Realtor settlement in Missouri promises cheaper commissions, but may not have as much impact in Texas because of how it treats buyer’s agents

home for sale in Lubbock, Texas

A home for sale in the Tech Terrace Neighborhood of Lubbock

A legal settlement in Missouri this year promised to make real estate commissions cheaper nationwide for people buying or selling a home.

CBS News claimed it could reduce commissions by 30 percent.

“Housing experts expect the deal to shake up the housing market and even drive down home prices across the board,” CBS News reported.

But that’s probably not as much the case in Lubbock and Texas because of how the Lone Star State treats real estate agents representing home buyers.

In Lubbock, the professionals we talked to including Michael Hutton, president of the Lubbock Association of Realtors, said those promises are too good to be true.

“It actually in my opinion takes us back decades,” Hutton said, explaining Texas developed protection for buyers over the years. Hutton thinks the settlement might make commissions cheaper, but it will take more effort to maintain protection for the buyers.

The Missouri lawsuit: Burnett vs. NAR

Rhonda Burnett sued the National Association of Realtors in 2019 for a 2016 transaction. She claimed her agent in Kansas City violated anti-trust laws, that NAR rules kept her from negotiating a better commission rate and sellers’ agents paying buyers’ agents was unnecessary.

Burnett, according to an interview published in June, asked if she could get a rate lower than 6 percent. Her Realtor didn’t exactly say no, but pressured her to go along.

The NAR always denied wrongdoing and insisted rates were always negotiable.

A jury ruled in favor of Burnett and others in the class-action lawsuit, granting $1.8 billion. NAR filed an appeal but also negotiated a settlement and will pay $418 million.

Read more: Settlement website

How it works

Realtors help sellers list the home on the MLS or Multiple Listing Service (and other places like a website or social media). Realtors help sellers get professional photos of the home, host open house events, invite buyers on tours, screen qualified buyers, negotiate a price and then help find home inspectors, attorneys and other professionals.

Realtors help buyers with mortgage applications, preapproval letters, disclosure statements, offer letters, purchase agreements, home inspection reports and titles.

Often, the seller will factor into the sale price a commission to be split between both Realtors.

In addition to not using the MLS to set or even disclose a buyer’s agent fee, the settlement requires a written agreement before a potential buyer tours a home. Agents must be very clear that broker fees and commissions are fully negotiable.

What will change and when?

The settlement takes effect no sooner than August 17. The New York Times said to expect these five changes:

  • There could be more room for negotiation.
  • Commissions could become more transparent.
  • Buyers would be expected to pay their own agents.
  • Some buyers could opt to handle the sale themselves without a Realtor, which they’ve always been able to do.
  • Even agents who aren’t members of the National Association of Realtors may be affected.

There’s more, but let’s deal with these first.

  • The folks we talked to locally agreed there could be more negotiation over Realtor fees.
  • As to whether commissions become more transparent, that’s a mixed bag.
  • Hutton said buyers will sometimes not have the money and sellers will definitely be advised of the advantages of picking up the cost of the buyer’s Realtor.
  • Buyers who don’t use a Realtor trade lower costs for wading through a complicated process.
  • Most agents locally are affected by the settlement of the lawsuit.

Going over these changes in more detail

“The number-one requirement is that we can no longer communicate what the compensation is to other Realtors or other brokers,” Hutton said.

Realtors will need to talk to their clients, Hutton said. So, in that way, yes, there will be transparency. The seller’s Realtor can make a verbal offer of shared commission to the buyer’s Realtor. But it cannot be posted online on the MLS.

“It just makes it a little less convenient,” Hutton said.

Buyers might pay their own agents, but sellers in Lubbock will definitely be told there’s an advantage to picking up both commissions.

“You kept hearing early on that, ‘Oh commissions are going to go down. They’re going to go in half.’ Well, the idea was, ‘Hey, we’re going to try to get rid of these buyers’ representatives,’” Hutton said.

But not so fast.

“We desperately need those,” he said of the buyers’ Realtors. “I would encourage you to pay me enough to offer compensation to a buyer’s representative. … If we’re not offering any money, then it is less likely they’ll be able to purchase this home.”

It’s not unheard of for a brokerage to provide Realtor services to buyers and sellers alike. One real estate lawyer we talked to thinks local brokerages might offer dual services more often.

‘Texas is ahead of the game’

“Texas is ahead of the game. … In Texas, we have what’s called buyers’ representation,” Hutton said. The buyer’s Realtor takes on some genuine responsibility – more than a mere messenger.

“We are one of 14 states that have higher representation. In the rest of the states, all buyers are unrepresented, and both agents work for the seller,” Hutton said. “That’s not a good thing. Buyer representation is wonderful.”

“These lawsuits – they were trying to prove that buyers don’t need representatives,” Hutton said.

But in Texas, buyers have protection. Hutton thinks the settlement takes buyers in the wrong direction, but it won’t be so bad for Texas. He thinks other states might actually make changes to be more like Texas in light of the recent court settlement.

How it plays out in Lubbock

“There’s not a standard amount of commission,” Hutton said. Speaking specifically of Lubbock, he said there never was.

“Some people say, ‘Well, isn’t six percent the standard?’ … It could be seven or eight. It could be five or four. I mean, there’s not a set rate. It’s negotiable between brokers and the clients,” Hutton said. “It’s going to come back to how Realtors express their value and communicate, ‘What are the services provided? What services do you get for what amount of money?’”

There are 1,700 Realtors in the Lubbock Association of Realtors. Each works under a broker and the brokers are responsible for training the Realtors.

“It could slow the process. Sales could slow,” Hutton said. But once folks get used to the new rules, he thinks the Lubbock market will be just fine.

“We have a lot of highly communicative professionals who are going to make this work,” he said.

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Author: James Clark- James Clark is the associate editor of Lubbock Lights. He worked in radio, television and digital media for a combined total of more than 30 years. He was Director of Digital News Content at KAMC, KLBK and for nearly 10 years.