Much has been said, published, and televised about the recent Department of Justice (DOJ) filings
and agreements affecting the real estate industry. Unfortunately, much of the public discussion
has been incorrect or misleading. Let’s put the matter into basic, true and relevant terms.
It can be construed as positive once systems and the public absorb the change of practices.
Be aware, things are fluid and always changing. Some state laws may vary so the best practice is to have the conversation with
your broker/agent ahead of time about commission structure, amount, and distribution at the onset of the relationship.
It will and can vary from Broker to Broker.
Let’s Begin
The Way It Was: Cooperation and Shared Compensation
Prior to August 2024, real estate agents who were members of a Multiple Listing Service (MLS) would often
share compensation based on the executed listing agreement between the seller and the listing agent/broker.
As part of listing a property in the MLS, the listing agent would post the amount of compensation being offered
to the buyer’s agent. This amount would vary depending on the agreement between the Brokerage and the Seller(s).
It’s important to understand that the amount of compensation was not delineated or mandated by the rules and regulations of any organization.
Some may say, as opinion, that it was a product of market expectations, professional standards, courtesies and ethics.
Agents were required to cooperate with one another to facilitate sales, and offer some type of compensation through this system.
in accordance with rules of ethics by the National Association of Realtors (NAR). The “settlement” as it is referred,
cited the Sherman Anti-Trust law accusing certain agencies/organizations of conspiring to ‘Price-fix” commissions by the DOJ (Dept. of Justice).
This settlement only pertained to the country’s MLS’ that were owned by an association or decided to “opt-in” to the agreement.
ALL MLS’s are not the same! Different Multiple Listing Offices have different ownership, rules and regulations.
Some are more affiliated with the National Association of Realtors more than others. They vary from state to state and region to region.
What Has Changed: Written Agreements and Clearer Roles
Under the new structure, commissions are no longer published in the MLS.
Buyer’s agents are now required to have a fully executed Buyer’s Broker Agreement before working with a client.
Fantastic! That puts the Buyer and Broker in alignment about how to approach the market
and set realistic expectations and representation guidelines from the very beginning. This mandate — that agents must cooperate
but not necessarily compensate — is a favorable development for all concerned. It reinforces what was always
considered best practice: from the onset, professional real estate agents should establish their relationship
with a buyer through clear agreements and contracts, outlining expectations, agency roles,
fiduciary duties, and compensation strategies.
What Buyers Need to Know
If you are a buyer today, you should expect:
- A clearly defined agency relationship with your agent.
- A written agreement that explains your representation and mutual obligations.
- A defined strategy for how your agent will be compensated
The Realtor should prepare the buyer(s) for the potential of being responsible for the buyer’s broker commission and how that will be executed.
The compensation for a buyer’s agent may now need to be paid directly by the buyer,
negotiated with the seller, added to the transaction and addressed in the terms of the offer.
The caveat is -this shift creates a potential hurdle for buyers with marginal cash reserves —
especially first-time homebuyers and entry level buyers. They may now need to account for the
buyer’s broker fee in addition to down payment, closing costs, inspections and other transaction
expenses.
The Real Risk: Disadvantaged Buyers
Without changes from secondary mortgage markets to allow the buyer’s broker fee to be
financed as part of the transaction — such as by allowing it to be treated as a closing cost —
some buyers may be denied access to professional representation purely due to their inability to
pay cash for brokerage services.
This outcome could worsen the existing homeownership gap for lower-income and first-time
buyers, putting them at a significant disadvantage during one of the most important financial
transactions of their lives.
Understanding Agent Compensation
Real estate agents and brokers charge fees for professional services. These fees compensate not
only for time and expertise but also for substantial overhead costs, including:
• Mandatory insurance policies
• Vehicles and travel expenses
• Advertising, websites, and SEO efforts
• Professional photography, videography, and virtual tours
• Brokerage fees, licensing dues, and franchise costs, technology tools
Importantly, agents only earn payment if a property closes. If a property does not sell, the
agent/brokerage absorbs the marketing and operational costs individually, at a loss.
Additionally, many agents must share a significant portion of their gross commission with their
brokerage, covering office space, administrative services, and brand franchise fees, etc.
Entertainment vs. Reality
Popular television shows glamorize real estate with luxury listings, high-end cars, and six-figure
commissions. While entertaining, these portrayals are far from the reality of most real estate
transactions, where the stakes are high, margins are tight, stress is high, and the work is demanding.
In Conclusion
The restructuring of commission practices in real estate industry should bring necessary clarity
and professionalism to agent-client relationships. It should benefit everyone once the change is accepted and the details are perfected.
At the moment it stands to introduces a serious risk of limiting access to representation for buyers with limited financial resources.
Proposing the secondary mortgage markets should also make adjustments to allow commissions to be an approved closing
cost, part of transaction costs, so that buyers who want representation with low cash can finance the charge.
If not, many buyers who need representation the most may find themselves without critical professional
guidance.
Real estate professionals perform valuable work under a compensation model that already carries
significant risk and cost. As these changes unfold, it is crucial for the industry and policymakers
to protect equitable access to homeownership while ensuring professional standards are upheld.
Change is a constant and usually positive. If the details are addressed properly, the process refined to better help people achieve the American dream of
homeownership.
