Real Estate Commission – It’s a Whole New World… Maybe

In 2019, Scott and Rhonda Burnett started a class action lawsuit in Missouri. They sued the National Association of Realtors (NAR) and a handful of the nation’s largest real estate brokerage operations. The Burnetts claimed action, policies and procedures of the defendants violated antitrust laws by anti-competitive practices under which commissions were almost uniform across the country and were paid by Sellers artificially inflating the price of homes.  

The Burnetts also claimed buyers had no control over commission levels and indirectly paid them as they were baked into the sales price. Plaintiffs claimed the result was home sale prices and commission rates were too high and agents working with buyers were paid too much. 

The Burnetts won. As the losers pursued an appeal, the parties negotiated a settlement with terms that became effective August 17, 2024. The settlement agreement is 108 pages long. It only applies to residential real estate sales. Many feel it will completely change the United States residential real estate sales industry. But maybe it won’t. 

A big part of the Burnett case was claim that listing brokers offering commissions to selling brokers through a Multiple Listing Service (MLS) was anticompetitive. It was argued buyers thought the services of a buyer broker were free, without considering seller payment of commissionmay have increased the selling price. The Burnetts argued that meant the buyer was effectively paying the buyer broker but had no control over the amount of payment. 

The settlement agreement addresses the MLS issue by prohibiting a listing broker from offering compensation to a selling broker through the MLS. Alisting broker can still compensate a selling broker but cannot publish the offer or amount through MLS. The listing broker can offer compensation to a selling broker on its website, in an advertisement or in other ways. It just cannot be in an MLS. That means, selling brokers can still be paid by listing brokers but have to look outside of MLS to find if and how much compensation is offered. 

An offer of compensation from a listing broker to a selling broker will not be automatic. The settlement agreement requires a listing broker advise the seller in writing that commissions are not set by law and are negotiable. The seller must also be given the option of offering compensation to a selling broker or allowing the listing broker to pay part of its compensation to the selling broker. 

How will a selling broker get paid? The agreement addresses brokers working with buyers by requiring every Realtor get a signed compensation agreement with a buyer before touring a home with the buyer. The agreement must state the amount of compensation paid by the buyer to the broker. Compensation to the buyer’s broker cannot exceed the amount in that agreement, even if the listing broker offers more. 

Requiring a broker to have a signed agreement with a buyer under which the buyer pays compensation does not mean the buyer will be writing the broker a check. The buyer’s broker can still be paid compensation by the listing broker and if that compensation is equal to the agreement with the buyer, the buyer will not pay out-of-pocket anything. Alternatively, the settlement agreement allows sellers to offer concessions to buyers, which the buyer can use to pay closing costs and pre-paids or apply toward any amount the buyer has agreed to pay the buyer’s broker. 

Some sellers have already heard about the Burnett case and are telling listing brokers they refuseto pay concessions to a buyer or to authorize the listing broker to pay anything to a buyer’s broker. That may be shortsighted. Buyers may tell their agents not to show them any property for which the listing broker has not been authorized to pay the buyer’s broker at least what the buyer has agreed to pay. Most buyers do not want to go out-of-pocket. 

Does that mean buyers will refuse to deal with those sellers refusing to allow payment to a buyer broker or concessions direct to a buyer? Not necessarily, because the parties can still negotiate concessions from the seller or even a direct payment from a seller to a buyer’s broker. Buyers in those cases may make an offer contingent on the seller agreeing to a concession or payment to  the buyer’s broker. 

All these changes became effective August 17, 2024, but many were implemented sooner. So far, buyers are almost always limiting their agreements with buyer brokers to require seller pay buyer or buyer’s broker an amount equal to what the buyer has agreed and credit that toward what the buyer would otherwise owe. 

Perhaps the biggest complication is lender financing. A buyer paying a real estate commission is something new. Many lenders will allow a buyer to pay a buyer broker but will not allow the buyer to roll that into the mortgage. Lenders also limit allowable seller concessions. 

FHA caps seller contributions to a buyer at 6%. Fannie Mae and Freddie Mac will allow 3%. If the seller is going to give the buyer a concession for closing costs and repairs and also for the buyer’s broker compensation, the cap may be exceeded. One of NAR’s concerns in the lawsuit was that buyers requiring lender financing would be detrimentally affected by a requirement that buyers pay their brokers separately. That may be proven true. 

Buyers paying buyer brokers is a whole new world. Buyers getting sellers to pay instead, not so much. The Burnett lawsuit and the settlement agreement will change the way business is done, but only time will tell if it is really beneficial to anyone.