Recently, a class-action lawsuit was filed by several home sellers in Missouri against the National Association of Realtors (NAR) and prominent real estate brokerages, including Berkshire Hathaway, Keller Williams, and RE/MAX. The plaintiffs argued that real estate commission rates were excessively high, that agents representing buyers were overpaid, and that NAR’s practices led to inflated commission rates. The plaintiffs won the lawsuit, leading to significant changes in how real estate business is conducted.
The most notable change is that the negotiated compensation can no longer be stated within the NAR Multiple Listing Service (MLS) systems. Instead, the listing contract and the buyer’s agency contract will contain the agreed compensation, which cannot be published on NAR-authorized sites. Additionally, buyers will now need a signed buyer’s agency contract to have an agent show them a listed property.
These changes raise important questions: Do they affect the market value of properties? Do changes in compensation between brokerages influence the sale price of a property?
To answer these questions, it is essential to understand the historical context of real estate compensation. Traditionally, compensation has been paid solely by the sellers and is predominantly a commission based on a percentage of the sales price, agreed upon at the time of the listing contract’s execution. Although the seller establishes a business relationship with an agent, the compensation is paid to the broker of the company, not the agent. This payment is then shared between the seller's broker and the buyer's broker, a practice known as cooperative compensation. The recent changes primarily affect this cooperative compensation.
As a colleague pointed out, compensation has always been a business relationship between real estate brokerages, separate from the sales transaction itself. In real estate, when a seller agrees to pay a commission to the broker, how the broker divides that compensation remains a business decision independent of the buyer-seller negotiations. These commissions, though now negotiated and written differently, remain a business decision conducted behind the scenes, outside the purchase contract.
Will these changes affect the market value or sale price of properties? The standard appraisal answer is that it depends. As with any significant change in real estate practices, it is challenging to predict the exact impact until the changes take effect. There will likely be an adjustment period where buyers need to save more money to cover their side of the commission. Additionally, sellers may reconsider their willingness to cover the entire commission, a practice that has been standard for decades.
Appraisers have never analyzed the compensation paid for by buyers and sellers as part of the comparison sales analysis. What could affect the analysis is the changes that might occur regarding additional monies paid by the seller to help the buyer that is no longer considered the cost of doing business, but rather in the form of concessions. These will be analyzed and adjusted accordingly. Agents will need to report this data accurately in order to allow appraisers the ability to use that data properly within an analysis.
The recent lawsuit and resulting changes highlight the evolving nature of the industry. While the immediate impact on property market value and sale prices is uncertain, these changes will undoubtedly reshape the dynamics between buyers, sellers, and brokers. As the real estate market adapts to these new regulations, all parties involved must stay informed and prepared for the adjustments ahead.