Brokers Help Navigate Professional Landscape after Landmark Court Case
Seemingly big changes have come to the world of real estate, as the result of a landmark case that was recently settled earlier this year. The case, Joshua Sitzer, et al. v. The National Association of Realtors (NAR), et al., began in 2019 when NAR and four corporate defendants were sued in class action lawsuits filed in Illinois, and then Missouri, alleging that home sellers were being damaged when their listing broker offered to compensate the buyers’ representative.
Essentially, this case involves plaintiffs raising questions about how commissions are paid, and the main question being addressed is why brokers representing home sellers often pay the commission of brokers representing home buyers.
“These changes have come into effect on August 17 this year,” said Broker Owner at RE/MAX Key Properties Ryan Buccola. “Cory has been on the forefront of the change at a local and state level. One of the main challenges we’ve observed is that some have been less proactive in preparing for this change.”
Managing Principal Broker Cory Bettesworth has been instrumental in making sure that brokers from RE/MAX Key Properties and beyond are well prepared for the change, citing the need to act proactively, as opposed to reacting to the change once it has already taken place. Cory is in charge of reviewing every single contract that comes through the brokerage, meaning that she plays a very important role in making sure contracts coming in and out of her office all abide by the new laws.
“When the change hit, people were either preparing proactively, or they are now reacting to the shift. The goal on our part was to make sure our agents were well prepared before the change happened, and that brokers have the correct information and proper education to have different conversations with clients, and to properly fill out contracts,” Cory said.
Discussing the shift in practice, Cory mentioned two main changes caused by the case.
“Basically, the case resulted in two main changes. When it comes to compensation for brokers, originally it would be negotiated in the listing agreement with the seller. You have compensation for the representing broker on the listing side, and the buyer side. Whatever amount that negotiation resulted in would be put into the MLS, so a buyer’s broker could see what the offer was going to be from the seller. One of the new rules with the lawsuit is that we may no longer post that,” she said.
Continuing to the other change, Cory said, “When you go to list a home, you sign a contract and you have an agreement on listing and selling your home. Normally, on the buyer’s side, there is a buyer’s representation agreement, which is a document that authorizes a licensed brokerage firm, and usually a specific broker, to represent the buyer in buying the home. This was common practice but not necessarily used across the board. Now, that buyer’s representation agreement is mandated by NAR.”
“Now, the buyer is responsible for the compensation of their representative,” said Ryan. “How that fee is paid is up for negotiation.”
Cory added that while this has been a common practice, the new mandate structures things in a way that provides more transparency, “The way we do business hasn’t changed significantly,” she said.
Continuing on this topic, Ryan mentioned how the plaintiffs in the court case in question claimed that the old way of doing things limited their ability to negotiate, and now, despite much of a broker’s actual job remaining unchanged, the new mandate does provide a clear path to who represents who, and how they are being compensated. In other words, the new changes were, in many brokerages, already being practiced. The court case essentially legally mandates common practices that were already being performed by many brokers, but not all.
In terms of how this will affect buyers, Cory briefly mentioned concern for first-time-buyers and low-income buyers but also clarified that, while checking all the contracts that come through her office, she noticed that “around 99 percent” of sellers are still willing to move forward with contracts, given the new laws surrounding compensation.
To illustrate this change in the real world, Ryan gave a hypothetical, “Say I’m a buyer’s representative, and the buyer says to me, ‘Here are six houses I’d like to look at.’ I would then call and ask those six seller’s brokers whether or not they are offering compensation for the buyer’s representative. Let’s say three say yes and three say no. From there, it makes sense that the buyer is going to consider the properties where they won’t have to compensate their representative out of their own pockets.”
Changes like these will likely continue to hit the industry, as time goes on and practices continue to grow and evolve. However, with a skilled team like the one at RE/MAX Key Properties, buyers and sellers can rest easy knowing that knowledgeable professionals are taking proactive action to stay ahead of changes and make sure that the process of buying or selling a home goes as smoothly as possible.
