Proposed Settlement

It has been in the news for months. The National Association of Realtors was sued and they lost. We are slowly finding out about changes to how houses will be bought and sold if the settlement is approved by the courts.

Since real estate is local Minnesota Realtors® is in the process of updating some of our contracts. In Minnesota we have been using buyer representation contracts for decades. For Realtors® in other states that is new.

The changes home buyer’s may see is that instead of the seller paying all of the commissions the buyer may be asked to pay their own agent. Generally there are some work arounds like asking the seller to make a concession. Sometimes seller concessions are used for down payments. It is a way of financing down payments.

There is a lot in the media about how this will bring home prices down. It really won’t because as we all know supply and demand drive prices up or down. Many of the buyers I have worked with over the years would not have been able to have enough money for closing costs, a down payment and a Realtor® commission. It is possible that buyer’s will stop working with buyer’s agents and go directly to the seller’s agent which will mean lower commissions but it will also lead to more dual agency.

I am not sure anything has changed for Minnesota home sellers other than the fact that if their agent tells them they need to pay X amount to the buyer’s agent they should negotiate and if that doesn’t work they can work with me instead.

The people who profits from the work real estate agents do are likely to see a reduction in profits. For one thing some agents will end up quitting over the new rules. The web sites that show homes for sale are currently being supported by real estate agents who may not want to continue paying for buyer leads. If that happens these companies will have to find new sources of revenue which will be interesting.

I’ll be adding to this page as I learn more.

I have included the infographic below in an attempt at transparency. It is possible that consumers do not know that when an agent looks at a home for sale in the MLS (Multiple listing service – which is a database of homes for sale) we can see a field which lists the compensation that a buyer’s agent can earn by helping a buyer buy the house. This is how buyer’s agents get paid. They have been getting paid by the seller. This practice created some issues:

  1. Sellers determined how much buyer’s agents were paid.
  2. Sellers were in effect paying an agent to negotiate against their agent.
  3. Buyer’s wanted more of a say in how much their agents got paid.
  4. Some agents were skipping over homes that their client may have wanted to buy because the commission was too low.

Under the current system buyer’s agents with no experience and those who do a lousy job get paid the same as experienced agents and agents who do a fantastic job. That is because the offer of compensation in the MLS was a blanket offer which simply means any agent who works with the buyer and gets the house sold gets the commission.

Buying and selling real estate is unique. It doesn’t work the same as buying a car or a cup of coffee. Also I thin we sometimes forget that the services of a real estate agent are optional and commissions are always negotiable. Even though commissions are negotiable Realtors® do not have to negotiate and many won’t.


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