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If you have been watching the news recently, you’ve probably heard something regarding real estate commissions and a class action lawsuit. While every real estate agent across the nation is closely watching this lawsuit, many are choosing not to talk to their clients about it. This is not how TK Homes operates; we believe it is important to ensure our clients are educated and update to date on all things involving real estate. This includes the current lawsuit. So, first, what is it?

In short, the class action lawsuit took place in Missouri and was against the National Association of Realtors (NAR) and several brokerage firms. The claim is that rules set forth by these organizations and/or brokerages require sellers to offer a commission to buyers’ agents in order to list their homes in the local Multiple Listing Services (MLS). In other words, the argument is that sellers should not be paying the buyers’ agents’ commission.

First, it is important to understand that 1) all commissions are negotiable by all parties, i.e., the sellers and brokers. 2) It is true that the buyer’s agent commission is not paid for directly by the buyer; however, it is paid for by the listing agent’s commission, not directly the sellers. The broker and seller do agree on how much of the listing agent’s negotiated commission is paid to the buyer’s agent prior to going on the market. These are all important facts to understand.

We have been hearing many conversations around this lawsuit that are misleading, so next, we want to clear the air on some of the things we are hearing.

Who Actually Were the Defendants in the Case?

Many people think that individual agents and Realtors were the people actually involved in the lawsuit. The truth is that it was not any specific agent or any agent at all that was the defendant. The defendants were the National Association of Realtors and specific brokerage firms. More specifically, it was a rule(s) enforced by the defendants that required sellers and/or sellers’ agents to pay the buyers’ agents’ commission. It is important to note that even in the event there was a rule that stated buyers’ agents were required to receive commissions, the amount was not set; in fact, it could be as little as $0.01 and satisfy that rule.

Sellers Are Not Paying Buyers’ Agents Commission

As addressed above, it’s important to understand that in Colorado, at least, a buyer’s agent’s commission is paid from the listing agent’s gross commission and not directly by the seller. In regard to this common belief, the lawsuit has not changed any rules around commissions, and therefore, how buyers’ agents’ commissions are being paid for is still completely up to sellers and listing agents, just like it has always been. At the time of writing this article, more often than not, homes for sale across Denver metro are still offering buyer’s agent’s commission to be paid from the listing agent’s negotiated gross commission.

Buyers’ Agents Are Not Needed

Due to this lawsuit, some of the statements we are seeing are saying that buyers’ agents are not needed. This statement has to be one of the more harmful statements going across the internet right now. If buyers’ agents are no longer supported, then many homebuyers across America will see their excitement and dream of homeownership turn into a complete nightmare. Buyers face so many unknowns when finding a home: negotiating the terms of a home, determining a home’s value, inspecting a home, navigating the financing options for a home and so much more. Without a trusted real estate expert, buyers will be set up for failure from the beginning on the largest investment of their life. This is especially true if the sellers have an expert in their corner. There would be no one watching out for the buyers to ensure they understand what they are buying and how to navigate the contract and contingencies to get to the closing table. Ask almost any recent buyer, and they will tell you how hard their buyer’s agent worked for them to get them to the closing table and to ensure they knew exactly what they were buying. Without buyers’ agents, it’s not unreasonable to believe that many buyers will forgo buying and stick with renting.

This Is a Win for Home Sellers

Many homeowners believe this lawsuit was a win for sellers; however, many are not thinking of what the outcome of this lawsuit could force. Right now, with how commissions are paid for out of listing agents’ negotiated gross commissions, buyers can finance their home purchase including the commissions 100%. If buyers are to be forced to pay for the buyers’ agents’ commission in additional to the down payment and traditional closing costs, this will greatly increase the buyers’ costs of buying a home. This increased cost will directly affect how much home a buyer can purchase and push some buyers out of the market completely since saving up for a down payment and closing costs is already such a large burden for most buyers across the nation. With buyers being able to afford less and fewer buyers in the market, this very likely could cause home values across America to drop, and most likely more than the negotiated commission saved from the listing agent not paying the buyer’s agent.

What’s Next and What Do You Need to Know

Ultimately, as of right now, nothing has changed when it comes to real estate and commission laws in Colorado or across the nation. Commissions are still 100% negotiable, including paying a buyer agent’s commission from the listing agent’s commission. It is the opinion of both TK Homes and most real estate professionals that allowing buyers to keep their funds available for their down payment and closing costs helps sellers receive the highest number of potential buyers in the market, increasing competition and ultimately selling homes for higher values which benefits sellers. We will continue to work with homebuyers and sellers to educate them on the most current real estate matters and provide the best advice for sellers to net the highest amount of money for their home.  We will work endlessly for our buyers to ensure they are able to navigate the rough seas of buying a home and help educate them on every aspect of the transaction to ensure they get to the closing table and are excited about owning a piece of the American Dream.

We encourage your feedback and thoughts. If you have questions, suggestions and thoughts regarding this matter, we encourage you to send them to us at trevor@yourtkhomes.com. Otherwise, we continue to be available to help our buyers and sellers achieve their real estate goals. 

~ Written by CEO/REALTOR® Trevor Kohlhepp