No, the 6% commission has never been mandated
April 1-7, 2024
By Richard Courtney
The National Association of Realtors has settled a lawsuit, or series of suits, for $418 million, and the various news outlets reported the news with surprisingly different interpretations.
One source stated that the NAR artificially inflated commissions, and that is simply not true. The National Association of Realtors has been consistent for years on its insistence that there is no standard commission and there never has been.
There are some rogue, uninformed agents, aka idiots, who have ingrained a 6% commission into the heads of consumers. And the NAR membership is full of them.
As a matter of fact, the NAR in on its fourth president in the past several months. The first president resigned after less than a year following alleged sexual harassment charges from female employees. The membership hoped and deserved proper vetting of his successor, yet the NAR appointed a person who resigned shortly after her appointment to the presidency because she was allegedly be blackmailed. These issues speak to the quality of the leadership of the group.
As far as the reporting of the settlement goes, another publication stated the commission paid in the United States were the highest of any country. A check of Tranio.com reveals that is not true, with that site citing commissions of 8% in France, up to 6% in Germany, 6% in Croatia when there is a buyer’s agent involved, 5% in Austria when there are two agents, and the same for Spain, Finland or the Czech Republic. Countries in which commissions are lower do not have buyer agency.
In Nashville, real estate brokers and affiliate brokers are forced to join the Greater Nashville Realtors in order to gain access to the Multiple Listing Service, an organization that holds the keys to the real estate kingdom. By joining the Greater Nashville Realtors, the members are forced to pay dues to the NAR and the Tennessee Realtors, formerly the Tennessee Association of Realtors.
Once a Realtor, a different designation than a real estate broker or affiliate broker, the person is guided by a Code of Ethics, is a member of a group that advocates for fair housing, affordable housing and homeowner concerns on the local, state and federal level. However, the main reason almost every single person joins the various associations is to gain access to the Multiple Listing Service.
All of the information and data found on Zillow, Trulia, Realtor.com, Homes.com and all of the rest comes from Realtors providing photos, room dimensions, school information, access to property tax data and past sales. This information allows the Realtors to assist homeowners and buyers alike in determining a [price for properties.
By joining the MLS, members are required to offer compensation to buyer’s brokers, and the compensation offered is sacrosanct. When a seller lists a house, the listing agreement states that the seller will pay a certain commission to the listing agency to sell the property. In that agreement, the listing agents and the seller agree that a certain percentage of that fee will be paid to the buyer’s broker if there is one. That is the onus of the lawsuits and settlements.
One article states a 6% commission has been in place for a generation and that NAR mandated that commission. A 6% fee has been the norm in Nashville and the Midstate area, with the buyer’s agent receiving 3% of that commission.
In the past three or four years, many agents have been listing for lower commissions and offering less to the buyers’ agents. In Nashville, one listing agent usually offers $1, while many more offer 2.5% or 2%.
The compensation amount offered to the buyers’ broker on the MLS cannot be challenged contractually or otherwise based on the rules of membership in the MLS. If a 2.5% commission is offered to the buyers’ agent, it must be at least that much, if not less. The buyers’ brokers are forbidden to ask for more. Real estate brokers will sometimes reduce the commission during negotiations to make the deal work.
One major difference going forward is that sellers are now aware that there is no standard commission and will negotiate for a less commission. However, the greatest change in the system is that the buyer’s broker fee will not be listed on the MLS.
Here is the disingenuous side of the lawsuit: The plaintiffs allege Realtors will not show houses in which the brokers are offering reduced commissions. If that is the case, then there must not be standard commissions.
What does all of this mean? Since there is no compensation stated on the MLS, the buyers’ agent will need to communicate with the sellers’ agents in order to see if there is compensation being offered to buyers’ agents. If there is no compensation being provided to the buyers’ brokers, the brokers might look to the buyers to pay the commission out of packet.
That is not possible with most first-time homebuyers, so the buyers who need representation the and counseling the most will be on their own and at the mercy of the listing agent or the seller.
Lenders have been working toward being able to finance the commissions, but the property would have to appraise for more to allow them to do so. Even then, the proposition has not worked its way into the system.
Commercial real estate firms are not members of NAR and not bound by its rules. In several dealing with those leasing properties, the commercial real estate brokers often pay the buyers’ brokers 4% for bringing the most valuable commodity into the transaction.
Richard Courtney is a licensed real estate broker with Fridrich & Clark Realty, LLC in Nashville, TN, and can be reached at richard@richardcourtney.com.
