Why Chicago Brokerage Heads Tout Opportunity in NAR Settlement
The National Association of Realtors’ proposed $418 settlement to resolve antitrust lawsuits filed by home sellers stands to shift long-held industry norms around commission sharing. The question that has been top-of-mind for Chicago real estate leaders is: what will the new normal look like once the dust settles?
Even as Chicago’s residential market leaders say they embrace the legal landscape shifts now forcing agents to demonstrate their worth in new ways, lawsuits against the area’s biggest brokerages over commission practices are still winding their way through Illinois courts.
The proposed deal’s full effects on the market and brokers’ business remain to be seen, but it is clear the rule change is shifting the long-held split of responsibilities between sellers and buyers.
“It creates an incredible opportunity for brokerages to showcase their value not just on the list side, but now focusing on the buy side,” Thad Wong, co-founder of @properties Christie’s International Real Estate, said. “For too long, so much focus was put into capturing listings. Now that exact same value proposition will have to be focused on capturing buyers.”
The backstory
In the fall, a Missouri jury found NAR guilty of colluding over commission rates, marking a victory for home sellers in a case known as Sitzer/Burnett.
In the proposed settlement deal, NAR scrapped its long-held policy requiring listing agents to offer a portion of their commission paid by the seller — a rate that typically hovered around 5 or 6 percent — to the buyer’s agent. Listing agents can still split commissions with buyer’s agents if sellers agree to it, but the particulars of this split can no longer be made public to buyer’s agents through multiple listing services owned by NAR. The Chicago-area MLS managed by Midwest Real Estate Data will be subject to the new rules.
Instead of offering commission rates in the information attached to each property listed in the local MLS, seller’s agents will now need to negotiate this, perhaps with the buyer’s agent as a closing cost.
These changes are designed to increase transparency and choice to consumers on both sides of the transaction. What consumers are willing to pay will be dependent on the value they feel they are getting, not just from their agent but also from their agent’s brokerage, Wong said.
“Our industry has to get a heck of a lot better at distinguishing and communicating the value that the buyer’s agent brings,” Baird & Warner President of Residential Sales Laura Ellis said. “That’s really how we got here.”
Both Ellis and Wong’s respective firms are named in lawsuits similar to those filed against NAR.
Tough conversations ahead
The policy changes driven by the NAR settlement are set to go into effect July 1. Buyer’s agents will then have to sign a written agreement with the buyer establishing their expected commission rate and explaining that, if that rate is not paid by the seller, it will fall upon the buyer. This will need to be done before the buyer tours a single home.
Wong said he sees this as a big win for consumers who previously stumbled into owing commission to buyer’s agents without realizing it, particularly when using home search sites like Zillow.
Now, buyer’s agents will have to have difficult conversations — talks that require business savvy and experience — with buyers to negotiate contractual agreements at the start of the relationship, Ellis said.
This shift could weed out some part-time agents and others who occasionally take on deals, she said.
Some buyers may choose to go it on their own, but will have to face negotiation, financing and home inspection alone — all steps in the process traditionally made smoother by agents, Ellis said.
“I think most buyers initially will be like, ‘wait a minute, I can do this myself,’” said Mario Greco, founder of the MG Group and one of Cook County’s top residential brokers. “They’ll quickly realize that it’s not just finding the house, it’s all the contacts that your agent has, all the experience, all the know-how to get a multiple offer accepted.”
Buyer’s agents may have to adjust their expectations a bit, especially in the beginning, Greco said.
“There will be uncertainty and there’s going to be some experimentation on the part of sellers who are going to try to either diminish or eliminate buyer’s agents’ compensation,” he said. “When the dust settles, I think we’re going to come to some sort of an equilibrium where sellers will understand they are going to have to be open to paying a buyer’s agent in order to maximize the chance of selling their property.”
Ellis agreed. She is in a unique position to say how all of this might play out as Baird & Warner was an early adopter of these new policies. It began separating commission costs and drawing up contracts between buyers and buyer agents as mandated by the settlement “several years ago,” she said.
When the Oct. 31 NAR verdict landed, Baird & Warner went all the way with this change, allowing sellers they work with not to offer anything toward the buyer agent’s commission if they so choose, Ellis said. So far, most sellers are still willing to cover commission for the buyer’s agent, particularly when advised by a listing agent they trust.
Baird & Warner was sued in Cook County Circuit Court in February in a lawsuit similar to the Sitzer/Burnett case that claims it perpetuated industry practices that stifle price competition among agents.
“We’ll vigorously defend ourselves against any accusation of collusion,” Ellis told Crain’s earlier this month.
The Baird & Warner lawsuit mirrors similar cases against other major players, including Chicago-based @properties Christie’s International Real Estate. Lawsuits like these have surged following the landmark Sitzer/Burnett verdict, which found NAR and other national brokerages liable for collusion, hitting them with a $1.78 billion penalty.
An @properties Christie’s International Real Estate spokesperson said there was no update on the lawsuit against the brokerage filed in December by a homebuyer named James Tuccori.
