Research helps make sense of real estate commissions and the role of multiple listing services.
In the wake of recent class action litigation, the real estate industry has been inundated with misleading information regarding real estate commissions and the role of multiple listing services (MLSs). This misinformation, often based on outdated research and needing more consideration of current market conditions, has created confusion among homebuyers and sellers. Moreover, there needs to be more discussion about the potential negative implications of proposed settlements on fair housing and homeownership access.
The March 15 agreement announced by the National Association of REALTORS® (NAR) regarding ongoing litigation involving NAR, numerous brokers, associations, and MLSs aims to resolve the majority of lawsuits by requiring NAR to pay hundreds of millions of dollars and implement new practices among brokers, agents, and MLSs.
A significant aspect of this settlement revolves around offering buyer agent compensation within the MLS. Multiple listing services, such as Bright MLS, typically only record the compensation amounts initially offered by sellers and their agents to a buyer’s agent, known as the “offer of compensation.” However, the MLS does not track the fee paid by a seller to their agent or the final compensation received by the buyer’s agent, as these amounts are subject to negotiation during the home-buying process.
While the settlement will introduce changes to these negotiations, many current practices will remain unchanged. Buyers and sellers will still be free to negotiate commissions with their agents, including the option for sellers agent to share part of their commission with a buyer’s agent or offer direct payment. However, the settlement will prohibit listing agents from using the MLS to communicate offers to pay a buyer’s agent, necessitating direct negotiation.
If not implemented carefully by agents, brokers, and MLSs, these proposed changes have the potential to complicate and reduce transparency in the home buying process. There’s a risk of more listings occurring outside of the MLS, which could be less efficient and pose fair housing challenges, particularly impacting first-time and moderate-income homebuyers.
In response to various assertions about the home-buying process following the settlement agreement, Bright MLS researchers conducted an analysis of over one million home sales transactions within their service area (i.e. Mid-Atlantic, with market intelligence currently covering Delaware, Maryland, New Jersey, Pennsylvania, Virginia, and West Virginia). This analysis revealed that many claims made in the media and elsewhere are not supported by market data, challenging misconceptions about real estate agent behavior and commission impacts on home prices.
Bright MLS undertook extensive research on four years of home sales transactions to address this misinformation and provide clarity. This research aimed to analyze actual market data and dispel common misconceptions. The findings shed light on several critical aspects of the ongoing discourse.
Misconception about Buyer Agent Compensation: One significant aspect of the recent settlement involves changes to how compensation for buyer agents is communicated within the MLS. Despite concerns, the proposed changes will not eliminate commission negotiation practices. However, caution is needed in implementing these changes to prevent complications in the home-buying process, especially for first-time and moderate-income homebuyers.
Debunking Myths with Data Analysis: Bright MLS’s research on over a million home sales transactions across multiple states and the District of Columbia debunked several common myths. Contrary to claims, no evidence suggests that real estate agents steer buyers toward properties with higher commissions. Higher commissions do not drive home prices; other factors, such as property characteristics and mortgage rates, have a more significant impact.
The Role of MLS in Fair Housing: MLSs play a crucial role in creating an open and fair housing marketplace by providing widespread access to property information. However, proposed changes in the settlement agreement regarding the communication of buyer agent compensation through MLS may impact transparency and efficiency if not implemented carefully.
Value of Buyer’s Agents: Despite claims suggesting diminished importance, Bright MLS’s research highlighted the value homebuyers place on having knowledgeable buyer’s agents during the purchasing process. The expertise and guidance provided by these professionals are essential for navigating the complexities of the real estate market, especially for first-time buyers.
Overall, Bright MLS’s data-driven analysis provides valuable insights into the ongoing discussions surrounding real estate commissions and MLS practices. Ultimately, ensuring fairness and accessibility in the housing market requires a nuanced understanding of market dynamics and a commitment to data-driven solutions. When evaluating the potential impacts of proposed settlements and implementing changes to industry practices, stakeholders must consider these findings.
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