Realtors ready for industry’s reforms over commissions | Business

The real estate industry is bracing for changes that are supposed to take effect in July in the wake of lawsuit settlements with home sellers over commission payments. 

Real estate brokers representing buyers stand to lose out on what has been an understood commission rate in the range of 3% they receive at closing after the National Association of Realtors said last week it was paying $418 million to settle lawsuits carried out on behalf of home sellers throughout the United States.

In a related development on Friday, New York-based Compass Inc., which has an office in Aspen, said in a regulatory filing with the Securities and Exchange Commission that it would pay $57.5 million to settle lawsuits with home sellers over commissions, the Associated Press reported. 

Compass said it would require that its brokerages and agents make clear to their clients that commissions are not set by law, agents’ representation of homebuyers is not free and that homebuyers’ agents must disclose if they are receiving commission or compensation from the sellers’ side, the AP reported. Other major brokerages have been settling also, such as Austin, Texas-based Keller Williams Realty Inc., which in late January agreed to pay $70 million over lawsuit commissions. 

Broker James Benvenuto of Aspen Sotheby’s International Realty said his biggest takeaway from the recent developments is that buyers’ agents must be more transparent about their fees, payments and commissions. 

A common misconception is that the seller pays a 6% commission at the close of sale, the amount split between the brokers representing the buyer and seller, he said. There is no commission rate, however, that is set by law; and moving forward, commission rates for buyers’ agents will not be posted on the Multiple Listing Service, a primary database for buying and selling real estate that is used by brokers. 

“We, as real estate brokers, would always say it’s been a negotiated number, and in that case, nothing has changed,” Benvenuto said. “The difference was that the MLS (Multiple Listings Service) was a way for real estate brokers who are representing buyers to determine whether a seller was going to pay them or a commission for bringing a buyer to the table.

“Moving forward, that can still happen and in my opinion, it should, if you want to catch the widest net and attract as many buyers as possible. A seller can still offer a buyer/broker cooperative commission, but it will not be advertised on that one site that is called the MLS.”

In the Ask a Broker column about the topic on March 11 in the Aspen Daily News, the writer noted that sellers haven’t been required to pay commission to the buyers’ brokers. As well, the buyers pay the brokers who represent them.

“When a seller engages a broker to list and sell their property, it has never been a requirement for a seller to offer compensation to the buyer’s agent,” wrote Krista Klees, who is the market president of Slifer Smith & Frampton Roaring Fork Valley. “However, it has been customary for the brokerage community to suggest an offer of compensation to the buyer’s agent to be ‘competitive’ in the marketplace. But to be clear, without a buyer bringing money to the table, there is no compensation or professional fee to be paid to anyone.”

In uber-expensive housing markets like Aspen — the average sale for a single-family home through February this year was $12.7 million, according to the Aspen Board of Realtors — commission rates can be lower, Benvenuto said. 

“I think people in general have thought 6%, but it’s been 5% and sometimes when it’s at the higher end, $20 million or more, that goes down to 5%. And I’ve seen 4% is something that has been negotiated,” he said.

A lawsuit active in Pitkin County puts some light on the commission rate paid locally. While unrelated to the national litigation over commissions, the suit was filed by an Aspen broker claiming she represented the homeseller and had not been properly compensated for her services. The suit does not concern the commission for the buyer’s agent. 

“It is standard practice and custom in the trade for brokers to earn a combined six (6.00%) commission on residential real estate transactions in Aspen, with 3.0% paid to the Buyer’s broker and 3.0% paid to the Seller’s broker,” said the suit, which concerns a commission dispute over the $76 million sale of an Aspen home in August.  

However, the suit noted that a 2% commission rate was a possibility based on the final closing price of the home.  

With changes in the industry afoot, Benvenuto said that buyer’s brokers will now have to enter into a contract with buyers so that they are clear on commission payments. Benvenuto has worked locally in real estate for more than 20 years; he works in tandem with his wife, Jennifer.

“There has been a major shakeup, and I think the National Association of Realtors really let us down and didn’t do a good enough job of defending our case,” he said. “If it was me, I would have fought it until the end because those fees have always been negotiable, they have always been out there. I’ve negotiated every single one of my career. I’ve never told anybody, ‘You have to pay 6% … I’ve always got to that line item, and we talk about it and we come up with a fee that’s agreeable to everybody.”