compensation to buyer’s agents. NAR is not a defendant in this suit.
The proposed NAR settlement would end this case and similar suits nationwide.
Under the NAR settlement, the sellers won’t be required to pay the buyer’s agent commission. The agents also must tell their clients that commissions are negotiable. In addition, NAR agreed to prohibit realtors from advertising on the MLS that the seller wants to pay the buyer’s agent commission and said it would eliminate its requirement that members subscribe to their local MLS.
MLS PIN declined to comment on the litigation.
Rich Rosa is the cofounder and co-owner of Buyers Brokers Only LLC and the immediate past president of the National Association of Exclusive Buyer Agents. He said any rule changes that force buyers to pay their agents will discourage many from hiring representation at all.
“A system that makes it harder for first-time and lower-income home buyers to retain loyal representation won’t save home-buying consumers money,” Rosa said. “The lack of trusted representation will lead to costly mistakes.”
Anthony Lamacchia, broker/owner of Lamacchia Realty, is an ardent supporter of NAR and not directly involved in the suit. He said the settlement will not have the effect the plaintiffs are seeking.
“In the end, these changes that the plaintiffs’ attorneys will be taking a victory lap on won’t bring down commissions and [will] actually make things less transparent,” Lamacchia said. “The good news is I have no concern about the real estate brokerage business living on and continuing to be alive and well. Buyers and sellers have wanted the assistance of realtors for over 100 years, and this won’t change that a bit.”
In a report dated Oct. 6, 2023, before the verdict in the case against NAR, investment banking firm Keefe, Bruyette & Woods predicted that commissions would be decoupled, causing them to fall upward of 30 percent and that the number of real estate agents in the country would drop by 60 percent to 80 percent.
That decoupling has been a subject of contention in the Nosalek case. The suit was settled last year, but the Department of Justice issued a statement of interest in September 2023 that forced the parties to revise their agreement. They did. But on Feb. 15, the DOJ issued another statement of interest that was very critical of the settlement and asked the judge not to approve it. Its biggest complaint? The agreement did not include the decoupling.
The Consumer Federation of America had applauded the Justice Department filing. “This DOJ opinion virtually guarantees that buyers will eventually be able to negotiate buyer agent commissions that are currently fixed through industry collusion,” said the federation’s senior fellow Stephen Brobeck. “It is also likely that there will be greater variation of agent compensation depending on factors such as agent experience and time spent on the sale.”
The NAR settlement was reached at a rocky time for the real estate agent trade organization. Last year, CEO Bob Goldberg and president Kenny Parcell stepped down over allegations of misconduct. In January, president Tracey Kasper stepped down over a blackmail threat.
“NAR exists to serve our members and American consumers, and while the settlement comes at a significant cost, we believe the benefits it will provide to our industry are worth that cost,” said Kevin Sears, a Springfield realtor and organization president.
It’s unclear how much each plaintiff in the case will receive from the settlement, which requires a judge’s approval.
Attorney Robert L. Bell Jr., partner/owner at the Melrose law firm Bell & Izzi, said the settlement will change the ways agents do their jobs, but won’t have any noticeable effect on consumers.
“The Feds have ostensibly tipped the scales against a seller’s freedom to market as [they] please by outlawing seller offers of buyer agent compensation in MLS listings,” he said, but sellers can still pay the buyer’s agent commission if they want to. “It won’t be mandatory, just common sense,” he said. “It will maximize the buyer pool and thus create demand. The only real rule that applies is supply and demand.
“The biggest takeaway is that buyer agents must have contracts with clients which specify buyer agent compensation,” Bell said. “That should have been the common practice since buyer agency was mandated in Massachusetts decades ago. Buyer agent contracts have been largely ignored, but won’t be any longer.
“The effect on the market will be nil,” he said. “Well-trained agents will continue to prosper. Those who aren’t well-trained may have a bumpy road.”
Jim Morrison can be reached at [email protected]. Follow us on X @GlobeHomes and subscribe to the Address newsletter at Boston.com/address-newsletter.
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