In a recent legal development, a federal jury in Missouri reached a decision regarding a case related to real estate commissions. This class-action lawsuit has since prompted similar legal actions in various states, including North Carolina, New York and New Jersey, targeting a variety of different real estate entities. While the cases are making their way through the legal process, their implications on REALTORS® across the country and the broader real estate industry remain to be seen.
The heart of the issue
While the geographic scope of lawsuits may differ, at issue is NAR’s Cooperative Compensation Rule. The rule is a guideline that says if a real estate agent lists a property on a MLS and they are a member of NAR, they must offer compensation to other NAR member agents who bring buyers to the property. The intent of this rule was to promote cooperation and fairness in the real estate industry.
When Bright MLS, the nation’s second-largest MLS, diverged from NAR policy and began to allow a zero-dollar co-broke, NAR changed their policy, and Arizona Regional MLS (ARMLS) followed suit, now allowing a zero-dollar buyer broker commission.
What does the decision mean for Arizona’s REALTOR community?
Other than the decisions, very little has changed for agents in Arizona. However, there is a significant opportunity coming.
Though the use of the Buyer-Broker Agreement (BB) has not been common in Arizona, it has been in existence for quite some time. Buyer agents who have not utilized BB Agreements have traditionally let listing agents determine their earnings from individual sales.
In contrast to many other industries where professionals set their prices on the value and expertise they provide to clients, this presents an opportunity for buyer agents to establish their rates according to the value they offer their clients. As the use of the BB Agreement is expected to become more widespread, agents may need to enhance their ability to articulate the value they offer.
Sharing REALTOR value
As changes continue in the world of buyer representation, we will need to be better at educating our clients.
· Transparency: REALTORS should prioritize educating clients on how their compensation works. It’s essential for consumers to know that REALTOR fees are negotiable, just like choosing between a luxury retailer or big-box warehouse to purchase socks. Buyers have the freedom to select agents based on their preferred balance of price and quality.
· Explaining fees: Similarly, REALTORS must be prepared to clarify and substantiate their pricing structure. Valuable resources from both NAR and the Arizona Association of Realtors® (AAR) can assist REALTORS in crafting a compelling value proposition.
· Embracing Buyer Broker Agreements: To adapt to changing practices, REALTORS should become comfortable with using the BB Agreement. This tool can help solidify the relationship between agents and buyers, ensuring a clear understanding of roles and expectations.
These changes will require an entire paradigm shift for many agents and will take more than a few tweaks to some business practices. Collectively, we will be required to provide value, speak our value to our clients and develop our negotiation skills to better protect our clients and be compensated.
Butch Leiber is the managing broker for a local real estate company and Board President of Phoenix REALTORS®.