"This is going to basically facilitate a better conversation going forward (…) to the forefront where it’s going to be explained.”
- Steve Medeiros
By Ed Stannard | estannard@courant.com | Hartford Courant
UPDATED: August 19, 2024 at 11:51 a.m.
A significant change in business practices hit the real estate industry on Aug. 17, and while how it will affect buyers and sellers may not really be fully known for a while, some things are clear, say Connecticut Realtors.
The result of a settlement agreed to by the National Association of Realtors will bring two definite changes: No longer will sellers’ agents’ commissions be listed in the Multiple Listing Service, and buyers will be required to sign an agreement with their agents.
However, “That’s something we’ve been doing in Connecticut for a long time,” Joanne Breen of ERA HART Sargis-Breen in Newington said of the buyer’s agreement. “So the biggest change is that we can’t put the offer of compensation in the MLS anymore.”
“In Connecticut, there really isn’t any major change, because we’ve had buyer brokerage, or buyer representation, whatever you want to call it, for many, many years,” said John Zubretsky Jr. of Century 21 AllPoints Realty in Wethersfield.
“So as far as that goes, a buyer signs with you just like the seller would sign a listing with you, and you say, this is for residential properties in Connecticut, and they agree for a period of time,” he said.
“It could be a day, it could be a specific property, it could be a week or a month,” he said. “Generally, most people try to do a minimum of 90 days, although in this market, that’s probably too short, and it asks for a fee. The fees are negotiable.”
More discussions needed
What the change in the MLS listing also means is that sellers and buyers are going to have to have more in-depth discussions with their agents about compensation, say local agents.
“What I feel this is doing is, this is catching up the buyer side of things to where the listing side is,” said Steve Medeiros, New England regional vice president for the National Association of Realtors. “You go to list your house, you sign an agreement. You agree to pay the person you’re working with to work for a certain amount of time to help you sell your property.
“On the other side of it there was people using buyer agreements. … And I think now everyone’s going to be on the same playing field, which I think is just going to bring more clarity for consumers and allow them to understand the process,” he said.
“And I think the process is going to be people are going to be explaining it a little bit better now, which I think will, again, just be better for the consumers, and I think agents as well,” he said.
Previously, the way compensation often, but not always, was determined, was that the seller’s agent received a percentage of the selling price, often 5% or 6%, which the agent shared with the buyer’s agent.
Medeiros emphasized, however, that that was not universal.
“Commissions have always been negotiable,” he said. “Whether or not people chose to negotiate or how they chose to compensate was always a negotiable thing. And I think this is going to basically facilitate a better conversation going forward on this, because it’s going to bring this conversation to the forefront where it’s going to be explained.”
Lawsuit charged antitrust violation
The lawsuit, filed in April 2019 by a group of Missouri home sellers, ended in the Realtors association agreeing to a settlement of $418 million and to change its MLS rules. A federal court still needs to approve the deal.
The lawsuit had claimed that Realtors had violated antitrust laws by forcing sellers’ agents to offer payment to buyers’ agents and essentially setting an industry-wide commission.
“I think it’s going to be more transparent now. That’s the good thing that’s come out of this,” said Breen, past New England regional vice president for the Realtors.
“This is going to require us as professionals to sit with our sellers and be much more transparent about what their options are,” she said. “It’s always been there. It’s always been negotiable. It’s always been optional. But I don’t know that the seller was always informed.”
Among the seller’s options is not to pay the buyer’s agent at all, in which case the seller would pay a smaller commission to their agent. “Or you could still authorize me to share my commission with the buyer broker,” Breen said. “So I think the change is that this will require a longer conversation with sellers, so they’re very clear on all their options, and then they have to decide what’s best for them.”
She said it is not true, as some news reports have implied, that sellers will not be able to offer compensation to buyers’ agents.
On the other side is the buyer’s agreement which, besides authorizing the agent to seek a property in a specific geographic area and for how long a time, “what the agreements say in them is that the buyer is authorizing me to seek my payment from the seller or the seller’s broker, but in the event that they are not paying me, the buyer is obligated for the amount that’s in that agreement,” Breen said.
Connecticut has been transparent
Before the change, it was usually clear how much the buyer’s agent would be paid by the seller. Now, the buyer and their agent will need to discuss compensation if the seller does not want to share the seller’s commission, Breen said.
“The (buyer’s) agent is going to have to reach out to the listing agent and ask, is there any kind of compensation being offered?” Breen said. “If there isn’t, then it’s very important — and it always was this way — you have to go back to the buyer and say, either they’re not offering me anything, or they’re offering something that’s not equal to what our agreement has.”
In the latter case, she said, the buyer and their agent are going to have to decide how to make up the difference.
“Those are conversations we should have always been having with our buyers up front before even looking at a property,” Breen said. “(It’s) more important now than ever that that’s a very clear conversation, and there’s a plan on how it will get done.
“In Connecticut … we’ve been very transparent,” she said. “All of our contract forms for decades have stated that all commissions are negotiable, that no commissions are set or standard. This has always been the way we’ve done business, but now, I think, more than ever, we’re emphasizing that even more.
“We’ve updated our forms to make it even more clear, to make sure that everyone knows that they have different options,” she said. “There are different ways the buyer agent can be paid. There are different ways that the seller can pay the buyer broker commission should they choose to. So I think that’s the good thing about it for both sides.”
Breen said she’s always thought, as a seller’s agent, that offering to share the commission was the best way to go.
“I’ve always offered a commission to the buyer brokers, because I’ve always felt personally that that opens my home up to the largest pool of buyers,” she said. “You could have a very qualified buyer who can get a mortgage, has the down payment, has the money set aside for closing costs, but doesn’t have any additional cash to pay their (broker).”
First-time buyers may have issue
The issue is especially acute for entry-level and first-time buyers, Breen said, because while there are programs for low or no down payments and ways to get seller concessions to pay closing costs, there is no way to include the commission into the mortgage.
“If they could do that, that would be very helpful, but there’s no way to do that right now,” she said. “So I am concerned.
“What I don’t want to see is buyers feeling like, I just better go to the listing agent and say, I don’t need to be represented because I can’t afford to be represented,” Breen said. “That’s my fear moving forward. I don’t want to see that happening to the consumer. It isn’t good for anybody. I don’t even think it’s good for the seller … because they’re a trusted adviser that benefits everybody.”
Jeff Bodeau of William Raveis Real Estate in Glastonbury agreed that the new rules will open up the conversation and that some sellers might decide not to offer the buyer’s agent part of their agent’s commission.
“If a seller is offering a co-broke it would pretty much stay the same (percentage),” Bodeau said. “If you are not offering a co-broke, the listing commission could be just 3%, and now you could say to the seller, well, I’m saving you 3% by not offering a co-broke.
“What it really does is it just opens up the conversation, because some people understand the value of offering a co-broke,” he said. “Some people look at it and say, I’m going to save on a co-broke, so I’ll put that money in my pocket. But these are all very good conversations now that we’re having with our clients, as far as sellers.”
No share could hurt sellers
Bodeau said it could come back to bite the sellers who are unwilling to offer to share the commission.
“By not offering a co-broke, I am going to limit the number of buyers that I have coming to my property,” he said. “For buyers buying a $500,000 house, and they have to come up with 2.5%, that buyer now has to come up with an additional $12,500. So some buyers are not going to want to see a property that are not offering the co-broke because they either don’t have or don’t want to come up with that buyer compensation.”
Since the seller’s agent’s commission won’t be listed in the Multiple Listing Service, the buyer’s agent will have to contact the seller’s agent to ask if the commission will be shared. If not, the buyer will have to decide whether to pay their agent themselves.
If they have to come up with a commission, those first-time buyers may be priced out of the market, Bodeau said, agreeing with Breen.
“I think what it’s going to do, from a buyer standpoint, it’s going to make it even more difficult for those typically in the lower price point to be able to buy a house, and it’s going to further push them out of the market,” he said.
“Because people buying 1-2-3, maybe even $400,000 houses typically don’t have the funds, right? They’re stretching in order to buy the house as it is, right up to their debt ratio. So they may not have the funds in order to do that. So I think it’s going to further push those people out of the market,” he said.
“I think that in Connecticut, the major portion of the fee is still going to be paid by the seller,” Zubretsky said. “In some rare cases, I’d say very, very few cases, the seller will say, I don’t want to pay anything. And that might be a property that’s destined to sell for cash, and the buyer’s got a million cash, and they don’t mind paying an extra $20,000 or $30,000 to their agent to get the property.
“So here’s another curveball,” Zubretsky said. “If I said to my seller, this guy’s offering $300,000 but he wants a fee, and the seller says, I don’t want to pay, I said, OK, he pays $320,000 will you give him $20,000? they’d say, Sure. Why not? It’s all about the net for the seller.
“So the hybrid form of payment, I think, is going to be somewhat common, all paid by the seller, probably a little more common and paid by the buyer, very few,” he said.
Possible ethics complaints
Bodeau, who has been on the Greater Hartford Association of Realtors’ ethics committee, said, “A buyer’s agent has an ethical obligation to show that property to the buyer, regardless of broker compensation, unless the buyer backed out and says, I don’t want to see those, and I think it’s going to open up a whole lot of ethics complaints over the next six, eight months, to a year, to two years because of this.”
The reason is the buyer’s agent may try to avoid showing properties that don’t promise a shared commission.
“I think you’re going to get a lot of ethics complaints from the buyers, because it’ll be, ‘Why didn’t you show this to me?’ Bodeau said. “Well, because they’re not offering a co-broke or No, you don’t want to see that, and the buyer’s broker agent is trying to talk them out of it. So because of this, buyer’s agent wanting the commission versus advocating for their client. So I think you’re going to see a lot more of those happening.”
Zubretsky said he doesn’t believe in some predictions that commissions will drop.
“I don’t think it’s going to do what the agencies thought it was going to do, which would be lower brokerage fees, because they think we’re overpaid,” he said. “I think it’s going to be the same. In some cases, it could even be more. For example: $500,000 house. They’re offering me 2.5%. Back in the day, people say, I’ll just take the 2.5. Now it’s like, I’m going to collect the other half with my buyer.
“So in essence, can fees fall? In some cases, they will. Overall, I think they’re going to stay within millimeters of where they are now,” he said.
Zubretsky said the lack of a commission listed in the MLS will make more work for buyers’ agents.
“If I’m showing 10 houses today and the buyer’s interested in three of them, I’ve got to call all three brokers and say, are they offering a fee? How much? Mark it down, because they’re all going to be different. And have that consult with my buyer: On this house, you’re going to pay this, on this house, you’re going to pay that. So a little more confusing.
“The head spinning is definitely there, there’s no question.”
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