Continue reading further below for Why is commission so high, What is the cooperative compensation rule, What was the Burnett case about, and the NAR Settlement.
The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the National Association of Realtors (NAR) and subscribes to its strict Code of Ethics, which is based on professionalism and protection of the public.
“Real estate agents provide critically needed guidance and support to Americans during what is one of the most consequential and expensive transactions they will make in their lifetimes. Real estate agents support their clients in myriad ways, including:
- Helping buyers and sellers navigate a maze of forms and complex paperwork;
- Coordinating with lenders, inspectors, other agents, escrow companies, title companies, appraisers, and other professionals;
- Ensuring that our clients’ interests are represented in pricing, negotiation, and closing;
- Helping our clients interpret the information they find online or elsewhere;
- Speaking with our clients at all hours, through the highs and the lows, and help to navigate unexpected situations and solve problems.” [NAR]
- Not only can selling or buying a home be stressful for clients and agents in general, they still have their other life stressors going on at the same time. Realtors are often not just agents but also counselors. Having agents negotiate on your behalf, instead of buyers and sellers communicating directly with each other, has saved countless deals from falling through due to emotions running high. The company Fullfeel puts it well: “Real estate agents are in a unique position. They are dealing with people’s emotions, their money and their dreams.”
“Nine out of ten people who work with an agent say they would use their same agent again or recommend them to others.” https://www.nar.realtor/competition-in-real-estate/faqs
Why is commission so high?
Sales position. Real estate agents are salespersons and typically receive payment only when a home is sold (unless other arrangements are made in the representation agreement). Salespersons do not always get paid for their work (running a self employed business, procuring potential clients, cancelled listings, market analyses, showing property, etc.). Agents take a huge risk with their livelihood and cannot predict when their next paycheck will come in. With this type of payment structure, the payoff needs to be advantageous.
Liability. Selling homes involves large volumes of money. Agents need to be very professional, diligent and responsible with these valuable transactions.
Stress. Many times, agents deal with stressful situations, difficult personalities, high pressure environments, financial uncertainty, and the difficulty of balancing their personal and professional lives.
Commission Splits. The listing commission is usually divided among many parties (listing brokerage, listing agent, buyer brokerage, buyer agent). In addition, agents have listing expenses, business expenses, and self employment expenses.
Reality of commission. Although real estate commission can be the biggest expense for a seller, most agents are unable to make a living wage in real estate and leave the industry. According to NAR, 75% of real estate agents fail within the first year and 87% fail within the first five years. Those that truly love the work, work hard, do a good job, and can cope with the mental and emotional stress are able to make real estate their livelihood. Real estate agent salaries range from an average of $28,270 for the bottom 10th percentile up to $102,170 in the top 10th percentile (according to Indeed.com and Aceable Agent). There are agents that make more and a few that make millions, but this is less than 10% of agents in the United States.
What is the cooperative compensation rule?
“NAR’s cooperative compensation rule requires listing brokers to communicate the amount they are offering to pay a buyer’s broker for their work. Cooperative compensation benefits consumers and creates efficiency in the real estate market. It was a part of real estate before NAR had rules, it is a part of real estate in cities that do not follow NAR’s rules, and it is authorized by state real estate laws (including Missouri) and federal housing policies.
The practice is a good thing that benefits buyers and sellers. Sellers can have their home seen by more buyers, ensure they receive the best offer, and ultimately sell it for more. Buyers benefit from professional representation in what for many will be the most significant, complex purchase of their lives.
The model promotes access to homeownership, and we believe it benefits everyone involved in a transaction. For lower- and middle-income buyers in particular, saving for a down payment can be difficult enough. Adding broker compensation on top of closing costs would push the dream of homeownership even further out of reach.
https://www.nar.realtor/competition-in-real-estate/faqs
What was the Burnett Case about?
“This Missouri case was brought by a local plaintiffs’ lawyer who claims that NAR and others set out to harm consumers by fixing commissions. NAR does not require, suggest, or even track broker compensation or commissions—compensation can be a percentage, fixed rate, hourly rate, or any other arrangement. Compensation is negotiable between agents and their clients.
NAR’s policy, despite how it was misrepresented in a Missouri courtroom, does not require sellers to do anything and it requires only that listing brokers communicate the amount they are offering to pay a buyer’s broker for their work—this helps ensure transparency and efficiency for all parties in a transaction, it benefits sellers by bringing more potential buyers to a home, and it benefits buyers by ensuring they have representation, if they want it.
Also, NAR’s policies expressly prohibit MLSs, associations, and brokers from setting or suggesting real estate commissions or fees. NAR has numerous anti-price fixing rules and guidance, including our MLS rules, which expressly state that “[t]he broker’s compensation for services rendered in respect to any listing is solely a matter of negotiation between the broker and his or her client, and is not fixed, controlled, recommended, or maintained by any persons not a party to the listing agreement.”
https://www.nar.realtor/competition-in-real-estate/faqs
NAR Settlement
“…NAR continues to deny any wrongdoing in connection with the Multiple Listing Service (MLS) cooperative compensation model rule (MLS Model Rule) that was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation. Under the terms of the agreement, NAR will pay $418 million over approximately four years….”
In addition to the financial payment, NAR has put in place a new MLS rule prohibiting offers of broker compensation on the MLS. This means offers of broker compensation can no longer be communicated via the MLS. They can however be communicated through off-MLS websites, negotiations, and consultations with real estate professionals. “Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them.”
Further, NAR has agreed to enact a new rule that requires MLS participants working with buyers to enter into written agreements with their buyers, as was already common practice here in Idaho.
Have questions or need help? Contact us:
Charles Weymouth | 208.371.5500 | charles@movingboise.com
Melissa Wood: 208.283.5107 | melissa@movingboise.com
Silvercreek Realty Group, 2419 W State St Boise ID 83702
Moving Boise 