The National Association of Realtors (NAR) recently submitted a proposed settlement of the Sitzer-Burnett class-action lawsuit that’s been in progress since last year, and I’d like to give you some inside perspective amidst all the media coverage.
Historically, a seller hired a brokerage for a certain commission, and that brokerage would essentially post a job offer to all the other brokerages in the region that said, “Bring us your buyer, and if we successfully close a sale to your buyer, we’ll pay you a portion of what we’re getting paid to sell this property.” The property and the offer of compensation to cooperating brokers would be posted in a multiple listing service (MLS) where all the participating brokers and agents could see it. This method helped sellers expose their properties to a larger pool of potential buyers. The sellers in the class-action lawsuit believe that this practice artificially protects and inflates what agents representing buyers are paid.
While the proposed settlement still requires court approval, it will change industry practice to decouple compensation negotiations for agents representing sellers from compensation negotiations for agents representing buyers. There are three key changes coming: 1) Before showing a property, an agent will be required to have a signed buyer-representation agreement that confirms how much the buyer will pay their agent. 2) Cooperative broker/agent compensation will no longer be advertised on the MLS. Sellers could still decide to specifically offer cooperative compensation, and it could be advertised outside the MLS. Sellers could also still offer a concession to buyers in the MLS, which could be used to pay the buyer’s agent. 3) Agents must disclose in listing agreements, buyer representation agreements, and pre-closing disclosures that broker commissions are not set by law and are fully negotiable.
I have always used buyer representation agreements because it always seemed properly professional to be hired officially before doing a job. I believe the changes resulting from the settlement will create healthy transparency and encourage everyone to approach the buyer agency relationship with greater professionalism.
