The National Association of Realtors recently reached a nationwide settlement that could change the way real estate agents are compensated, but what effect it will have in Milwaukee and throughout the state is hazy.
“It will impact me and my brokerage and my agents. Exactly how remains to be seen,” says Tom McCormick, broker/owner of Exit Realty Horizons, which has offices in Wauwatosa, Germantown and Hartland.
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The settlement is focused on increased transparency and policy changes that are being lauded as a means to spur price competition for agents’ services and lower the cost for sellers who now typically cover the commission for the buyer’s agent, as well as that of their own.
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This, in turn, could mean that more homebuyers who may already be struggling to come up with a down payment for a home would now be forced to pay out of pocket for their agent’s commission, stretching their finances even further.
But the effect of the settlement could be less dramatic here than elsewhere due to Wisconsin’s reputation and practice as a strong pro-consumer state, Greater Milwaukee Association of Realtors President Mike Ruzicka says. “We actually have a lot of pieces already in place that make the transaction transparent, which apparently it wasn’t elsewhere,” he says.
The national conversation about the settlement has focused on the elimination of the guaranteed 6% broker commissions on home sales. But those commissions aren’t set in stone in Wisconsin, Ruzicka explains.
“A lot of times there is a commission that is split between the buyer and seller brokers, but it’s not 6%,” he says. “It’s always been negotiable. Each broker has their own policy. It’s all over the map. There are discount brokerages, too. There are many different models.”
The settlement will at least raise awareness about the negotiation process, Ruzicka says. “It’s probably a good thing because it’ll require brokers to explain to their seller what their policy is and what they’ll do for you,” he says.
The policy changes could help spur price competition for agents’ services and lower the cost for sellers who now typically cover the commission for the buyer’s agent, as well as that of their own.
Regardless of the fallout from the settlement, it won’t change marketplace dynamics, which is the biggest hinderance to home buying and selling right now, McCormick says.
“Nothing about the settlement is going to alter the fundamentals of the marketplace,” he says. “Settling a lawsuit and agreeing to some changes in rules doesn’t create more inventory. It doesn’t affect affordability. It doesn’t make buying or selling a home any less complex. There are a lot of moving parts in a real estate transaction. None of that is going to change.”
The settlement comes after a jury last year found that Realtors had conspired to keep commissions artificially high. Some industry observers believe the settlement could lower the cost of buying and selling a home, while also having the potential to drive some real estate agents out of business.
In October, a federal judge found the National Association of Realtors and some residential brokerages liable to pay damages for conspiring to artificially inflate commissions for home sales.
“The case involved the sellers not understanding what their commission was to the opposite broker, the buying broker,” Ruzicka says.
Under the proposed settlement, a broker who represents a seller would no longer be allowed to include a blanket offer of cooperative compensation to a prospective buyer’s agent when they advertise the property on NAR-affiliated Multiple Listings Services (MLS), where a majority of U.S. homes are listed for sale.
This policy change is meant to remove any incentive from a buyer’s agent to steer their client away from home listings that don’t include a cooperative compensation offer.
In Wisconsin, the commission has been disclosed in MLS and other real estate technologies that make the transaction more efficient.
“Most consumers don’t see that, I understand,” Ruzicka says. “But it’s also disclosed in the listing contract. So, every time someone signs a listing contract, the Realtors discuss every component of that contract and one of them is the policy of how the brokerage compensates the broker who brings the buyer to the deal.”
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Broker compensation could be a percentage of the deal or a specified and negotiated dollar amount, Ruzicka explains.
Wisconsin is one of limited number of states that has state-issued contracts, he says. “What Realtors fill out in Wisconsin is approved and overseen by the state, which is one of the reasons the contracts are so pro-consumer,” Ruzicka says.
As part of the settlement, the NAR agreed to no longer require a broker advertising a home for sale on MLS to offer any upfront compensation to a buyer’s agent. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, though the home seller’s broker must disclose any such compensation arrangements.
“The settlement doesn’t affect Wisconsin state law. I’ve been talking about this with my agents since the verdict in the case,” McCormick says. “Rates are always negotiable. Always have been, always will be. State law says so in Wisconsin. I can’t speak to the other 49 states but in Wisconsin there is no such thing as a standard commission. It says so in the listing agreement. Rates are negotiable.”
Under the terms of the settlement, an offer of compensation from the listing broker to another broker, whether that’s a subagent or a broker who brings in a buyer, can no longer be included in the MLS.
“What that means for us as practitioners in this marketplace is that we need to figure out another way to communicate what we are offering to compensate who brings a buyer to our listing,” McCormick says.