Palo Alto Online
Real estate agents in the United States are amongst the highest paid in the world − both in terms of actual dollars and as a percentage of the sales price. Unlike other countries, such as the United Kingdom and Australia, where sellers typically pay around a 2% commission to sell a home, sellers in the United States have grown accustomed to paying significantly more, often ranging from 5% to 6%.
One major factor contributing to these high costs is agents telling sellers they have to pay a 2.5% commission to the buyer’s real estate agent, in addition to the commission for their own listing agent. A recent analysis of home sales in Palo Alto revealed that 94.9% of sellers of homes priced between $2 million and $10 million offered exactly 2.5% to the buyer’s agent.
However, this longstanding practice is now facing significant scrutiny. Recent federal lawsuits have accused the real estate industry of collusion in an effort to inflate commissions by forcing sellers to make unilateral and non-negotiable offers of compensation to the buyer’s agent for listings on the Multiple Listing Service (MLS).
In a landmark federal legal ruling with far-reaching implications, a Kansas City jury found the National Association of Realtors (NAR), HomeServices of America (including Berkshire Hathaway and Intero) and Keller Williams guilty of conspiring to inflate or artificially support high commission rates. This decision arose from the Sitzer/Burnett buyer-broker commission lawsuit. (Plaintiffs in the class action lawsuit included sellers of more than 260,000 homes in Missouri and parts of Kansas and Illinois between 2015 and 2012.) It should be noted that Anywhere Real Estate (including Coldwell Banker and Sotheby’s), RE/MAX, and Keller Williams all reached settlements paying over $200 million. Subsequent lawsuits targeting brokerages and Realtor associations in California, including Compass and eXp World Holdings, are ongoing.
This legal development marks a significant shift for sellers, as it is now clear that they do not have to offer 2.5% commission to the buyer’s agent. According to guidance from the California Association of Realtors, agents should inform sellers that they are not obligated to offer any particular amount to the buyer’s agent − or even anything at all. The amount of compensation paid, if any, is up to the seller.
Even if the seller chooses not to offer any compensation to the buyer’s agent, the home can still be showcased on the MLS, ensuring visibility on popular platforms. The MLS distributes all listings to prominent websites, such as Zillow, Trulia, Realtor.com and MLSlistings.com, as well as brokerage websites like Coldwell Banker Homes. In essence, buyers will have access to information about all homes available for sale, irrespective of whether the seller offers minimal or even no compensation to the buyer’s agent.
While some listing agents may resist this change and continue to pressure sellers to pay 2.5% to the buyer’s agent, others are engaging in transparent discussions with sellers about their options. If a listing agent is unwilling to reduce the amount offered to the buyer’s agent, then the seller should consider alternative listing agents.
It’s worth noting that some buyer’s agents may insist on inflated commissions to show certain properties. As such, it is important that listing agents continue to put all listings on the MLS and invest in a robust advertising campaign to reach all buyers. Meanwhile, buyers should continue to monitor the MLS and other advertising materials to ensure their agent is presenting them with all available properties. Again, if the buyer’s agent is not looking out for the buyer’s best interest, then the buyer may want to find a different agent.
Although many buyer’s agents are willing to prepare the offer paperwork and provide appropriate guidance for “only” $10,000 or $20,000, there may be circumstances where the agent’s long-term involvement with the buyer warrants compensation exceeding $20,000. In such instances, buyers are routinely being asked to compensate their agent with an additional amount based on the agent’s education, experience, services and time invested. Fundamentally, this makes sense in that the buyer, not the seller, is getting the benefit of the enhanced services of the buyer’s agent.
Looking ahead, this shift is expected to significantly reduce the cost of selling a home in Silicon Valley, potentially removing barriers to selling and, in turn, increasing housing inventory. Sellers can now expect total commissions as low as 2.5% to 3.5%, a notable departure from the previously common 5% to 6%.
This guest column was written by contributing writer Michael Repka. Repka, CEO and general counsel for DeLeon Realty, Palo Alto, formerly practiced real estate and tax law in Palo Alto. He formerly served on the Board of Directors of the California Association of Realtors. He can be reached at DeLeon Realty.
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After landmark court ruling, home sellers could see dramatic drop in commission fees – Palo Alto Online
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