We have been following several national Court rulings concerning compensation paid to buyer’s real estate agents. A significant Federal Court ruling involved the National Association of Realtors, owner of the powerful “Realtor” trademark. The case found that a seller should not be required to pay the buyer’s agent’s commission as a condition to having the property listed on Multiple Listing Service (“MLS”). Similar cases in other jurisdictions have followed. Of course, a seller could avoid this situation altogether by not even having a seller’s agent.
It had been customary practice for the seller to list her property with a real estate agent affiliated with a real estate brokerage, the “seller’s agent.” The seller’s agent would enter the listing on MLS, making the property more readily known to buyers and their agents, the “buyer’s agent.” Without MLS, many properties may not have been located by potential buyers. The seller would pay a commission in the range of 5%-6% of the sales price at the closing. When a buyer’s agent was also part of the transaction, the commission would be divided between the seller’s and buyer’s agents.
Sellers in the lawsuits challenged the requirement to also compensate the buyer’s agent, when the seller engaged its own agent, and resented the requirement to pay the buyer’s agent as a condition to having their property listed on MLS. They suggested that commissions were inflated to allow for the buyer’s agent to also be compensated.
The result of these cases may be that sellers will not be required to pay buyer’s agents and that such buyer’s agents will have more flexibility in negotiating their rate. As we enter the Spring market, buyers may decide to forego the use of a buyer’s agent, to negotiate a flat fee to be paid to the buyer’s agent or pay the standard historical commission rate (whether by requesting that the seller pay the commission or the buyer pays the commission). Commission rates paid to buyer’s agents may also reflect the real estate agent’s relative experience and competence. It may not be surprising to find that those listings that do not adequately compensate the buyer’s agent may not be shown as often to potential buyers, making it more difficult for thrifty sellers to sell their property as readily.
Some people argue that sales prices may be reduced if the seller does not also need to pay the buyer’s agent. However, costs to buyers may increase if they will also need to compensate the buyer’s agent. As a result, buyers may forego the use of a real estate agent and the benefits that they provide to buyers. Seller’s agents usually merely want to make the sale, while a buyer’s agent will also search for properties that satisfy specific buyer requirements and are concerned with a buyer’s long term happiness with the property.
As of January 1, 2024, the Real Estate Board of New York (“REBNY”), the trade organization governing New York City real estate, enacted a decoupling policy with respect to real estate commissions. The seller is to make compensation offers directly to the buyer’s agent, rather than through the seller’s agent. The brokerage of the seller’s agent cannot pay the buyer’s agent’s brokerage. The listing agreement will identify the specifics of the buyer’s agent compensation.
The application of these Court cases, after appeals are exhausted, as they may apply to the New York metropolitan region in particular remains to be determined. We will continue to monitor developments as to the modification of buyer’s agent’s commissions and advise our readers of additional updates.