In a July article, Realtor Bernice Ross discusses the industry implications of the changes in Northwest MLS rules. In the first paragraph, she writes that the changes “provide the industry with a roadmap for ending accusations of price-fixing among brokerages,” which “may provide the best protection against the ongoing ‘commission bombshell’ lawsuits.”
Unfortunately, the rules appear to offer little if any benefit to consumers. By introducing mind-numbing complexity and giving buyer agents greater ability to increase their commissions, the new rules may even end up increasing brokerage costs for home sellers and buyers.
In a July Inman article, Andrea Brambila has informatively described the myriad options under the new rules that will puzzle many agents and befuddle most consumers.
Finally, in September, The Council of Multiple Listing Services offered its usual, highly-anticipated legal update at its annual conference, and they warned that future changes to MLS rules could have a major impact and that it was time for agents to prepare if major changes did occur.
The commission discussion
Today, consumers, who are focused on sale price and timing, essentially accept their agent’s information and advice about commissions.
To the extent that commissions are discussed at all, listing agents inform home sellers that the typical commission in the area is x percent, that it includes compensation both for them and the buyer agent, and that lowering the buyer agent’s portion could discourage realtors from showing the property.
Our research also shows that a large majority of these agents say they will not negotiate their own commission.
The problem with the new rules
Under the new rules, the agent’s information and advice will remain the same but will also include the caveat that the buyer agent must now agree to the offered commission split.
Buyer agents may well ask sellers to increase their fee, especially if what’s offered is below the typical rate or at the low end of a rate range.
In a buyer’s market, sellers will feel pressure to accept this rate increase. Also, if buyers are not making offers, as Ross explains, “sellers may offer an increased buyer commission.”
Buyers will not object to this rate increase because they will continue to believe that they are not paying their agent’s commission. Today when a buyer asks, their agent informs them that the seller pays the buyer broker commission, which usually ends any discussion.
Under the new rules, when a buyer finds a house they wish to purchase, their agent may inform them that the offered commission is too low and then will ask the seller to increase it.
In a seller’s market, the seller may reject that proposed increase. Yet, over time a certain percentage of sellers will accept the increase, which will hike aggregate consumer costs.
Thus, some buyer agent rates will increase. Will they ever decrease? That is unlikely because most sellers will have already made an offer, and buyer agents will tend to resist any reduction in their compensation.
Instead, these agents may suggest that their buyer clients propose a higher sale price. Today, at the end of home price negotiations, agents sometimes give away part of their commission to finalize a sale, and that practice should continue.
Uncoupling
Whether or not the courts credit these changes, consumers are more likely to be harmed than benefit from the MLS changes. Only the complete uncoupling of listing agent and buyer agent commissions, in which sellers and buyers negotiate compensation with their agents separately, would significantly increase rate competition.
Buyers would then have both the opportunity and incentive to negotiate buyer agent commissions. Discounters would feel much freer to offer different buy-side commissions. And even sellers, aware that rates did vary, would be more likely to negotiate listing agent compensation.
We have predicted that uncoupling would eventually lower aggregate commissions by 20 to 30 percent. But we have also predicted that well-established, successful agents would see little change in income, quite possibly being able to charge current rates.
And to the extent price competition persuaded marginal agents to leave the industry, experienced full-time agents would find it easier to recruit clients.
Stephen Brobeck has been researching residential real estate brokerage issues since the early 1990s. Initially he focused on subagency. More recently, he has researched issues related to agency, agent compensation, and state regulation. Brobeck earned a Ph.D. in American Studies from the University of Pennsylvania and has taught at several universities. From 1980 to 2018 he served as executive director and CEO of the Consumer Federation of America. Since then, he has held the position of senior fellow.
