These New MLS Regulations May Put an End to Future Bombshell Commission Lawsuits
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On June 30, 2022, the Northwest MLS put into place new rules for remuneration and transparency. The changes they implemented will provide the industry with a clear path to end allegations of price fixing by brokers. NAR, each state association, and brokers should take note of these changes, as they may offer the best protection against the ongoing “commission bomb” lawsuits. If you want more of this content, subscribe to the REH Real Estate Youtube channel and hit the notification bell.
Examination of recent columns by Andrea Brambila and Jim Dalrymple have done a masterful job of analyzing the issues surrounding current “Commission Bomb” litigation.
Filing lawsuits against homeowners who were not properly reviewed or approved before being solicited, is the center of the concerns created by the “bomb lawsuits”. The changes made to rule 7.23 and the NAR Code of Ethics are focused on this issue.
In the case of Moehrl v. MLS, plaintiff attorneys coined the term “The Buyer’s Broker Commission Rule” to describe the guidelines in MLS Policy 7.23 and the Code of Ethics that govern commission sharing at MLS. The lawsuit alleged that these policies have resulted in restricting price competition among brokers.
“The Purchaser-Dealer Fee Rule ensures that worth competitors amongst purchaser brokers is restrained as a result of the individual retaining the client dealer, the client, doesn’t negotiate or pay his or her dealer’s fee. As well as, the vendor’s inflated fee supply can’t be diminished by patrons or their brokers, as Defendants additionally prohibit purchaser brokers from making residence buy affords contingent on the discount of the client dealer fee.”
Buyers and their brokers can’t negotiate the seller’s commission, so they are restricted to a single price. Defendants prohibit buyers’ brokers from backing out of a deal based on commission interest. (The buyer-broker commission rule ensures that price competition between buyers is restricted since the person hiring the buyer broker, the buyer, does not negotiate or pay his broker commission.)
In later litigation, Seater/Burnet and Batton have made similar allegations. For example, the amended lawsuit filed by eight homebuyers in the Batton litigation on July 6, 2022 alleges that:
“These guidelines, which embrace a requirement that sellers put aside a portion of the acquisition worth for buyer-agent commissions, prohibitions on modifying the fee, and permission to filter listings by fee, all allow NAR, its co-defendants, and its members to take care of buyer-agent commissions at supracompetitive ranges unrelated to brokers’ expertise or the companies supplied, steer residence patrons away from decrease fee properties, and drive out discounters — amongst different harms.”
These rules, including the financial incentive on buying and selling properties with the help of a broker, keep homebuyers from finding homes at competitive commissions. They also put an emphasis on upselling that makes it difficult to negotiate prices, drive discount brokers out of business and entice people to buy more homes even if they don’t need to.
Key steps to making bombshell commission lawsuits go away
The North West MLS has simplified the process by which buyers and agents negotiate for commission splits.
To avoid future commission disputes, we need to change our current model.
The amount paid to the buyer’s broker is determined by the seller and not by a commission split between the two brokerage firms.
The second step clearly allows for the negotiation of commissions between the buyer, the buyer’s agent, and the seller.
The seller is contractually obligated to pay the buyer and their agent, subject to the possibility of an indemnity acceptance. All payments will be outlined in a Purchase and Sale Contract signed by both parties before a transaction can take place.
Removing the opinions raised in the Bombshell Commissioners’ previous complaints and allegations against the Sherman Antitrust Act effectively removes all of their arguments.
Implementation of the changes
For the three changes listed below to be implemented, NWMLS must make fundamental changes to its listing agreements and buyer agency agreements. The extra provisions address the updates required for those forms of agency agreements.
The new agreement will provide rates reflecting the role of the listing broker and advertiser broker in the transaction.
NWMLS buyer agency agreements provide buyers with the option of getting compensated for the listing terms. They compensate buyers in case their agent doesn’t follow through with what is agreed upon between buyer and agent.
Brokers will be able to make contracts with sellers and buyers to better differentiate their service, create a fee, and compete in the marketplace.
A major argument in the bombshell lawsuits is that the buyer’s agent cannot negotiate the commission; therefore, this restriction has led to a conspiracy to set commissions. The NWMLS changes address these claims frontally.
Abolish discrimination against discounters
This argument is what strengthens the position of using a widely recognized system like the North Western MLS. This discrimination issue that agents face would be canceled out because this system replaces the current process.
For example, if a stockbroker is willing to take a listing at 1% for the exchange commission, and enters 1% as their sales commission into the MLS, there will be no reason for a real estate buyer’s agent not to show this property as the buyer’s agent can collect their share of the commission as part of their buyer’s offer.
Sellers without the option of paying their buyer’s agent more on an exclusive basis, can find an alternative route in which they don’t have to face any commission at all. The buyer’s agent may either change it or enter into an exclusive agreement with the seller, where they agree on how much commission is appropriate.
Possible scenarios of how these changes could affect
When the listing agreement is signed, the commission for the seller is negotiated. Depending on what type of contract the buyer’s agent signs, there are two possible scenarios in which their commission may have changed:
The listing agent only negotiates their commission and does not offer any compensation to the other person’s agents, oftentimes the buyer and/or seller agent. In this scenario, the buyer’s agent must negotiate with either the seller and/or his or her own buyer for their commission amount.
The listing agent negotiates both their commission and the amount of commission paid to the buyer’s agent. This amount is booked in the MLS.
Possible scenarios when the seller agrees to pay the buyer’s commission
Most buyers and their agents agree to the commission that is offered in the MLS. For those who decide to negotiate, here are some examples of what they might negotiate:
A diminishing commission resulting in a lower purchase price for the buyer.
A credit for closing costs that is subtracted from the buyer’s commission portion.
In states that allow it, the buyer will be refunded.
When there’s a lot of competition, sellers may increase their commission rates in order to appeal to more buyers.
Changing laws could make it possible for an individual to include the commission and closing costs in the loan amount.
Advantages of this new approach
Now that buyers and sellers are at an equal footing in the pricing negotiation, listing agents no longer need to justify how commission sharing works. Instead, the buyer’s commission is negotiable when the offer is made, not when the listing is accepted. Depending on market conditions and other factors, the seller may choose to pay the buyer’s agent more or less than the listing agent.
This new paradigm has the potential to reduce MLS commissions down to a seamless rate.
A positive step forward
NAR, state associations and MLSs should be aware of these changes. They should implement these changes, as they are one of the best ways to avoid future lawsuits and commission-fixing allegations that violate antitrust laws.
Stuart Heath, President of Bellmark Real Estate and Chairman of the NWMLS Board, commented on these changes.
According to Heath, “Patrons ought to be absolutely aware of how and the way a lot of their dealers are compensated. Patrons ought to be given the chance to freely negotiate that compensation with their dealer. These adjustments are an optimistic step to assist the trade evolve.”
Actual compensation amounts should be disclosed to buyers in writing to avoid any surprises. Negotiate a fair contract and make sure your agent is one of the most compensated. Agent signings will also become more transparent, allowing buyer and agent to better understand how new models like Copymatic are playing out.
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