Changes to the U.S. Buyer's Broker Commission and What It Means for Mobility Programs

Changes to the U.S. Buyer’s Broker Commission and What It Means for Mobility Programs

The current real estate commission structure in the U.S. has been in place for decades. In it, the seller pays the real estate commission which typically is shared between listing and purchasing brokers who represent the seller and buyer, respectively. However, two recent landmark class action lawsuits filed against the National Association of REALTORS® (NAR) and a collection of real estate brokerages may impact this structure and may alter employer-facilitated relocations and mobility programs.

Here’s how it commonly works today: The listing (departure) agent represents the home seller, and the purchasing (destination) agent represents the home buyer. The seller covers the cost of the real estate commission payable to the listing broker, which is generally a percentage of the sale price of the home, typically 5% to 7%, varying by state and region. The listing broker and the purchasing broker “cooperate” with each other, and the commission is shared in a pre-defined manner.

For example, a seller lists their home for $500,000 and offers a commission of 6% ($30,000).

A full-price offer is made by a buyer and accepted by the seller. The commission is shared between the seller’s broker and the buyer’s broker, where each receives half of the 6% commission, i.e., 3% or $15,000.

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UNDERSTANDING NAR & THE LAWSUITS NAR is America’s largest trade association, representing 1.5 million REALTORS® of both residential and commercial real estate industries. Most multiple listing services (MLS) are NAR-affiliated. Approximately 86% of sellers list their property on an MLS database, thus gaining maximum exposure of their property. With certain exceptions, only NAR REALTORS® can submit a property listing to the MLS, and in order for a REALTOR® to do so, the seller’s broker must “cooperate” with the buyer’s broker from a commission sharing perspective (known as the participation rule).

Plaintiffs in Sitzer/Burnett v. NAR, et al (filed in Missouri) and Moerhl v. NAR, et al (filed in Illinois) allege that the defendants’ control of the MLS creates anticompetitive practices and thus requires home sellers to pay commissions to buyers’ brokers at an inflated rate, in violation of a federal antitrust act. In essence, sellers allege that they should not be held responsible to compensate the buyer’s broker since they work on behalf of the buyer, not the seller.

The Sitzer/Burnett ruling at the end October found the defendants guilty, with $1.78B awarded to the plaintiffs which is likely to be tripled to $5B+ based on terms of the antitrust act. NAR is appealing the verdict as to damages. In addition, defendants in the Moerhl suit proposed a combined settlement of $1B+ which has not yet been accepted by the court. Similar suits have been filed across the country.

THE NEW LANDSCAPE OF BROKER COMMISSIONS IN CERTAIN STATES Some states have long had the Buyer Broker Representation Agreement, which outlines the working agreement between the buyer and their broker (i.e., duties of the real estate broker, terms of agreement, and how the agent will be compensated). Other states have not had these types of agreements; therefore, this is somewhat unchartered territory for these states.

Ramifications may vary by location and will likely be influenced by market conditions. Some states and municipalities may see little to no change, at least in the short term, where it may be more prevalent in other regions. For example, state legislation goes into effect January 1, 2024 in Washington that ensures the seller is no longer held responsible for any compensation due to an agent or broker who does not represent them.

So, what’s different?

Moving forward, sellers will have more control over how much commission they pay and to whom it is paid. This means that the seller has full discretion as to the amount, if any, that will be paid to the buyer’s broker. If the seller does not provide enough, or any, funds to buyer’s broker, then the buyer may be asked to contribute.

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HOW THIS COULD IMPACT YOUR MOBILITY PROGRAM

It’s up to the employer to determine which benefits a given relocation policy covers in full, in part, or not at all.

Home sale and home purchase closing costs are included as benefits in some policies. Formal home sale programs like Buyer Value Option (BVO), Guaranteed Purchase Offer (GPO), and Direct Reimbursement (DR) typically cover real estate commissions and other customary closing costs.

Conversely, with respect to home purchase assistance, while it is typical to cover some or all of the buyer’s closing costs, it is not typical to cover the buyer’s broker commission – in part because it has not been assessed to date as a matter of practice.

Upcoming legislation will necessitate decisions be made to cover some, a portion, or none of the buyer’s broker commission, as applicable. Here are two scenarios of thoughts for consideration.

SCENARIO: Relocating employee is eligible for home purchase closing cost assistance

in destination By covering the buyer’s broker commission: More home options may be available to consider which could expedite securing a home and the family acclimation period, resulting in increased work productivity.

Avoidance of exception requests and maintains intent of miscellaneous allowance benefit.

Improves chances of first-time homebuyers to become homeowners, particularly those who are economically disadvantaged.

Increased cost to client (commission and gross-up, if covered).

Potential decrease in temporary living duration, household goods storage, and in length of (or need for additional) return trips and home-finding trips.

Improved employee peace of mind and satisfaction with experience.

For candidates and new hires, potential talent attraction differentiator.

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SCENARIO: Relocating employee is eligible for home sale assistance in origin location It’s important to note, in a formal home sale program (BVO or GPO), it is likely that a portion of the commission which the client pays on behalf of the employee is already being paid to the buyer’s broker (via the shared commission structure detailed earlier).

However, the employee should be made aware of the potential challenges that may occur if they choose not to allow coverage of any portion of the purchasing broker’s commission. While there is no difference to the level of service Altair Global will provide to the relocating employee, ramifications that may occur include: A reduction in the potential buyer pool.

A broader buyer pool is more likely to reduce marketing time and achieve a sale more quickly.

A lower offer price. One is more likely to obtain a sale at a higher price if the buyer does not need to cover any portion of the commission.

Taking longer to sell the home. This can result in an increase to the employee’s carrying costs and a decrease in productivity.

The need for additional temporary living, household goods storage, and/or an additional home finding trip which may not be covered per relocation policy.

WE’RE HERE TO HELP Given that lawsuits are under appeal and/or not yet decided, and that variations will occur by state and even region, it remains to be seen how quickly changes will occur, if at all. What we do know is that we pledge to keep you apprised of information just in time and will provide counsel on best practices for your consideration.

Reach out to your Altair Global Client Services representative with any questions, or reach us at info@altairglobal.com.

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