How a Landmark Ruling Could Impact New Jersey Home Buyers and Sellers

In the wake of a recent landmark lawsuit, the real estate landscape is undergoing a shift that could have significant implications for home buyers and sellers. The class-action lawsuit, Sitzer v. The National Association of Realtors (NAR), alleged collusion among major real estate brokerages to artificially inflate agent commissions. 

At the heart of the lawsuit is the commission-sharing rule enforced by NAR. Traditionally, when listing a property on a multiple listing service (MLS), sellers offer a commission that is split between the seller’s agent and the buyer’s agent, usually resulting in a 5% to 6% commission. However, the lawsuit claims that this practice amounts to antitrust, reducing competition and inflating commissions beyond what services warrant. 

I don’t see the validity of the plaintiffs’ argument here, as commissions have always been negotiable. Nobody forced any of these sellers to sign an agreement with any brokerage or to even use a brokerage to assist in the sale of their properties.

Nonetheless, the jury ruled against NAR, and damages of $1.8 million were awarded, with the potential to reach over $5 billion. Some major brokerages, such as RE/MAX and Anywhere Real Estate (formerly Realogy), settled out of court for a combined $140 million. NAR plans to appeal. Similar cases are also making their way through the legal system.

So what does all this mean on the ground here in SOMA? Commissions have been “decoupled”. Sellers can now opt to cover the entire buy side commission, only part of the buy side commission, or even offer zero commission to a buy side agent. Note– and this is important- that previously in our market, sellers were obligated to pay a commission to the buy side agent, but that could have been as little as one cent.

Even though they now have the option of paying a zero buy-side commission, sellers will have to decide whether disincentivizing buyers by placing the cost of the buyer agent commission on the home buyer is a wise choice. In the current climate of high interest rates and prices, which make home purchases difficult for consumers to afford, deciding not to pay the buy side commission may result in fewer offers, lower offers, offers with lower down payments, or less favorable terms for a seller.

Imagine being a buyer looking at two similar homes. The owner of property A is offering to pay your agent’s commission. The owner of property B is not, so you will have to cover that (potentially 3 percent of the purchase price) or ask your agent to work for free. Which house would you want to buy?

In most markets where this change has already occurred, the majority of sellers continue to compensate both listing agents and buyer’s agents at similar levels, as they see the value of enticing buyers to see and realtors to show their property by paying a commission. Brokerages can choose not to work with sellers who won’t pay buy-side commissions because they cannot be compensated by two parties, meaning their buyer agents would have to sell their listings without being paid. Buyers can decide if they are willing to compensate their buyer agents fully or partially if a seller won’t, and agents can choose not to work with buyers who won’t make up the difference.

Because of these changes, there will be additional forms for both buyers and sellers to sign when they engage a real estate agent from our firm. Buyers will be required to sign an agreement indicating that they understand the nature of their relationship with their agent that they may be required to pay all or part of the buyer agent’s commission. Sellers will have to sign a form indicating that they understand the various commission arrangements and that they understand the possible impact of not fully compensating a buy-side agent.

Most importantly, agents will have to do a great job of explaining the value they add to buyer and seller clients. As you probably suspect, a realtor’s services involve a lot more than dressing up in designer clothing, driving a Ferrari to catered open houses, negotiating a deal with Josh Altman on speakerphone, and then depositing a huge check in the bank, all in the span of a few hours! I believe that when agents present consumers with the full picture of what they bring to the table, most consumers will be happy to compensate them.

Please contact Allison if you have any questions about the fall market or your real estate plans for 2024 by email: [email protected]. She is available to share her expert perspective with you.

The Allison Ziefert Real Estate Group is a top-producing real estate team based at Compass in Short Hills, New Jersey. We are local market experts, specializing in real estate and homes in Maplewood, South Orange, Millburn/Short Hills, Montclair/Glen Ridge, West Orange, Morristown, and the surrounding New Jersey towns. We’ve also got you covered coast to coast with the best connections to top agents around the country in any market you are exploring. We are driven by earning great testimonials and referral business from happy clients.