Did you know that a recent lawsuit against the National Association of REALTORS® (NAR) has been settled for $418 million? The Sitzer-Burnett case, which gripped the world of real estate news for more than a year, alleged that NAR has anticompetitive rules that require sellers to pay buyers’ agents. Now that the case has been resolved and the new policies are in place, I’d like to share with you what this means for us here in Chester County.
Over the next few months, I’ll be breaking down this gigantic topic into more manageable portions and explaining, in my own words, what this case and settlement mean for you the next time you go to rent, buy, or sell a home. For us, the long and short of it is that very little will change, and I’ll show what exactly that means during this article series.
Before we get too deep into what this means for us, let’s start by addressing the elephant in the room: news headlines. In today’s world, even if you haven’t been following the case, you’ve probably seen or heard a few click-bait headlines about real estate commissions over the past year. From claims that NAR has a national policy that sets commissions to the belief that 6% commissions are no longer allowed, all sorts of misinformation has made its way into public sentiment.
Join me as I debunk the top 4 misconceptions I keep encountering in the headlines!
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With cases that draw this much public attention, there’s bound to be all sorts of theories and ideas about what everything means. While many news media outlets took their time to report the facts, the reality is that salacious headlines draw more clicks. NAR and the Associated Press have been diligently fact checking, but initial headlines draw more attention than corrections. Considering this case has been in the media for more than a year, the clickbait misinformation has gotten so out of hand that NAR released an article directly addressing the misconceptions.
To start, the 4 biggest myths are:
- NAR sets commission rates
- There is a single national MLS
- Commissions are set by national policy
- The lawsuit means no more 6% commission rates allowed
Myth 1 – NAR sets commission rates
The first and biggest myth to dispel about this entire situation is that NAR sets commissions. With headlines from major news outlets like the one above from CBS News it’s easy to understand why so many people seem to believe that NAR sets commissions like oil cartels set gas prices. Rather than dive into all the reasons why NAR does not and cannot set commissions myself, I recommend reading their article that directly addressed this public conception.
Myth 2 – There is a single MLS for the nation
“Multiple Listing Service (MLS): What Is It”
-National Association of REALTORS®
Headlines like the one above, and even much of the commentary in the other articles linked in this article, keep talking about Multiple Listing Services, or MLSs, as if there is a single national MLS. That simply is not the case. Even the above article points out there are over 800 MLSs across the nation. Here in Chester County, we’re part of the Bright MLS.
Each MLS is different, built to cater to the needs of the region it serves. The differences between the business structures go beyond the scope of this article and series. Though the lawsuit cares about those intricate details, the end result for consumers is the same regardless of which MLS your home is in.
Myth 3 – Commissions are set by national policy
“Real estate lawsuit settlement upends decades long policies that helped set agent commissions”
One of the core complaints in this case was that commissions were not negotiable as they were set by national policy. To be fair, NAR did have a national policy that MLSs were to include a field for communicating cooperating compensation. They did, indeed, tell MLSs that there had to be a box advertising the amount of compensation a seller was willing to give to a buyer’s agent in order to facilitate a transaction. They did not say that compensation must be a certain amount.
Bluntly, commissions have always been and remain negotiable up to the point of signing the Agreement of Sale (AOS). Even under the new policy and process (which I’ll go into in later articles), brokers’ commissions can be negotiated up to signing that AOS.
Myth 4 – The lawsuit means 6% commissions are no longer an option
“6% commission fees for real estate agents are going away. What to know about the new rule”
Headlines from multiple major news outlets like the one from NBC, above, highlight the problem in full. First, the idea that 6% commission fees were universal. Then, the idea that 6% commissions go entirely to real estate agents. Finally, behind it all, the idea that this court case resulted in a rule that prevents such commissions from happening anymore.
When that commission is paid to the broker, it doesn’t all go directly into their pocket. When a commission goes to the seller’s broker at settlement, that commission traditionally gets divided into multiple buckets. Some goes to the buyer’s agent as the cooperating compensation. Some goes to the brokerage as part of the agent’s split. Then comes the cost of doing business – from advertising, training, travel, and overhead. Whatever’s left goes to the agent and their team.
And none of that is changing with this settlement. Sellers and agents are still welcome to negotiate for whatever commission they work out, including 6% if that is the best option. There is no new rule that changes this.
Conclusion
The Sitzer-Burnett lawsuit against NAR is finally settled, and we’ve been living with the ramifications for about a month. The year-long legal contest caught the eye of the media, and the frenzy of fact vs fiction swelled to somewhat ridiculous proportions. From claims that NAR sets commissions nationally to the idea that 6% commissions are banned, it’s time to cut through the headlines and hubbub and get a clear picture of what happened and, more importantly, what it means for Chester County.
Thank you for wiping the slate clean regarding the recent NAR lawsuit settlement! With those headlines cleared up, we can work on figuring out what the settlement does mean. Some policies have changed, and even here in Pennsylvania we’ve been working under a new system for about a month as of the writing of this article.
Do you have any questions about what the Sitzer-Burnett case against NAR means for you today? Please reach out and we can chat! As always, I try to bring you information you want to know. If you have any real estate topics you’d like to see my take on, or other real estate questions, please reach out. I always make time to talk with you.
Join me next month for a rundown of how this lawsuit has changed buying a home in Chester County!
