Real Estate commission changes in NCW

Adam Rynd
Owner and Designated Broker of Coldwell Banker Cascade Real Estate

Ask any real estate professional in North Central Washington about their summers and you’ll hear about balancing busy professional schedules with enjoying the beautiful region we call home. This summer, you’ll also hear about changing industry practices that residential real estate brokers must adopt while juggling their client relationships and responsibilities.

Let’s explore what led to these changes and the real implications for buyers and sellers of residential real estate in North Central Washington.

Background

Real estate brokerage compensation has often confused many consumers. When you hire most professionals to perform a job, their compensation is directly paid by the party they represent. That compensation is also commonly based on either the hours worked or a fixed fee.  Most attorneys and accountants, for example, bill an hourly rate based on their time while title and escrow often charge fixed fees. It’s rare to pay a percentage-based commission for work and even less common to pay for a service someone else needs. 

Compensation for real estate brokers is different. Since the early 1980s, pay has been almost entirely contingent, based on a percentage of the transaction value, and often been paid by one party (the seller) on behalf of both parties. Simply put, sellers typically pay percentage-based commissions when their home sells and they also pay the broker representing the homebuyer. If the sale doesn’t close, typically no broker gets paid.

Lawsuits and Settlements

Several class-action lawsuits were filed across the US in recent years, starting in 2019 with a Missouri lawsuit filed on behalf of 500,000 home sellers. Their stated goals were to change compensation practices, enhance transparency, and ensure a competitive marketplace. 

The first major federal verdict was announced in late October 2023 finding that National Association of Realtors® (NAR) and other defendants “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law”. Since then, settlements were reached among NAR, most major real estate firms, and plaintiffs, leading to industry changes. (Attorneys representing plaintiffs also made a LOT of money…)

The resulting changes go into effect on August 17, 2024, with the intent to benefit both buyers and sellers. They require written representation agreements for brokers working with buyers and improve transparency about compensation. Unfortunately, some news articles about changes related to the settlement caused confusion among buyers and sellers who think buyer commissions have been “eliminated” or may now be “illegal”.

Here are the two key changes adopted by the National Association of REALTORS®:

1. Written Agreements to Represent Buyers: NAR now requires brokers working with buyers to enter written agreements with their buyers before representing them.
2. Eliminate Upfront Compensation Requirement: NAR no longer requires listing brokers to offer upfront compensation to buyer’s agents.

In Washington State, the real estate industry has proactively changed in recent years to create a more transparent and consumer-friendly market. Those include requiring buyer brokerage representation agreements (effective January 1, 2024) and changes to our real estate forms to support more open negotiations about compensation (starting in 2022). This month will see even clearer options for sellers to (a) offer a buyer broker commission, (b) ask the buyer to propose buyer broker compensation, or (c) decline to offer any buyer broker compensation.

Why Sellers Should Care

When selling your home, you will typically sell for more and have the best experience by working with full-service real estate brokers. You want your home to look its best, get the most exposure to the market, and sell for the highest value. Your listing broker does their best to represent you throughout the process. Buyer brokers also play a key role by promoting your home to their clients and helping facilitate a smooth transaction. 

By offering buyer broker compensation, sellers achieve several goals:

• Attracting More Buyers: When a seller offers an attractive buyer broker commission, it motivates agents to show the property to their clients. Broader exposure attracts more potential buyers. Buyer brokers also need to be paid for their time and expertise.
• Higher Sale Price: Exposing your home to a wider pool of potential buyers often results in a higher sale price. Offering to pay the buyer brokerage compensation even helps buyers afford more than if they directly pay a buyer broker to represent them.
• Professionalism: Selling your home can be a stressful experience. Choosing a great listing broker is important and buyer brokers provide professional guidance to their clients. Their professional experience should help streamline the transaction.

You should get what you pay for with professional services and real estate compensation is no different. Start by choosing an experienced, full-service real estate broker with a great reputation to list your home. Be sure they are locally-based so they actually know the market and have professional relationships with buyer brokers in the community.

When you invest in hiring a local listing broker and offer buyer broker compensation, you should expect to get a much better result from your home sale.

Adam Rynd, a licensed real estate Managing Broker, is the Owner and Designated Broker of Coldwell Banker Cascade Real Estate.