Assuming a legal settlement between the National Association of Realtors and plaintiffs in a Missouri lawsuit is approved, all Realtors representing homebuyers will need to sign contracts with their buyers. iStock illustration

Many real estate agents across the state are already altering how they interact with home buyers and sellers in the wake of the surprise decision by the National Association of Realtors to settle pending lawsuits over agent commissions.

Despite previous vows to appeal last year’s federal jury ruling against NAR and brokerages over agent compensation, the giant real-estate industry group earlier this month agreed to pay $418 million in damages to settle various lawsuits tied to agent pay.  NAR also agreed to eliminate the “participation rule” that required sell-side agents to make a set offer of compensation to buyer-side agents.

The historic settlement, which must still be approved by a federal judge, is set to take effect in July – but some local brokers say they’re already taking steps to comply with the general spirit of the agreement.

“I think what we need to do as an industry is move forward and make adjustments,” said Al Becker, president and COO of Jack Conway Real Estate, which has more than 700 agents in Massachusetts, New Hampshire and Rhode Island.

“While there will be big challenges ahead, we as a company are preparing to make changes – and we’ve already started to make changes,” he said, noting Jack Conway is currently training agents on how to specifically handle buyer-agent agreements moving forward.

NAR settlement is expected to have a widespread impact on real estate brokerages across the state and country, even if the agreement technically doesn’t apply to some firms. The influence of the 1.6 million-member trade group alone – as well as the threat of future lawsuits if a firm refuses to change the way agents are compensated – will probably be enough to sweep aside old rules and notions about commissions, local industry experts agree.

‘Not That Big of a Surprise’

For decades, buyer agents were mostly compensated by splitting the commissions paid by home sellers to their seller-agents. Those commissions usually ranged between 5 and 6 percent.

NAR had previously required seller agents to set, and advertise, the rates that buyer-agents were entitled to get.

But that arrangement, which critics claimed was a form of collusion and which proponents said protected buyers and buyer-agents, is now on legal life support.

Colleen Barry, CEO of Boston brokerage Gibson Sotheby International Realty, said the writing was on the wall for the current compensation system due to last year’s federal court ruling against NAR and some major brokerage firms, as well as to signals being sent by the U.S. Justice Department in a separate but similar legal case against New England’s MLS PIN listings service.

“You could see the changes coming,” she said. “The NAR [settlement] is not that big of a surprise in that regard.”

MLS PIN isn’t covered by NAR’s settlement because it is independently owned, but it has the option to opt-in if the deal is approved. The listings service declined to comment for this story.

Sellers Get More Power

Most brokers interviewed for this story agree that home sellers will benefit the most from anticipated changes to the compensation system. The bottom line: Sellers will no longer be footing the bill for buyer agents if they so wish.

“Sellers are in a better position,” said Anthony Panebianco, a real estate attorney at Davis Malm in Boston. “They can negotiate rates. They could remove [half] of what they now pay [in commissions].”

But it’s an entirely different matter for buyers – and their agents.

Both could still benefit if sellers agree to compensate buyers’ agents at current rates as part of a signed deal. But most agree that won’t happen often.

More than likely, buyers will have to pay their agents directly, via a set fee or some sort of commission based on a final home purchase price, industry executives agree.

“It’s going to be tricky on the buyer side” said Panebianco. “It’s going to be different for every broker, whether it’s a flat [buyer] fee or whether it’s tied to a showing, whatever.”

Some national media reports have confidently predicted that this new dynamic will lower home prices. But Anthony Lamacchia, the broker-owner and CEO of Lamacchia Realty, dismissed the idea.

“It’s really about not what we’re paid, but how we’re paid,” he said. “I don’t think commissions will fall in any dramatic way. People aren’t working for free.”

Who Wins? Who Loses?

Gibson Sotheby’s Barry said some of her agents have already started using updated buyer-agent agreements, though she didn’t give details on how those contracts work.

Barry questioned whether future compensation changes will be as jolting to the industry as some believe. She noted that the state of Maine has had buyer-agent agreements since 2007.

And she noted that the current commission system, in which sellers pay the commissions for both seller- and buyer-agents, has only been in place since 1993.

Ideally, Barry said she’d like to see a future system that clearly spells out, in every transaction, exactly “who’s paying whom and buy how much.” She expressed concern any new system may become too secretive.

Still, how buyer agents are compensated moving forward is still up in the air. “That’s a big question,” she said.

Some have privately suggested that future buyer-agent compensation could, in some way, get rolled into final mortgage deals with lenders. Such a system would take time to evolve, though, and would need buy-in from federal mortgage regulators and giant, government-owned mortgage buyers Fannie Mae and Freddie Mac.

But until then, Lamacchia said he knows one thing: Young homebuyers are going to lose out under any new system that includes them making separate payments to buyer agents.

“This is going to be hard on first-time home buyers, many of whom can barely afford down payments, let alone new out-of-wallet expenses,” said Lamacchia.

How Mass. Brokerages Are Adapting to NAR Settlement

by Jay Fitzgerald time to read: 4 min
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