Real estate practices changed on August 17, 2024 resulting from a settlement between the National Association of Realtors (NAR) and plaintiffs in Missouri and other locations (no such litigation in Colorado because we already had “agency”). The two issues argued in the Missouri case were: lack of transparency about how buyers’ real estate agents are paid; and its effects on real estate costs. Called commissions before the settlement, the fees are now called compensation.

 

This article is not a discussion of the issues debated, settled, or unsettled. It is a nuts-and-bolts narrative on how buyers and sellers may enter into listing agreements to buy or sell homes.

 

Agency: In 1999, Colorado instituted mandatory written agency for licensees working with buyers. Called an Exclusive Right-to-Buy Listing Agreement, it formalized for buyers what sellers have done with listing agents for decades…a written agreement describing their working relationship. Both buyer and seller listing agreements define services, costs, and how agents will be paid.

 

Then, but not now, listing agents were required by NAR to state in MLS their co-op commissions. To some observers, this could result in “steering” if agents selected homes for buyers based on co-op fees. In theory that was possible, but in fact almost unheard of. For the past 30-plus years, buyers, not agents, have selected the homes they see using the Internet process. However, it is fair to say almost all buyers were indifferent to their agent’s co-op fees because they didn’t pay them directly.

 

The Changes: Today, all agents across the country must have a written listing agreement with buyers before showing them a home (again, nothing new in Colorado since 1999). What is new is that NAR prohibits in MLS any statement or reference to buyer’s agent compensation, so buyer’s agent DON’T know what or if they will be paid by the seller or the listing agent. This prohibition has produced the following changes:

 

Buyer’s Agent: That agent must have a written buyer’s agreement stating a specific, fixed compensation amount, how it’s earned, and who may pay it. Historically, sellers have paid through their listing fee a co-op to buyers’ agents vs buyers paying it. Why? Because buyers will always have limited funds to buy, and paying an agent is not on their list of closing expenses, especially first-time buyers. In the buyer’s Contract to Buy, Section 29 offers three choices about who pays what to the buyer’s agent: the seller, the buyer, or the seller’s agent brokerage.

 

Seller’s Agent: That agent has always had a written seller’s listing agreement stating duties, brokerage fee, and when it is earned. What’s new is in Section 7.1.1, Sales Compensation, which states what and how seller paid fees can be used for. This change allows for greater transparency and understanding in various and variable fees for services. It may be further expanded or clarified in the listing agreement’s Additional Provisions, Section 28.

 

Ostensibly, the listing brokerage fee may be for the listing agent’s listing services only; or if the listing agent sells the property to an unrepresented buyer; to pay a co-op fee brokerage-to-broker; or for the seller to pay the buyer’s agent at closing.

 

Does all this seem confusing and perhaps unnecessary given that all buyers want to do is buy, and that all sellers want to sell? At first glance that might seem to be true given that sellers will most likely continue to pay all brokerage fees for reasons mentioned. I believe that these changes will be good for consumers and agents alike promoting both transparency and a better understand of fees and their usage.

 

Lastly, the new process stresses that all fees are negotiable subject to market forces and professional services. This will allow better agents to better explain their costs and services while others might not.

 

Ultimately, consumers and the real estate industry will benefit from it. Knowledge is power.