Champaign County Realtors discuss national group's pending settlement on commissions

Apr. 19—CHAMPAIGN — A pending settlement could affect negotiations between homebuyers, sellers and their respective agents.

The National Association of Realtors is awaiting court review of a proposed settlement for a lawsuit brought by sellers over commissions.

If approved, the agreement will have impacts not just for the national association, but also its local affiliates.

"I've been doing this for 40 years, and nothing has ever stayed the same in real estate over those 40 years," said Jim Waller, president of the Champaign County Association of Realtors. "We're always dealing with changes. Not too long ago, they were wanting us to advertise what we pay buyers' agents, and now, all of a sudden, we're going to go to the opposite."

The local group is a member of Illinois Realtors, which is a member of the national association, he said.

Sonia Gilbukh, an assistant professor of real estate at Baruch College in New York, said the lawsuit was filed because sellers felt that commissions were "artificially inflated" due to the way they are typically paid out.

"In the current system, when a seller signs an agreement with their agent to list a house, they agree on the total commission, which is (typically) 6 percent," she said. "That commission is given away no matter what."

Typically, half of the commission, or 3 percent, goes to the agent who brings the buyer to the table, and this information is listed on the multiple listing service, she said. If the buyer has no agent, the listing agent keeps the entire commission.

Gilbukh said these amounts are "in theory negotiable," but sellers felt like there was no room to negotiate, because their agents said the above amounts were an industry standard.

The national association has said that suggestions by recent media coverage that it requires a standard 6 percent commission are false, saying the national group "does not set commissions — they are negotiable."

"The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation," officials said. "That offer can be any amount, including zero. And other rules throughout the MLS Handbook and NAR policy expressly prohibit MLSs, associations and brokers from setting or suggesting any such amount that should be included in that field."

According to the national group, there are a few different pieces to the proposed settlement. Firstly, it would implement a new rule stating that offers of compensation cannot be listed on the multiple listing service. However, consumers can still negotiate these terms with real-estate professionals outside of that service.

The association has also agreed to require MLS participants who work with buyers to enter into written agreements with their clients, which it said it has been a proponent of for years.

"My company's been doing that for over a year now," Waller said. "But they would all have to have a new form where buyers would have to sign and understand they potentially could be paying for part of that commission. So you have to give what your value is and why they would want to work with you and be willing to pay money for your services."

Both of these changes would go into effect in mid-July. Additionally, the national association would pay $418 million over a period of about four years.

In return, the national group and its over 1 million members, all state and local groups, all listing services owned by the association, and all brokerages whose principal is a member of the group and whose residential transaction volume in 2022 was $2 billion or less would be released from liability for these types of claims, officials said.

The association expects the court's review of the proposal to take several months or more.

The group denies any wrongdoing and argues that offers of compensation "help make professional representation more accessible, decrease costs for homebuyers to secure these services, increase fair-housing opportunities, and increase the potential buyer pool for sellers."

However, Gilbukh said the change will keep buyer agents from using the multiple listing service to "steer their search efforts toward a higher compensation commission."

She also noted that it's likely that under the change, buyers will have to pay their own agent and negotiate the commission.

"It could be that the commission is still kind of folded into the price, but it becomes sort of part of the offer," she added.

For instance, if the seller does not offer a commission to the buyer agent, the buyer might offer to pay more for the house on the condition that this extra amount is paid to their agent.

Gilbukh also expects that the proposed changes will make the field more competitive and weed out part-time or inexperienced agents, as it would be difficult for them to argue that they deserve the same commission as someone with more experience.

Waller said the settlement's main impact for the average person is they would hopefully be "better educated on how to buy a home and sell a home."