In the United States a home seller typically agrees to pay a fixed commission to the agent that brings them a buyer that follows through with purchasing the home. Now there’s a lawsuit trying to change all that. Kenneth Harney from Chicago Tribune writes the following about the suit:

“The class-action suit, filed in federal district court in Chicago, focuses on a rule it says has been imposed by the National Association of Realtors [NAR]. The rule requires brokers who list sellers’ properties on local multiple listing services (MLSs) to include a “non-negotiable offer” of compensation to buyer agents. That is, once a home seller agrees in a listing to a specific split of the commission, buyers cannot later negotiate their agents’ split to a lower rate. That requirement, the suit alleges, “saddle(s) home sellers with a cost that would be borne by the buyer in a competitive market,” where buyers pay directly for the services rendered by their agents.”

I’m not sure the suit makes sense from a seller’s point of view as written. In the Bay Area’s competitive real estate markets buyers often overbid on homes. Requiring the buyer to pay their own agent’s commission would probably just result in lower offers resulting in the buyer and seller netting out about the same as before.

Where there is some logic to it is equating pay to work provided. At the moment, buyers really are not involved in how much their own agent gets paid for the services provided since it’s considered free to them. The reality is that the buyer is the one bringing the money to the party, so agent commissions are not really free to the buyer. Having the seller offer the buyer’s agent a fixed commission means they get paid the same regardless of the effort. The seller has no idea how many homes this buyer has shown his buyers, nor do really they care.

In slower markets, a buyer’s agent might get lucky and show a few homes to their clients and the first offer they write is accepted. In hot markets, an agent might look at tons of houses and write 10 offers before something is accepted. Yet, in the current system the buyer’s agent is typically paid the same commission in both scenarios. That said, these are still commission sales, an agent can spend lots of hours, gas and money trying to find a home for a client that simply changes their mind about buying a home and there is zero compensation for the agent.

It’s seems to me that this lawsuit is about 10 years too late. Part of the accusation in the suit is that agents steer buyers away from listings offering low commissions, but that argument doesn’t hold water anymore. Today, buyers often know about homes for sale as soon as their agent hears about it too. An agent can’t hide a listing from a client, but I guess they could try to poison the well by making the property appear to have non-existence issues, although I have never heard of this happening.

Curious to find out how potential home buyers will react if they have to pay commissions going forward?

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