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My Kingdom for a Crystal Ball

CEO of Maryland REALTORS® and host of the Association’s podcast, “Get Real Estate,” which is available through any podcast app.

I don’t have to tell you that these are uncertain times. In every arena—economic, political, and societal—norms are questioned and often ignored. Conventional wisdom has been proven wrong again and again. Change is coming and we can’t deny it, hide from it, or wish it away.

The real estate industry faces existential threats from multiple class action suits and Department of Justice antitrust enforcement actions. What these times demand is honest and open minds with the ability to see the consequences of the decisions we will inevitably be required to make.

How are you dealing with it all?

We can take comfort that the economy is resilient, that real estate will always be a significant part of our gross domestic product, and that REALTORS® will always be at the center of the transaction. Our roles may evolve and the marketplace (especially the compensation model we know today) may look different a few years from now, but one constant is the need for competent professionals to help consumers with what will most likely be the most significant and complex transaction of their lives.

One of the central arguments involved in the various lawsuits is that the current system of listing properties on the MLS, in which listing brokers make offers of compensation to buyers’ brokers, is anticompetitive. Until the early 2000s, in most of the U.S. there was no legal representation for buyers of residential properties. After a broker obtained a listing, it would be published in the MLS with an offer of compensation to “cooperating” brokers. Back then, that meant subagents. Under the law of agency, and in the absence of buyer representation, every broker and salesperson worked on behalf of the seller, owing all fiduciary duties, including loyalty, to the seller. The problem, of course, was that most buyers were unaware of this, and it created a disconnect between the buyer’s expectations and the legal obligations of the brokers and agents.

Under that scenario, it made perfect sense for the listing broker to compensate the cooperating broker because they, and the agents affiliated with them, were all working on behalf of the seller. The advent of buyer representation created its own disconnect, this time between the client and the compensation. Now, although the buyer’s broker and agent owe their fiduciary duties to the buyer, it’s the seller’s broker who pays them. This is a difficult concept for many consumers to understand and for us to explain.

The lawsuits allege, among other things, that because the buyer’s broker’s compensation is set by the listing agreement and as provided in the MLS, buyers are not given the opportunity to negotiate the commission, resulting in higher home prices and anticompetitive market conditions. In future columns we will explore the substance of the complaints in greater detail.

Although permanent changes, if any, to the industry won’t be felt for several years, we are seeing significant developments already, especially relating to offers of buyer broker compensation in the MLS. As you know, Bright MLS recently implemented a policy under which a listing broker may offer $0 compensation to buyers’ brokers. Substantively this was not a significant change because under NAR’s Clear Cooperation policy it was acceptable to offer as little as $1, or even $0.01.

So, what does this mean for us in the here and now? Hopefully, not much. While a few sellers may not offer compensation to buyers’ brokers, the marketplace should consider the negative impacts of moving too quickly. First, lenders are reluctant to finance the buyer’s side of the commission. This forces buyers to shoulder the additional cost of purchasing a home. Considering already high prices, forcing buyers to take on this expense would cause hardship and price many, particularly firsttime and low- and middle-income buyers out of the market. Worse, it would likely result in buyers forgoing professional representation all together during this most consequential transaction.

Second, brokers should be concerned with this as well. Almost all firms represent both buyer and seller clients, and many of our members specialize in one or the other side of the transaction. Sellers need to understand that refusing to compensate the buyer’s broker will inevitably reduce the pool of prospective buyers who simply cannot afford the additional expense.

More fundamentally, we need to focus on getting the buyer representation agreement signed as soon as possible and explain how compensation works in the transaction. Buyers need to understand the dynamic and their options in response to different offers of compensation coming from sellers/listing brokers. Maryland REALTORS® supports legislation in the 2024 General Assembly Session to clarify what needs to be in the buyer representation agreement, then help develop educational resources for members and consumers.

We don’t have a crystal ball, and we can’t control the outcome of these lawsuits, but we can prepare for different eventualities, and we must be open to the changes that are already here and more that are coming. As always, Maryland REALTORS® will be steadfast in our commitment to our members’ success, and no more so in these dynamic times.

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