The rules of the MLS have been under the microscope by the Department of Justice for some time, and as previously shared, NAR is fielding two different class action lawsuits. Moehrl and Burnett both challenge compensation polices in the MLS.  There have been ongoing efforts to explain and defend how the real estate industry operates to benefit the consumers and how cooperative compensation is paid.  Recent changes were made nationwide to offer even more transparency; by showing compensation on public displays of property information. There was a third, similar class action lawsuit in Massachusetts against MLSPin and several brokerages, by Nosalek. It was recently shared that there is a settlement agreement (not yet approved by the courts) whereby MLSPin agrees it will no longer require buyer-broker compensation as a requirement for listing entry into the MLS. How this will impact pending lawsuits or nationwide MLS policy going forward remains to be seen.  In the meantime, we’d like to reshare the NAR website https://realestatecommissionfacts.com/ that helps all agents articulate why our system of cooperation and compensation is consumer focused and friendly.  Coincidentally, before this latest development, the following article was submitted to the Berkshire Business Journal and is expected to run this month.

Understanding Real Estate Compensation, By Sandra Carroll CEO

A career in real estate differs from most others due to the unique nature of how agents are compensated. Unlike traditional jobs where individuals are paid for their time and efforts, real estate agents only receive payment upon successfully completing the main objective of selling a property. This process can take weeks, months, or even longer in certain markets. As a result, many home buyers and sellers entering the real estate market have questions about how compensation works.

To comprehend real estate compensation, it is essential to first understand the key tool utilized in the majority of home purchases—the Multiple Listing Service (MLS).

The Berkshire Multiple Listing Service functions as a comprehensive database of all the homes for sale in a specific region and includes among property details an offer of cooperation and compensation to other agents. It is maintained by the local REALTOR® association and makes a significant portion of this information publicly available, often feeding into popular home search sites.

When a seller lists their property with a member brokerage and adds it to the MLS, they gain access to a vast pool of potential buyers brought to the market by buyer brokers. This information is accessible not only to fellow agents but also directly to consumers via online searches, if desired. Consequently, buyers can collaborate with any broker and view and make offers on all homes available for sale.

When a seller initially puts their home on the market, the contract between the broker and seller specifies the “total compensation” or commission due upon completion of the sale. In Berkshire County standard contracts, there is a separate section that indicates how much of that total compensation will be offered to any buyer broker who represents a willing and able buyer that ultimately purchases the property. This sharing of compensation serves two purposes: ensuring maximum exposure of the property to a wide range of buyers and often eliminates the need for the buyer to have more funds available for the purchase of the home.

It’s important to note that the majority of mortgage lenders do not permit compensation to be added to home loans. Listing brokers’ offers of compensation to buyer brokers provide first-time and low- to middle-income home buyers with a better chance of affording a home and obtaining professional representation in the home-buying process. For many buyers, saving for a down payment is already challenging, and if they had to pay real estate compensation out-of-pocket in addition to closing costs, the dream of homeownership would become even more elusive.

The practice of listing brokers paying buyer brokers promotes efficiency, effectiveness, and accessibility for buyers from all walks of life. This practice has been a driving force behind the thriving American real estate market, contributing to several significant outcomes between 2010 and 2020:

• • 88% of home buyers were able to purchase their homes through a real estate broker.
  • Total housing wealth increased by $8.2 trillion.
  • An additional 6.3 million new buyers became homeowners.

According to research data from the National Association of REALTORS, for the 90% of sellers who use a broker, their homes typically sell for an average of 30% more compared to homes sold directly by owners. This means that someone working with a professional could potentially sell their home for $390,000 instead of $300,000 if they attempted to sell it independently.

The MLS manages the offer of compensation between agents and diligently ensures comprehensive property marketing. Through rules and compliance measures, the MLS also ensures the accuracy and up-to-date nature of information, ultimately benefiting the public.

When sellers first list their property in the MLS, they, along with their broker, decide on the fee. Buyers can also choose to compensate their agents if that is preferred.  It’s important to note that compensation is always negotiable, and consumers are encouraged to engage in discussions with potential brokers to understand their expected compensation and the services offered in return, whether buying or selling.  The parties then decide which company to hire and determines the amount they are willing to pay for the broker’s services. Sellers also participate in discussions regarding the compensation to be offered to buyer’s brokers.

Access to inventory and free advertising as well as the practice of the listing broker paying the buyer brokers’ compensation incentivizes participation in these local real estate marketplaces and creates the largest, most accessible and most accurate source of housing information available to consumers. That levels the playing field among brokerages, allowing small brokerages to compete with large ones, and provides for unprecedented competition and benefits among the brokerage community as well as the buyers and sellers they serve.