LOUISVILLE, Ky. (WDRB) -- The landmark legal settlement announced by the National Association of Realtors on Friday will change how homes are bought and sold. But in Louisville, the local Realtors group was already pushing its members to adopt one of the two new requirements called for in the deal.
Carter Martin Jr., president of the Greater Louisville Association of Realtors, said Louisville-area agents will adapt to new ways of doing business, though he said it was too soon to comment on the specific reforms.
"Realtors have been here advocating for the consumer for a long time, and we're going to continue to do that. And you know, things change, and we move with the changes," Martin, an agent with Semonin Realtors, told WDRB News on Friday.
Commissions under scrutiny
At issue is how real estate agents are compensated for their work — typically, with the home seller paying a commission to their agent, who then splits the money with the agent representing the buyer.
The National Association of Realtors faced multiple lawsuits alleging it and large real estate brokerages conspired to require that sellers pay buyer agent’s commission in violation of federal antitrust law.
In October, a $1.8 billion verdict handed down by a federal jury in Kansas City rocked the association, leading a shakeup in its leadership.
In Louisville and other markets, it’s common for the seller to pay 6% of the sales price, which is equally shared by the two agents’ brokerages.
One of the major advantages of the seller-paid commissions, industry insiders say, is that buyers effectively finance their agent’s compensation into the sales price of the home rather than having to come up with the money out of their pockets at the closing.
"If the seller doesn't offer that cooperating commission ... it could be another barrier to homeownership," Martin said.
What’s changing in home sales?
The $418 million settlement announced Friday doesn’t do away with seller-paid commissions to buyers’ agents, but it requires two major changes aimed at increasing competition in the real estate market.
For decades, Realtors listing homes for sale on the local market database, called the MLS, have been required to make a blanket offer to share their sellers’ commission with a buyer’s agent. Every Realtor can see on the MLS what they will receive if they bring a buyer for the listed home.
But starting in July, agents will be prohibited from advertising cooperating commissions on the MLS, according to a news release from NAR.
One of the allegations in the lawsuits was that the longstanding system allows agents to steer their clients away from homes that offer low or no commission for the agent — even if the home would be a good fit for the buyer. Thus, buyer agent commissions are kept artificially high, critics argue.
Sellers and buyers will still be able to agree to split commissions, NAR said, even if commission offers cannot be advertised over the MLS.
'The way it should have been the whole time'
Louisville real estate attorney Harry Borders at his office, March 14, 2024
Harry Borders, a longtime real estate attorney who teaches continuing education classes to Louisville agents, applauded the change.
"This is the way that it should have been the whole time," Borders said. "It eliminates the perception that buyer agents were only taking clients to the ones (listings) that were paying enough."
Without commissions listed on the MLS, buyers will likely have to write the terms of their agent’s compensation into the sales contracts they submit to sellers, Borders said.
The other major change resulting from the settlement is that Realtors will be required to have buyers sign so-called buyer-brokerage agreements. These are contracts that spell out how the agent will work exclusively to help the buyer procure a home and ensuring that the agent gets compensated for that work — if not by the seller, then by the buyer.
"We continue to educate our members that these (agreements) should be used, because it puts everything on the table and just sets expectations up front," said Carter, the Louisville association president.
Borders said the contracts will help Realtors avoid getting caught in an ethical bind if they come across a home that meets all their buyers’ criteria, except that the seller isn’t offering a sufficient commission.
In those cases, the agent could address their compensation with the seller. One strategy, for example, could be to increase the sales price to cover the buyer-agent commission. Or, the agent could give the buyer the choice of paying or moving on to a different home.
For consumers, signing a buyer-broker agreement means a risk that there could be no way to get a home that they want without coming up with the money to pay their agent, Borders acknowledged.
"There are a million reasons why a buyer is prevented from getting the house that they want, and this could be one of the reasons that it happens," Borders said. "But I just don’t anticipate that being the case very frequently … We are so accustomed to the seller paying what a seller typically pays that I just don't anticipate that that needs to change."
