As people may know, following years of litigation, The National Association of REALTORS® has reached a tentative settlement in a class-action lawsuit that would enact substantial changes to the way commissions are offered in marketing materials and via the Multiple Listing Service, or MLS.
How will this change your real estate sale in Newport Beach, Costa Mesa, Coastal Orange County or elsewhere? That remains to be seen.
The legal settlement does not change commissions, which have always been negotiable, and will remain negotiable, but it will change the way commissions are advertised to the public, as well as to other REALTORS®, and, in some cases, may cause buyers to pay REALTOR® commissions directly (vs. being paid out of escrow or from the seller’s proceeds).
How this will pan out in our local Newport Beach and Orange County transactions remains to be seen, with certainly the opportunity for some buyers and sellers to continue without change, while some sellers may seek to have buyers pay their own REALTOR® directly, thus potentially increasing the cost of homeownership and the cash that a buyer needs at the outset, with potential negative impacts on the sale of the home.
One thing remains true – the commission structure is, and will remain, completely negotiable. This lawsuit settlement is simply highlighting the issue more than ever before.
NAR issued the following press release recently to clarify a common misconception regarding commissions and fees:
Correcting the Record: NAR Does Not Set Commissions
Following recent inaccuracies in media coverage, including the false representation or suggestion that the National Association of REALTORS® (NAR) requires a standard 6% commission, NAR has issued the following statement:
The National Association of REALTORS® (NAR) 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. 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. The text of the current rule is linked here and excerpted below, the text of our MLS Antitrust Compliance Policy is linked here and excerpted below, and a notice included in NAR’s MLS Handbook is below.
Again, the current rule that has been the subject of litigation does not set commissions.
As reflected in our release about the proposed settlement agreement, NAR has agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS. Commissions remain negotiable, as they have been.
Excerpt from Handbook on Multiple Listing Policy – Commission/Cooperative Compensation Offers, Section 1: Information Specifying the Compensation on Each Listing Filed with a Multiple Listing Service of an Association of REALTORS®
In filing property with the multiple listing service, participants make blanket unilateral offers of compensation to the other MLS participants and shall therefore specify on each listing filed with the service the compensation being offered by the listing broker to the other MLS participants. This is necessary because cooperating participants have the right to know what their compensation will be prior to commencing their efforts to sell.
The listing broker retains the right to determine the amount of compensation offered to subagents, buyer agents, or to brokers acting in other agency or nonagency capacities, which may be the same or different.
Excerpt from Handbook on Multiple Listing Policy – MLS Antitrust Compliance Policy
The purpose of multiple listing is the orderly correlation and dissemination of listing information to participants so they may better serve the buying and selling public. Boards and associations of REALTORS® and their multiple listing services shall not enact or enforce any rule which restricts, limits, or interferes with participants in their relations with each other, in their broker/client relationships, or in the conduct of their business in the following areas.
Boards and associations of REALTORS® and their MLSs shall not:
- Fix, control, recommend, or suggest the commissions or fees charged for real estate brokerage services (Interpretation 14).
- Fix, control, recommend, or suggest the cooperative compensation offered by listing brokers to potential cooperating brokers.
Excerpt from Handbook on Multiple Listing Policy – Notice to Association Members
Under the long-established policy of this association, the (state) association of REALTORS®, and the National Association of REALTORS®:
- The broker’s compensation for services rendered in respect to any listing is solely a matter of negotiation between the broker and his or her client, and is not fixed, controlled, recommended, or maintained by any persons not a party to the listing agreement.
- The compensation paid by a listing broker to a cooperating broker in respect to any listing is established by the listing broker and is not fixed, controlled, recommended, or maintained by any persons other than the lister broker. (Amended 4/92).
– Devin Lucas
Author Devin R. Lucas is a Real Estate Broker, Real Estate Attorney and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individuals, Trustees and investors in residential real estate.
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REALTORS® and related Real Estate Law & Tax Considerations
Lucas Real Estate is a unique full-service residential real estate brokerage providing related residential real estate legal services and real estate tax considerations and planning, based in Newport Beach, California. | Devin Lucas is a licensed California Real Estate Attorney, Real Estate Broker and REALTOR® | Courtney Lucas is a California licensed CPA and REALTOR®
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