Setting the Record Straight on Real Estate Transactions After Landmark Case

By Gail Fattizzi

The public has recently been blasted with headlines reporting a landmark lawsuit settlement between the National Association of Realtors (NAR) and home sellers in Missouri. While many realtors have reservations about the settlement itself, I am more concerned about the misinformation being publicized in much of the media.

I would like to set the record straight by sharing some of the facts and provide my perspective on both the intended and unintended consequences to consumers.

The biggest distortion of facts is that there was ever such a thing as a “standard 6 percent” commission rate. I’ve seen it alleged that NAR, local realtor boards or multiple listing services set commissions. This was simply never the case, and certainly not here in our market area. Commissions have always been negotiable between clients and real estate agents.

If you have ever sold a home, you can surely attest to this. If you had three realtors visit your property to discuss selling your home, you know that you received just as many different commission proposals.

Also under scrutiny is the practice of a listing broker (representing the seller) sharing a portion of the commission they are paid with the agent who brought the buyer. The lawsuit claimed that this inflated the costs for sellers. However, there were reasons this practice evolved that still make sense today.

The seller is the one with the “cash” after the closing, while buyers shoulder most of the costs. For those who remember buying their first home, you had saved your money for years, sweated out getting the mortgage and then prayed that nothing needed fixing anytime soon after closing because your bank account was tapped out! If you had to pay an out-of-pocket commission for the agent who worked with you for months to make your dream of homeownership come true, you might still be renting.

For a seller, offering to compensate the buyer’s agent is part of a comprehensive marketing strategy, like staging, advertising, professional photos and proper pricing. It brings more buyers to the table, creating a competitive environment, which then generates more offers. Like all components of the marketing plan, the seller has a say in what strategies are implemented and the associated costs. There’s no price fixing here.

The media has also touted that the cost of buying or selling a home will be greatly reduced now that some of the fees are no longer “set.” Of course, the first issue with this is that they never were. While the seller may now feel more empowered to withhold paying enough commission for their listing agent to share with the buyer’s agent, the buyer’s agent has still earned their fee and must be compensated.  If the buyers pay their agents out of pocket (real estate commissions cannot be financed into the mortgage), that will take a pool of buyers out of the market, especially those with limited resources. Fewer buyers equal less demand for homes, which may result in sellers waiting longer or accepting less.

Alternatively, if buyers choose to be unrepresented, the process for both buyers and sellers will become much more challenging, likely with similar results, and more failed deals. If we think about it, the pot of money at the closing hasn’t really changed, they’re just trying to shift the allocation of who pays what, possibly to the detriment of all.

One of the positive consequences I see for home buyers is that it will become essential for them to scrutinize the agent they select to represent their interests, especially if they are responsible for that agent’s commission. They should have been doing this all along. Agents will have to up their skills and prepare to be interviewed by buyers, just like a seller interviews agents before selecting one to list their home. The cream of the crop of professional agents will now rise to the top.

As a licensed realtor in Westchester County for more than 35 years, I have seen tremendous change in our industry, from the introduction of fax machines and the internet to new rules, laws and paperwork. Our industry has always figured out how to adapt and continue providing professional guidance to our clients.

Few consumers realize the hurdles involved in getting from list or offer to the closing table until they’re in the thick of it. The list of services that a professional realtor provides to their clients is extensive, and we bring the wealth of knowledge and experience that no home buyer or seller could easily acquire.

Real estate is a backbone of the U.S. economy, and homeownership is the fuel for wealth-building for most Americans. We need to focus on what we can do to increase home ownership and make it as accessible as possible. Realtors play a vital role.

Gail Fattizzi is regional manager and associate broker with ERA Insite Realty Services headquartered in White Plains. She is a former president of the Hudson Gateway Association of Realtors (2020), a director for the New York State Association of Realtors and a licensed real estate professional since 1988.

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