San Mateo County real estate agents are starting to see changes in multiple listing services, which will need to be completed by Aug. 17 to comply with a recent lawsuit settlement involving the National Association of Realtors.
Settled earlier this year, the $418 million case has national implications for the real estate industry, as the ruling cracked down on a long-held real estate agent practice, where buyers agents were effectively guaranteed predetermined commissions that their clients, or homebuyers, were often unaware of, largely due to MLSs’ prohibitions. The ruling deemed such practices anticompetitive, as they did not allow homebuyers to negotiate commissions, and it also incentivized buyer brokers to filter out properties that offered lower commissions without their clients’ knowledge.
But the new changes will prohibit offers of compensation on MLSs, and agents will have to enter in a written agreement with their client before viewing properties.
“It creates a great opportunity for more negotiation, and it creates a lot of transparency for the buyer,” said Jennifer Branchini, regional vice president at the National Association of Realtors and a Bay Area-based real estate agent at Compass.
Sellers can still agree to concessions or offer a percentage to buyer agents, but the amount and conditions will be clearly communicated to buyers in the form of a written agreement.
Branchini said the change is welcome for the industry. Many brokers already communicate to their clients how their commission compensation breaks down, but this formalizes the process and allows more transparency for buyers, she said.
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“It creates consumer choice, because now if you’re selling your home as a listing agent, you’re going to interview three agents, you’re going to decide on who is the best, who has the best plan and who you get along with best,” she said. “It does create a new level of competition but it helps agents demonstrate our value — what it is that we do and what we offer.”
The written agreement must include a specific rate of compensation and a clause prohibiting agents from receiving compensation for brokerage services higher than what is stated in the agreement. It must also explicitly state that the commission rates are negotiable and not set by law.
But with San Mateo County consistently ranking as the most expensive area to buy a home in the region, seeing the full commission costs early in the process could dissuade some prospective buyers from continuing their search, or perhaps more likely, deciding to take on the endeavor alone.
Branchini said that before the verdict came out, she closed on a transaction in a neighborhood she knew tended to have water and foundation issues, something her client wouldn’t have known if they decided to undergo the process alone.
“I told my buyer, ‘I am uncomfortable letting you close on this without doing these additional inspections, and here is the amount of money you could spend if you don’t do this,’” she said, adding that about $70,000 worth of work was needed upon further investigation. “This is why buyers have representation, and why it’s so important.”
Some organizations have already made the change to prepare in advance of the deadline, though all listing updates must be made by Aug. 17.
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