Many people don’t understand how Realtors are paid. Honestly, I can’t blame them. There are so many ins and outs that it can be hard to figure — but the bottom line, as a rule, is Realtors only get paid when a property sells.
There are no benefits. No retirement plans. No health care or even meaningful group reductions in costs. And it’s always been this way.
In return, agents are “free agents,” which means free to go to whatever company they choose.
So all the time and money spent to show properties is out of an agent’s pocket, with the hope that, if the job is done well, there’s a payday at the end.
In addition, agents who work for brokers give up a significant percentage of each commission to the company. What do they get in return?
Some companies do great marketing of their agents’ listings. But others don’t, and expect the agents to pay for advertising.
I’ve worked for a company that designed the ads, but still made the agents pay for placing them. I’ve worked for companies that emphasized advertising its own brand, and left agents to pay for advertising their listings.
And I’ve worked for companies that did slick, professional, effective ads for every listing. When I went into business for myself, I modeled my company on that experience.
What most companies offer is a brand, a website, and training for those who need it (though often there’s a charge for that, too).
It’s a pretty archaic formula and I’ve often thought it was unsustainable.
But who pays the commission at closing? Up until now, pretty uniformly, it was the seller of a property.
The buyer is paying for the house, and their lawyer, and whatever taxes or mortgage fees there are.
The seller pays their own attorney, whatever taxes they might be liable for, and, generally, six percent of the sale price to the agents.
If the buyer agent and seller agent are not the same person, that six percent is split evenly between the two (also not always, but usually).
Some brokers charge more, some less, and some offer a smaller split to a buyer broker. But whatever the amount, it comes out of the seller’s profits.
That is now being successfully challenged.
Two settlements have just been announced - one with Anywhere Real Estate, which I’ve never heard of, and one with RE/MAX - which everyone’s heard of.
Anywhere has agreed to pay $83.5 M to settle a lawsuit that argues that MLS rules requiring Realtors to offer compensation to buyer brokers when they list a property is a violation of the Sherman Anti-Trust Act. The argument is that it inflates seller costs.
RE/MAX has also just agreed to pay $55M to settle a similar suit, though without admitting any wrongdoing.
The National Association of Realtors (NAR), HomeServices, and Keller Williams are still named in these suits, there have been no settlements announced, and the cases are moving ahead.
The RE/MAX and Anywhere settlements signal changes ahead. And though it all still may seem confusing (and it is!) the core of the argument is that the NAR is the one requiring listing agents to compensate buyer agents if they list on an NAR-affiliated multiple listing service (which is most of them).
What is the NAR? It’s the professional organization that sets rules, requirements, standards, and practises for the industry as a whole. States also regulate the industry, as does the federal government, but the NAR sets professional standards, supposedly advocates for members, and lobbies government for industry-friendly laws. If you want to be a real estate agent, being part of the NAR is a requirement to participate in most local multiple listing services.
So, these lawsuits are going to challenge the way the NAR has required us to do business. And it’s going to be interesting to see what results.
For now, sellers will be responsible for paying both the buyer’s agent and their listing agent. And I wonder what impact an additional three percent cost will do to buyers’ budgets if that becomes the norm.