Events

Recent media reports on the Sitzer-Burnett class-action lawsuit settlement agreed to by the National Association of Realtors (NAR) have not been completely accurate.  Possible industry changes are also not being clearly reported as someone's prediction of the future.

In summary, the agreed upon changes are not about commission rates charged by realtors or residential property sales prices; but more so about Multiple Listing Service (MLS) rules established by the National Association of Realtors (NAR) in the 1990s. More specifically, the changes are in connection with the MLS cooperative compensation model rule (MLS Model Rule) that was introduced in response to calls from consumer protection advocates for buyer representation.

Since the MLS Model Rule was established, MLS participating realtors, who listed residential properties for sale, were required to include offers of broker compensation to buyer agents on the MLS along with the other property listing information.  Such offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. These cooperative compensation offers are also consistent with the real estate laws in the many states that expressly authorize them, which includes Michigan.

NAR has agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS

Further, NAR has agreed to enact another new rule that would require MLS participants working with buyers to enter into written agreements with their buyers (e.g., Buyer Agency or Buyer Representation Agreements in Michigan.)  For years, NAR has continuously encouraged its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much. These changes will go into effect in mid-July 2024.

It should also be noted that the settlement and rule changes appear to affect only NAR members, particularly those who participate with the MLS.  Therefore, it will not affect real estate licensees who are not NAR members.  

Below, MiCDC's Executive Director Reginald (Reggie) Fluker, MBA, presents important facts about the settlement and, based on his 41+ years experience as a licensed real estate practitioner and realtor, what changes he predicts will occur.  This page will be updated periodically with new developments; so, visit this page regularly or register to receive notifications from our website.

Fact: Any required changes will not take effect immediately. If approved by the court as structured, the settlement will take effect sometime in mid-July, 2024.  This allows realtors, sellers, buyers, and other interested parties time to adjust to the settlement requirements.

Prediction: Until mid-July there will be significant confusion caused by misinformation about the application and affects of the settlement, and this confusion will be to the disadvantage to all parties involved in a residential sales transaction.

Settlement Fact:  An MLS participating listing Realtor (seller agent) will no longer be able to place into the multiple listing service (MLS) a blanket offer to compensate a buyer agent whose buyer's offer to purchase is accepted by the seller.

Current Practice Fact: Presently, in the listing agreement with a seller, a listing agent gets permission from the seller to retain or not to retain the assistance of thousands of other MLS-participating realtors to help obtain a seller-acceptable purchase offer from a buyer.  The listing agreement also includes the extent to which the listing agent can share a portion of the commission with a buyer agent, if any.  The listing agent will then post this authorization in the MLS.

Prediction:  It may take much longer for sellers to sell their residential properties, because their MLS  listing may not readily attract the assistance of thousands of other MLS-participating realtors.  Instead, each listing agent may have to depend on their own, and their agency's, individual resources to attract potential buyers to obtain an acceptable offer (i.e., only one agent/agency helping to get the property sold, instead of thousands.) Additionally, sellers' negotiations with buyers and/or buyer-agents, may be a bit more complicated.  

Settlement Fact: A NAR MLS-participating Realtor representing a buyer must have an active written agreement with that buyer; and thereby their agent will have a client-agent relationship with the buyer. 

Current Practice Fact: Michigan Occupational Code allows real estate licensees to work with consumers in a client-agent relationship under a written agreement (contract), or in a customer (non-client)-agent relationship.  In a buyer client-agent relationship, the agent is generally required to function in the best interest of the buyer-client.  In a buyer customer-agent relationship, the agent is only required to treat the buyer fairly and honestly, but not necessarily in the buyer's best interest.

Additionally, the buyer-agent agreement (BAA) usually state that the buyer is obligated to compensate their own agent.  Among other things, it further may state that the buyer will receive credit for any compensation their agent receives from another source, including from the seller or seller's agent.

Prediction:  First, this requirement will not apply to non-Realtor licensees, so expect confusion in this regard. An agent entering a BAA with a buyer will have to make it crystal clear to the buyer that the buyer is agreeing to pay their agent to the extent their agent does not receive compensation from another source.  Because some sellers will not agree to compensate buyer-agents, the buyers will be responsible for fully compensating their agents.

Many buyers may not want this obligation, or have very limited funds, and adding yet another expense to their home buying costs may make purchasing a home impossible or they will have to forego any representation.  Buyers will therefore either not sign a BAA or give preference to properties where the seller is willing to pay buyer-agents.

What also may occur is fewer sales, caveat emptor (buyer beware) will become more commonplace as buyers go without representation, and there may be more frequent cases of buyer remorse after closing, with unrepresented buyers feeling cheated and then filing lawsuits against sellers and seller-agents.

SELLERS WONT HAVE TO PAY BUYER AGENT COMMISSIONS

False: Sellers will no longer be responsible for buyer agent commissions

Fact: Unless a seller agreed in writing to pay a buyer agent, sellers have never been obligated to pay a  commission to anyone other than their own agent under a listing agreement (contract.)  Under the same listing agreement, the seller could authorize their listing agent to share the commission with another  real estate licensee that assisted in obtaining the seller-accepted purchase offer.

Prediction:  The above fact will not change in the vast majority of future residential sales transactions.

COMMISSION RATES WILL CHANGE

False: The standard 5%-6% commission rate will drop to perhaps 2%-3%

Fact: There has never been a "standard" commission rate.  Commissions have always been negotiable. What is being reported as "standard" can be referred to as more commonplace. Additionally, there are real estate agents who are paid a flat fee, and thus 0% commission, and there are those who receive 10% or more in commission.  It's strictly negotiated with individual sellers.

Prediction: Will the more commonplace commission rates decrease? Not necessarily.

BUYER COSTS WILL REDUCE

False: The settlement changes will drive down costs for buyers.

Fact: If a buyer wants professional representation during a residential purchase or lease transaction, and the seller or owner is not willing to compensate the buyer's agent, the buyer will have to retain and pay a real estate licensee or attorney.  Either way, this will increase the buyer's cost.

Prediction:  Many buyers may choose to go without representation, in which case their cost will be the same as if the seller pays the buyer's representative. However, since most sellers will realize huge capital gains or profits when they sell, and would prefer a speedy sale, sellers will likely pay buyer agents.

BROKERS WILL GO OUT OF BUSINESS

False: One reporter for an unnamed news source stated that the settlement changes "will likely put brokers out of business.

Fact: The profession of brokering real estate transactions has existed for numerous decades.  In fact, the  oldest real estate brokerage firm was established in 1855 in Chicago, Illinois.  Prior to the 1990s, the development of the internet, and the creation of the MLS as we know it today, residential brokers primarily represented sellers, and very likely will adapt to future changes.

MORE BUYERS WILL NOT HAVE A BUYER AGENT

False: More buyers will be going without a buyer's agent

Fact: Buyer agency was first recognized in Michigan in January of 1994; prior to this, real estate licensees who worked with buyers were required to advise buyers to consult an attorney.  In Michigan, before January of 1994,  real estate agents represented sellers as seller agents and sub-agents.  As an agent, whether working with a buyer showing them houses or with a seller helping them sell their home, a real estate licensee represented the seller. During the past thirty years, buyer representation has become ingrained in the home buying process.

Prediction: Informed buyers, and advisors of uninformed buyers, will establish mechanisms to ensure that residential real estate buyers have professional representation if and when desired.  In many cases, sellers who understand the importance of buyer representation won't hesitate to continue present agent compensation practices that actually benefit all parties to a transaction.

As comments and questions are received, the most frequent ones with available answers, will be posted here.