Washington, D.C. – A week ago, the National Association of Realtors (NAR) announced a decision of their board to allow real estate brokers, agents, and portals to publish information about buyer broker commission rates offered to buyer brokers by listing brokers (and their seller clients) through local multiple listing services (MLSs). In the past, these commission rates were available to agents and brokers but not to consumers nor to third parties such as researchers and journalists. Most significantly, real estate portals such as Zillow, which are used by most buyers in their property search, will be able to publish the buyer broker rates in their home listings.
“NAR is not requiring its member brokers to publish the buy-side rates, and most probably won’t, but the publication of the rates by Zillow and Redfin would effectively give all home buyers and sellers access to this information,” noted Stephen Brobeck, a senior fellow at the Consumer Federation of America. “The publication of buy-side rates would help buyers prevent their agents from steering them to higher-commission rate properties and would discourage buyer agents from this steering. However, buyers still could not effectively negotiate buyer broker compensation because sellers would continue to pay these commissions,” he added. (Redfin functions both as a discount broker and as a real estate portal with information on all MLS listings.)
Academic research, which is not disputed, has shown that some agents steer buyers away from low-commission properties, or to high-commission ones. CFA research to be released in the near future shows that most buy-side commissions in numerous U.S. cities are either 2.5 percent or 3.0 percent, with a few commissions as low as 2.0 percent. “Since buy-side rates have been hidden from consumers and the public, there have been opportunities for unscrupulous agents to discourage buyer interest in properties carrying a rate below 2.5 percent and to encourage buyer interest in homes with rates that are at least three percent ,” said CFA’s Brobeck.
“Most buyers will likely ignore published buyer broker rates primarily because buyers do not directly pay commissions and because these buyers will not understand the risks of steering,” noted CFA’s Brobeck. “Yet, the fact that the rates will be available for inspection not only by buyers but also by third parties including trial lawyers will increase the chances that agent steering will be caught. That risk to agents should help discourage the unfair practice, which state real estate commissions have an obligation to monitor,” he added.
The publication of rates could also be of some help to home sellers. “With the publication of buy-side rates, sellers can have more informed discussions with listing agents of the rate that should be offered to buyer brokers,” CFA’s Brobeck stated. Also, both sellers and their listing agents may be more willing to offer buyer agents a lower rate knowing that agent steering will likely be less frequent. “In an area in which both 2.5 percent and 3.0 percent rates are common, publication of buy-side rates may encourage more listing agents to recommend the lower rate,” he added.
Washington State May Provide a Preview of Publishing Buy-Side Rates
In 2019, the Pacific Northwest MLS – which services most of Washington State including the heavily-populated Puget Sound area – allowed agents, brokers, and portals to publish buy-side rates. Initially, only Windermere Realty and Redfin agreed to do so. Today, however, this rate information is also available in Zillow listings and those of several other major firms.
Earlier this month, CFA surveyed home listings by 18 major firms and portals in Washington State. We found that the following firms and portals include buy-side rates in their property listings: Windermere, John L. Scott, RE/MAX, Coldwell Banker (not prominently), Bex Realty (not prominently), Trulia (not prominently), Redfin, and Zillow. Windermere, John L. Scott, and Redfin were first established in the Seattle area.
The following firms and portals do not disclose buy-side rates: Keller Williams, Century 21, Zip Realty, Sotheby’s, Compass, Christies, Blue Summit, Berkshire Hathaway, Rocket Homes, and Realtor.com.
“It is probably too early to identify changes in agent or consumer behavior resulting from the publication of buy-side rates in Washington State, but any changes are much more likely to first be visible there than in other parts of the country,” noted CFA’s Brobeck.
Rate Disclosure Not Sufficient to Allow Effective Rate Competition
Still, NAR’s step forward will not allow the price competition that exists in most other consumer markets. “Until listing and buyer agent commissions are untied, there can be no real price competition on buy-side rates because they are set by listing agents (and sellers) and are not paid directly by buyers,” said CFA’s Brobeck. As much research (including some commissioned by NAR) has shown, commission rates in the U.S. are higher than in almost all other developed countries. Most rates for total commissions in Great Britain, for example, range from one to two percent compared to five to six percent in the U.S.
Major class action law firms have sued the industry in an effort to untie commissions, and the Biden administration’s antitrust agenda also focuses on this issue. It is widely believed that NAR’s recent policy change was, in large part, an attempt to defend tied commissions in the court cases and before DOJ. Last year, Trump’s DOJ sued then reached quick agreement with NAR on disclosure and agent favoritism issues. Earlier this year, DOJ’s antitrust division, now led by career officials, withdrew from the agreement, which would have limited future DOJ scrutiny of anti-competitive industry practices such as tying.
Contact: Stephen Brobeck, email@example.com