A court case against the National Association of Realtors (NAR) recently resulted in a $418 million settlement. As part of that settlement, individuals and businesses involved in real estate transactions were required to make significant changes in commission practices. Those changes went into effect on August 1, 2024, in Arizona and on August 17, 2024, nationally. For more information about these changes and how they potentially affect your real estate transaction, contact the best real estate attorney in Arizona at Provident Law®.
Historical Real Estate Commission Practices in Real Estate Transactions
Since the 1990s, sellers of homes have used the real estate commission that they traditionally paid their agents and split it equally to compensate both the buyer and seller agents. In most cases, this practice did not increase the overall commission but split the total commission between the agents.
The lawsuit against NAR contained allegations that this commission practice was fixed, anticompetitive, and non-negotiable, although many real estate agents disagree with this assertion. Nonetheless, given the settlement of the lawsuit, substantial changes to the historical real estate commission structure, although unclear at this point, are inevitable. Individuals and businesses regularly involved in real estate transactions must be aware of these potential changes and how they will likely affect those transactions.
Concrete Changes to Real Estate Transactions
The NAR settlement requires some definite changes to how real estate agents do business in Arizona and nationwide. The most significant change applies to agents who use and/or list properties on a Multiple Listing Service (MLS). The MLS is a local inventory database of real estate listings in a particular geographic area that buyer and listing agents use.
Agents using the MLS must enter written agreements with buyers before showing them a home in person or virtually. However, there is no such requirement for speaking to an agent or attending an open house. These agreements must contain the following provisions:
- A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined;
- Compensation that is objective and not open-ended;
- A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and
- A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.
The settlement also changes how real estate professionals can communicate about offers to pay commissions. These offers can no longer be posted on an MLS, although sellers can offer other buyer concessions on an MLS, such as paying buyer closing costs. However, sellers can offer real estate commissions outside an MLS by communicating with their real estate agents.
Shifts in the Payment of Real Estate Commissions
The most obvious change will likely be shifts in paying commissions to real estate agents. Since buyers, in addition to sellers, may now be responsible for paying commissions.
Another potential scenario may be an increase in flat-fee real estate services. Flat fees offer consumers an alternative to percentage-based commissions, thus lending more certainty and predictability to the commission amounts. To a large degree, flat fees simplify the process.
As real estate agents vie for clients, commission costs will be increasingly negotiable, and new fee arrangements may emerge as agents try to remain competitive. The proponents of the settlement believe that healthy competition can create a more diverse market that ultimately benefits consumers.
Loss of Transparency
The historical commission payment scheme allowed buyers to see the commissions offered to their agents on an MLS and websites like Zillow. In those transactions, the commission amounts were irrelevant to the buyers, as the sellers typically paid the commission costs.
Now that sellers can no longer offer a commission amount on the MLS, buyers will have no immediate idea what commission they may have to pay their agents for any property. The buyer’s agent must contact each listing agent to determine what concessions the seller is willing to offer in a potential transaction. The buyer then can determine which properties to view, considering the potential commission costs and any concessions the seller may offer. This process is likely to slow down the real estate transaction, at least to some degree.
Contact Us for Assistance with Your Real Estate Transactions Today
Real estate transactions can easily become complex, particularly as laws continually change. You will find the best real estate attorney in Arizona at Provident Law®. Our lawyers have decades of combined legal experience representing clients in real estate transactions, and we are experienced in efficiently and economically resolving disputes that arise from those transactions. We aim to build a long-term relationship with you as we work together to proactively address and solve your most complex legal problems in real estate, commercial litigation, business law, and more. Contact a real estate lawyer today by calling (480) 388-3343 or reach out to us online to schedule a time to see what we can do for you.