By Don DeBat

29-Mar-24 – Real estate brokers in Chicago and across the nation have lost the alleged battle for setting “uniform, customary, or mandatory” sales commissions following court litigation.

But that doesn’t mean home sellers or buyers suddenly are protected from commission-gouging brokers who over-charge for their services.

Resolving claims over broker commissions, the Chicago-based National Association of Realtors (NAR) has agreed to pay a fine of $418 million over four years and implement rules that ensure agents’ commissions are negotiable.

The March 15 settlement, subject to federal court approval, would end litigation in Missouri that last year brought a staggering $1.8 billion verdict against NAR that could have been tripled under United States antitrust law.

Plaintiffs in the Missouri case alleged NAR’s rules for placing homes on various multiple listing service (MLS) platforms in effect fixed commissions at high rates and discouraged sellers from seeking better terms. In the settlement, NAR did not admit wrongdoing.

Broker commissions are paid by home sellers. Commissions typically are in the range of 5 to 6 percent. That’s $20,000 or more on the sale of a $400,000 home. When a buyer is represented by a Realtor, the seller’s agent usually agrees to split the commission with the buyer’s agent.

Historically, compensation offers have been listed on the MLS, but the court settlement will forbid this practice, which Realtors have used since the 1920s or earlier. For example, in 1923, the chairman of the National Association of Real Estate Boards (NAR’s precursor) Committee on Commissions claimed the Chicago broker’s association had used a commission schedule for more than 40 years.

Critics say individual sellers often feel powerless to negotiate a better deal for themselves because of the risk that offering lower commissions may cause brokers to steer buyers to other properties.

When you consider that NAR may be the biggest Congressional lobbyist group in the U.S., the court action truly is a landmark. Stephen Brobeck, Senior Fellow at Consumer Federation of America, predicted the NAR court action would eventually lower agent commissions and help align compensation with services rendered.

“Increasingly, compensation will reflect agent competence, experience, and the effect they make on a sale,” said Brobeck (left), who noted the impact of the court action may take years to be felt.

“This agent commission change is long overdue,” said Gold Coast buyer broker Sara Benson (right), president of Chicago-based Benson Stanley Realty. “Personally, I find the practice of a listing agent dictating the buyer agent’s compensation disconcerting at best – and reprehensible at worst.”

For decades, Benson noted, listing agents have been incessantly “chiseling” the offer of buyer broker compensation.

“Rarely is the commission split 50/50. In many parts of Wisconsin, buyer agents are lucky to get a mere 35 percent of the total commission,” Benson said.

In Chicago, some listing agents are “offering” only 33 percent – or less – to buyer’s agents and publishing that commission in the MLS.

For the buyer’s agent to meddle with the commission structure would have been considered “contract interference” and prohibited by NAR.

“Under the NAR settlement, buyer agents finally will be empowered to set their own rates and get paid what they are worth,” said Benson.

The high value of a good buyer’s agent

So, how does a home buyer find a good buyer’s agent, who may be worth even more than their commission?

First, check out the buyer broker’s education, usually outlined in the professional designations earned, along with years of service and experience.

Is the broker a Certified Real Estate Brokerage Manager (CRB), the highest level of professional achievement in real estate brokerage? Or is the broker an Accredited Buyers Representative (ABR), a Graduate of the Realtor Institute (GRI), or a Certified Real Estate Specialist (CRS)?

“Some successful realty agents boast about their top-ranked annual sales volume,” said Benson, a CRB and an ABR. “However, these agents can be the most risky for the consumer because they may often have the lowest ethical standards.”

According to Benson, while the seller’s agent may photograph the property, list the home in the MLS, and host open houses, the buyer’s agent is responsible for the lion’s share of home-buying expenses, pre-buying research, and field work, outlined below:

Pre-buying activities. In addition to boundless hours of consultation, buyer brokers secure pre-approval letters, conduct limitless property research and market analysis, and check real estate tax records.

Detective work in condominium buying often involves research on a building’s finances and the risk of a potential special assessment, which could cost an unwary buyer $10,000 to $50,000 in the first year of ownership.

Field work outside the office. Once the property is targeted, the buyer broker schedules and sets up showings, gases-up their car, and takes the buyer on what could be a dozen or more property showings.

Property targeting. When a suitable property is selected, the buyer broker develops negotiation strategies, sets up and attends inspections, and gathers repair estimates.

Contract stage. The buyer broker also prepares the purchase contract, presents the offer, conducts negotiations, attends the final walk-throughs, and at post-closing, does buyer handholding, especially if there are additional questions or concerns.

“The sheer worth of a good buyer broker’s networks is invaluable,” said Benson. “Agents often have private access to properties not even publicly listed on the internet. Despite all of this, the listing agent dictates their compensation? I applaud the decoupling of commissions.”

A study commissioned by a major telephone carrier for 500 corporate relocations over the period of one year found buyer brokers secured homes at 91 percent of asking price, compared with 96.5 percent secured by traditional brokers.

“That’s a full 5.5 percent spread, or a buyer savings of $22,000 on a $400,000 home,” said Benson, who noted that the deal fall-through rate of “For Sale By Owner” contracts – without a buyer broker’s guidance – is a whopping 80 percent.

“For first-time buyers who think their real estate attorney will provide the services and expertise that an experienced buyer’s agent can, they are sadly mistaken,” warned Benson.

“Attorneys never even set foot on the property. They aren’t familiar enough with the market to provide a competitive market analysis because they don’t have the data,” said Benson. “Attorneys aren’t familiar with school districts and neighborhood boundaries. They often select title companies in which they have ‘affiliated business arrangements’ for their own profit.”

Finally, Benson believes the NAR decision, if enacted, might just get rid of the wicked “double dip,” the dirtiest little secret in the real estate industry.

No agent can “represent” both parties in a transaction, as neither party is being fully represented, Benson noted. “Dual agency should be illegal in every state in the nation – not just eight states. It’s the number one reason agents are sued.”

Savvy buyers who continue to seek “professional buyer-broker guidance will get the full and undivided representation which they pay for and deserve,” noted Benson. “And buyers should be prepared to sign an agreement to receive the full benefits of an exclusive buyer broker.”

Next week: What should be included in a buyer-broker agreement? Read the fine print.