centered on the assertion that NAR's Code of Ethics, MLS Handbook, and industry practices collectively fueled inflated commission structures.
Following deliberations culminating in October 2023, the plaintiffs, primarily comprising home sellers, found favor in the judiciary's ruling. A critical focal point of contention during the trial revolved around cooperative compensation, where listing brokers extend compensation offers to cooperating (buyer's) brokers. Subsequently, in March of 2024, the presiding judge rendered a decision in favor of the plaintiffs, setting the stage for a settlement agreement currently pending court approval.
Under the terms of this settlement, significant modifications to standard industry practices are imminent. Notably, the customary disclosure of listing brokers' compensation offers to buyer's brokers within MLS listings will be discontinued.
Additionally, commencing last-August, prospective homebuyers have been mandated to execute written buyer broker agreements prior to touring properties. These agreements will necessitate explicit delineation of:
1. The agreed-upon compensation for the buyer's broker,
2. Methodology for determining said compensation,
3. Source of the compensation, whether from the buyer, seller, or a combination thereof.
Crucially, the buyer/broker agreements will create a transparent ceiling for the broker compensation that has been agreed to by both the buyer and their broker.
In an age where information is readily available this agreement will add a degree of mystery and will require deeper communication prior to showing homes. Understanding the seller's stance on contribution will prove instrumental in gauging the competitiveness of listing prices relative to comparable properties. While prevailing sentiment within the industry suggests sellers will likely maintain competitive buyer's broker compensation. Scenarios where buyers will have to directly fund broker compensation lenders, with the exception of the VA, have agreed that buyer broker compensation can be included in their loan package.
Will these changes result in more buyer’s going it alone or relying on the listing broker, whose interests lay with the seller, to shepherd them through the purchase process? Time will tell. I do know that regardless of the changes, many of my clients have said they could not imagine navigating the purchasing process without professional guidance.