PAYING AGENT COMMISSION

2024 Rules Change

The way real estate commissions are paid is changing.

THE ISAACS TEAM

Compass
1313 14th St
NW DC 20005

PAYING AGENT COMMISSION IN WASHINGTON DC

Change is coming to the way real estate commissions are paid.  Here’s what’s changing and why it matters to you.

What DC agents are paid isn’t mandated to change–just how, when, and potentially by whom

With new rules stipulated in the March 15 2024 settlement agreement for the Sitzer-Burnett v. NAR lawsuit and the DOJ’s position on decoupling commissions, DC home buyers and sellers now have fairly strong guidance on the ways agent compensation payments might be made.

NAR conceded to removing offers of cooperative commissions from the MLS. If the settlement is approved by the court, beginning in mid-July 2024, no offer of buyer broker compensation will be published on the MLS. This does not mean commissions are decoupled from sellers. Sellers may still offer cooperative compensation to buyers off-MLS.

In mid-2023, Bright MLS (our area multiple listing service) changed its rules, allowing zero compensation as an option on MLS.

Primary Settlement Agreement Points

  • Buyers and their agents must enter into a representation agreement at the onset of a relationship
  • Offers of commission payment can not be published on Multiple Listing Services, they will be set forth in listing and buyer agency agreements, posted and negotiated off-MLS
  • Sellers, buyers and their agents may still negotiate commissions
  • Other forms of seller cooperation such as closing cost credits remain or rate buy down offers are permitted to be published on MLS as long as they do not pertain in any way to broker compensation
  • Selling brokerswill be authorized to receive only the amount of commission offered in the buyer agency agreement, regardless of offers of cooperative compensation offered by a listing side. If the “cooperative” percentage is greater than the percentage agreed to in the BAA, the seller retains the difference.

The NAR | Sitzer-Barnett settlement is still subject to court approval.

Other class action suits are pending and may further impact the way commissions are paid to real estate brokerages.

Dates To Calendar

August 17, 2024

Listings will no longer display commission values on Bright MLS

Importance Of Cooperation

Cooperation not only widens the buyer pool for sellers, it creates a layer of opportunity and fairness for home buyers who can’t afford the high costs involved in a home purchase, such as down payment, closing costs, out-of-pocked expenses like inspection and appraisal, and also comply with mortgage loan reserve requirements.

Some industry experts go so far as to say that abolishing cooperation would equate to a step backward for equal housing.

While negotiation of cooperative commission for each individual transaction seems fair on its face, it can put many buyers at a disadvantage. There is also potential for favoritism,  discrimination and equal housing abuses. Sellers and listing agents may face increased liability in transacting with unrepresented buyers.

Current Commission Practices

*Subject to change mid-July 2024

Important Points

  • All commissions are negotiiable.
  • Brokerages often impose minimum transaction commissions of 2.5% on agents under their affiliation. It is not illegal for businesses (brokerages) to set pricing standards, nor does this practice seem to run afoul of the rules designating agents as independent contractors rather than brokerage employees
  • Most brokerages require agents to join NAR, GCAAR and MLS 
  • Representation of buyers requires approvimately four times the amount of work and time that seller representation requires
  • Agents will perform more work, and work for a much longer period of time on some transactions than on others.
  • Transactions require varying degrees of skill, knowledge and experience. Under the current system, adjustments are not made for these conditions, which are often not evident until a transaction is underway.

Buyers

For now, the practice of sellers paying buyer broker commissions as a split (“cooperation”) of listing broker commission continues, with the following changes:

  • Bright MLS now allows offers of 0% for selling agent compensation
  • Some sellers may choose to test the market by offering low or no commission.

Sellers have historically built commissions into the list prices of properties. Over time, this practice has embedded commission within ‘market rate’ valuation. The extent to which this practice has affected market values is a variable that cannot be quantified because many factors affect the equation per transaction.

Co-Op Broker (buyer agent) commission is not “free,” because to some extent, it inflates real estate prices, but buyers effectively finance it with the transaction, factor it in when they list and ‘pay it forward’ to their buyer when they sell.

It’s important to know:

  • Commissons are always negotiatable between sellers and listing brokers (seller representation);
  • Cooperative commission, if any, offered to selling brokers as a split of the listing broker commission is specified in individual listings, and posted on the MLS. This can be negotiated at the direction of the buyer in some circumstances, prior to showing the property, or during the transaction process, but not as a part of an offer to purchase;
  • Value of selling (buyer) broker commission is outlined in the GCAAR Buyer Agency Agreement signed when buyers hire an agent. It also allows for negotiation between selling broker and buyer.

Selling brokers and buyers do not set the rate of “cooperation” commission offered to the selling broker on individual property listings. This is establised by the listing broker and seller at the time the listing agreement is signed.

The selling broker is authorized to accept the full amount of “cooperation” commission and/or bonuses offered, regardless of the commission stipulated in the Buyer Agency Agreement. If the “cooperation” amount is less than the commission % agreed to in the BAA, the buyer makes up the difference or requests negotiation as outlined above.

Commissions are due on the date of settlement, paid from seller proceeds and/or added to buyer closing costs, facilitated by the title company or attorney managing the transaction.

Sellers

For now, the practice of sellers paying buyer broker commissions as a split (“cooperation”) of listing broker commission continues, with the following changes:

  • Bright MLS now allows offers of 0% for selling agent compensation
  • Buyer agents must check the cooperative compensation offering for each listing before showing

Sellers typically factor commissions into the list price of the property. Over time, this practice has embedded commissions, along with other sales transaction costs like transfer tax, staging and home improvements, within ‘market rate’ valuations.

It is important to know:

  • Commisson is negotiatable between sellers and listing brokers (seller representation).
  • Cooperative compensation (seller commission to buyer broker) is negotiable between sellers and listing brokers, and is not required
  • Commission is negotiable between buyers and selling brokers (buyer representation).

Under current practices, sellers and listing brokers set the rate of “cooperative compensation,” if any, offered to the selling broker on individual property listings. This is established at the time the listing agreement is signed.  The GCAAR (Greater Capital Areas Assn of Realtors) listing agreement form is used in the DC Metro Area.

We will discuss market implications for various commission options at our listing signing appointment.

Dual Agency

We do not currently practice dual agency (one agent representing both the seller and buyer in the same transaction). We may refer buyers from inquires or open houses to a team member for representation and collect a referral fee from the referred agent.

We practice and recommend Designated Agency, in which the buyer and seller are both represented by the same brokerage (but by different agents).

What Is A "Brokerage Fee?"

A brokerage fee, also known as ‘additional commission fee’ and previously as an ‘admin,’ ‘processing,’ or ‘ABC fee’ is a mandatory add-on fee most brokerages charge home buyers and sellers atop commissions. This fee–erroneously attributed to agents– is imposed by brokerages and paid directly to the brokerage. The agent receives no split of this fee.

What’s it for? Brokerages don’t provide a complelling justification for this fee, even to their agents. In its past form as the “admin fee,” it was ruled to be illegal by U.S. District Judge Virginia Emerson Hopkins (Birmingham, Ala.), whose 2009 decision in Vicki V. Busby v. JRHBW Realty, Inc. found the vaguely titled “admin fee” illegal based on Section 8(b) of RESPA which clearly states that no fee may be charged for the rendering of a real estate settlement service other than for settlement services actually performed. The decision was the result of a class action lawsuit. Her ruling didn’t end the practice, however, since all federal courts did not agree with Hopkins’ interpretation of the statutory language on unearned fees. Brokerages concerned about optics or legalities simply changed the names of their fees to “additional commission,” ‘transaction fee,’ ‘compliance fee’ or similar labels, and continued the practice, regularly increasing the amount of the fee. The bottom line is simply that it is a junk fee.

If a buyer or seller negotiates the fee, they are effectually asking their agent to pay it (in addition to the commission split and fees the agent is already paying the brokerage) because if it is not paid by the client, the brokerage will automatically assess it to the agent.

This should be part of the commission payment conversation between agents and their prospective clients.

Feel Free To Ask Questions

Please feel free to ask any questions you may have about Agency and broker compensation during our first meeting. The topic is also referenced on several pages of our website:

Disclaimer

This page is intended as educational content and represents the subjective opinion of The Isaacs Team LLC, its principal and agents. It does not represent the views or position of the Domo of Compass team and/or the Compass brokerage.

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THE ISAACS TEAM

Compass
1313 14th St
NW DC 20005

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