Can Listing Brokers Still Offer Cooperating Commissions via the MLS?
For decades, the real estate industry has relied on the Multiple Listing Service (MLS) as a central platform for listing brokers to offer cooperating commissions to buyer’s agents. However, major changes are on the horizon, and as of early 2024, the rules around this long-standing practice will fundamentally shift. If you’re a real estate professional, particularly a listing broker or agent, it’s crucial to understand how these changes will affect your business moving forward.
Why Are MLS Policies Changing?
The catalyst for this transformation stems from ongoing litigation involving the National Association of Realtors (NAR) and the Plaintiffs in the Burnett case. On March 15, 2024, NAR and the Plaintiffs reached a proposed settlement agreement, subject to final court approval. By April 19, 2024, the Plaintiffs filed a motion for preliminary approval of this settlement. If approved, one of the significant stipulations will be the prohibition of offering cooperating commissions through the MLS.
This change is monumental, as it will upend the traditional way listing brokers communicate commission offerings to buyer’s agents. Instead of simply posting commission offers on the MLS, listing brokers will need to explore new ways to handle compensation for buyer’s agents.
What Does This Mean for Listing Brokers?
The most significant change under the proposed settlement is that listing brokers will no longer be able to offer cooperating commissions via the MLS. This prohibition fundamentally alters the way real estate professionals will conduct business.
Before the Change
Traditionally, when a listing broker posted a property on the MLS, they could offer a percentage of their commission to any buyer’s agent who successfully brought a buyer to the transaction. This was a widely accepted and efficient method for compensating buyer’s agents.
After the Change
Once the new policies take effect, brokers will no longer be allowed to use the MLS to communicate or offer compensation to cooperating agents. Here are three alternative methods for compensating buyer’s agents:
1. Compensation Paid Directly by Consumers
The first option is for the buyer to directly pay their agent’s commission. This method would involve negotiations between the buyer and their agent, potentially leading to buyers having to account for this additional cost in their home-buying budget. While this could give buyers more control over how much they pay their agent, it could also create a financial burden for some buyers, making the home-buying process more expensive.
2. Concession by the Seller
Another option is for the seller to offer a concession. In this case, instead of an upfront offer of commission on the MLS, the seller could agree to pay a portion of the buyer’s agent’s commission as part of the negotiations. This payment would typically come from the proceeds of the home sale, but it would no longer be a transparent, predetermined offering listed on the MLS. This change could shift the dynamics of negotiation between buyers and sellers, requiring both parties to clarify compensation terms during the sales process.
3. Portion of the Listing Broker’s Commission
Lastly, listing brokers can share a portion of their commission with the buyer’s agent. However, unlike in the past, this will have to be arranged outside of the MLS. Brokers and agents will need to work out these terms on a case-by-case basis, adding an extra layer of negotiation and possibly causing confusion during transactions.
How Will This Impact Buyer’s Agents?
For buyer’s agents, this change poses significant challenges. The MLS has historically been a reliable source of income, as it ensured that cooperating commissions were clearly stated upfront. With the removal of this standardized system, buyer’s agents may find themselves needing to negotiate their compensation more frequently, whether with buyers, sellers, or listing brokers.
This could lead to increased uncertainty and even disputes over commission structures, especially in markets where buyers may be less inclined or able to cover these costs out of pocket. Agents will need to adapt quickly and may have to rethink their business models and client communication strategies to ensure they can still secure appropriate compensation for their services.
Why Is This Change Happening?
The driving force behind these changes is the desire to create more transparency and fairness in the real estate market. The Burnett case, like several other lawsuits involving NAR, alleges that the MLS system, as it currently operates, leads to inflated commission structures and limits competition. By removing the ability to offer cooperating commissions through the MLS, the hope is that the market will become more competitive, and consumers will gain more control over the commission they pay their agents.
The settlement reflects a broader trend of legal challenges to long-established industry practices in real estate. Many experts believe that these changes are just the beginning of a larger shift toward more consumer-centric models in real estate transactions.
Preparing for the Future: What Brokers and Agents Can Do
The real estate industry is not known for being static, and as always, professionals need to adapt to changing market conditions and regulations. Here are some ways that listing brokers and buyer’s agents can prepare for this upcoming change:
1. Educate Your Clients
Whether you’re a listing broker or a buyer’s agent, transparency and education will be key in this new landscape. Sellers and buyers alike need to understand the changes in commission structures and what that means for their transactions. Make sure your clients know that cooperating commissions will no longer be offered on the MLS, and explain their options for handling compensation.
2. Revise Your Contracts
Brokers and agents will need to revisit their contracts and agreements to ensure they reflect the new compensation models. Buyer’s agents may want to include clauses that clearly outline how they expect to be compensated and under what circumstances, especially in cases where the buyer is expected to cover their agent’s commission.
3. Develop New Negotiation Strategies
Without the MLS to simplify the offer of cooperating commissions, brokers and agents will need to hone their negotiation skills. Compensation may become an integral part of property negotiations, so being able to effectively communicate your value and negotiate terms will be more important than ever.
4. Stay Informed
This change may be just the beginning of further industry shifts. Stay connected with professional organizations, continue your education, and keep an eye on any future legal developments that could impact real estate commission structures.
Conclusion
The prohibition of offering cooperating commissions via the MLS is a major shift for the real estate industry, especially for listing brokers and buyer’s agents who have relied on the system for decades. As of April 2024, real estate professionals will need to adjust their practices to comply with the new regulations, finding alternative ways to handle compensation. By staying informed, educating clients, and developing new negotiation strategies, brokers and agents can navigate this changing landscape and continue to thrive in the real estate business.
For more information on how these changes might impact your career or to stay updated on evolving real estate policies, visit Indiana Real Estate Institute to explore resources and further training opportunities.
Brian is a highly acclaimed speaker, broker, instructor, appraiser, and construction expert with over 25 years of experience. Brian received his bachelor’s degree in finance & real estate from Indiana University and is currently attending IU McKinney Law. GO Hoosiers! After his disappointing attempt at being the next ultimate Jedi Master in the latest Star Wars movie, he found his force talents were much better served as a real estate instructor and speaker.
His vast knowledge and background has taken him all over to teach many topics regarding real estate agency, brokerage, business operations, contracts, appraisal, and investing. He hosts multiple podcasts on real estate education, as well. He is all about helping agents learn what they didn’t know they needed to know.
When he isn’t yacking his head off in front of an audience or helping his talented agents achieve real estate glory, he TRIES to keep his wife happy and occasionally makes his kids laugh.
