A “Guilty” verdict has been reached in the Sitzer/Burnett case regarding the cooperative compensation rule. This rule mandates that listing brokers must offer compensation to a buyer’s broker in order to submit a listing to the MLS. The jury determined that the conspiracy aimed to raise, inflate, or stabilize broker commission rates paid by home sellers.
Major players in the real estate industry, including NAR, Keller Williams, Anywhere (formerly Realogy), Re/Max, and HomeServices of America, as well as their affiliates, HSF and BHH, were implicated in the case. The lawsuit has spanned 4.5 years to reach this point, and an appeal is anticipated. Resolving this issue will likely take several more years.
Irrespective of the impending appeal, several brokerages have already implemented changes for their affiliated agents. For instance, Anywhere will prohibit company-owned brokerages and their agents from claiming that buyer agent services are free. Furthermore, Washington and Oregon are set to implement new disclosure laws and forms starting on January 1, 2024.
The ramifications of the Sitzer/Burnett ruling could adversely affect buyers, potentially making it more challenging for them to become homeowners. One of the significant hurdles to homeownership is providing a downpayment. If buyers also must cover their agents’ commissions, this could further elevate the barrier, especially for first-time buyers, making it more difficult for them to take the leap. Consequently, more buyers might enter the market without professional representation, potentially putting their interests and the buying process at risk.
Changes are on the horizon for the industry, but the full extent of these changes remains uncertain. It remains legally permissible for a seller’s agent to offer buyer broker compensation, and this will likely continue to be seen as a fundamental tactic to facilitate home sales. While some sellers may choose to pay a commission that covers only their agents’ services, others may opt to cover the buyer broker’s services as well.
In cases where buyers opt to purchase a home where a buyer’s agent commission is not being offered, they would need to pay their agent’s commission out of pocket or come to some sort of compensation agreement with their agent. Alternatively, buyers could include the agent’s commission as part of their negotiation with the sellers.
A pool of buyers today opt to purchase without agent representation, and this trend may increase. This situation often puts additional strain on the listing agent. This scenario could be addressed through upfront disclosure and representation agreements with the seller and during negotiations with the buyer. Additionally, new technology-savvy companies may enter the market, offering alternative methods for buyers and selling properties.
Anticipate more changes in buyer-broker agreements and increased discussions about disclosure. Updating the service agreement offers several advantages. It provides a platform for meaningful discussions and negotiations between the consumer and brokers, allowing them to define the scope of services and compensation structure. This opens up opportunities to address how the buyer’s broker can be compensated, whether by the buyer, the seller, or a combination of both.
What does this mean for relocation? Corporations will need to review their benefit packages to determine whether they will provide buyer broker compensation when offering home purchase benefits. If buyer broker compensation is approved, the reimbursement will be taxable, just as all closing cost reimbursements are taxable today.
Literally minutes after the Sitzer/Burnett guilty verdict, the plaintiff’s attorney filed another class-action lawsuit in which NAR, Compass, Douglas Elliman, eXp, Redfin, Weichert Realtors, United Real Estate, and Howard Hanna Real Estate Services were named as defendants. This suit is much like the Sitzer/Burnett case, alleging that brokerages conspired to force sellers to pay buyers’ brokers, inflating commissions. More changes are coming.
Industries are constantly evolving, and increased disclosure and choice are positive developments. There is immense potential for brokers and buyers to devise creative options to agree on service and compensation terms that align with each party’s needs.
For more information please contact:
Kathy Denning, CRP
Head of Real Estate Services