The Real Estate Industry in Turmoil: How Realtors Sparked the Real Estate Commission Crisis
The real estate industry is in the midst of a seismic shift along with massive ambiguity for agents, and the blame rests squarely on the shoulders of the National Association of Realtors (NAR) and its members, Realtors. For decades, NAR Realtors have perpetuated the pretense of a higher ethical standard, proudly displaying their Realtor pins as a badge of honor with incessant chants that anyone who doesn’t subscribe to their “code of ethics” is somehow less qualified to practice real estate and/or simply doesn’t have integrity. But behind this facade, a practice persisted that has now led to widespread confusion, lawsuits, and industry turmoil.
It will go down as the greatest irony in history amongst real estate professionals that it was Realtors—those who touted themselves as the ethical elite—not the ‘common’ licensed salespeople, who orchestrated criminal collusion and brazenly operated without a shred of integrity.
In the landmark legal case against NAR, it was revealed that Realtors routinely presented sellers with listing agreements offering only four pre-set commission rates: 6%, 7%, 8%, or 9%. No mention of other options, no space for negotiation, no margin to suggest commissions and fees are anything but fixed. This practice is not just misleading; it’s plainly unethical.
The irony is striking—Realtors, who have long claimed to be the ethical backbone of the industry, were the ones engaging in such restrictive and deceptive practices. The reality is that the Realtor, with the pin on their lapel, is the scammy real estate agent in the end. The entire industry is now paying the price for their arrogance and carelessness.
Relatively Unnoticed New York Times Article from Debra Kamin Shed New Light on the Absurdity of Realtor Commission Practices
If you’re a real estate professional, you must read the New York Times article titled “The Homeowners Who Beat the National Association of Realtors” written by Debra Kamin on March 27, 2024, it will fundamentally change your perspective on this matter – as a real estate professional, it will surely evoke a visceral reaction.
Kamin has written much on the current litigious nature of the real estate landscape and the impacts both consumers and industry professionals are to see, but it’s her March 27, 2024, article that illuminates the genesis of the landmark Sitzer-Burnett v. NAR, et al. lawsuit in a disarming way by letting you listen in on a conversation with a sweet and innocent 70-year-old grandma, Rhonda Burnett, the lead plaintiff in the litigation that took down NAR and a large handful of the largest Realtor-operated brokerages in the US, with household names like Keller Williams, Compass, Coldwell Banker, Remax, and others.
Kamin’s unassuming article, which has been buried in a landslide of media coverage on the matter, sheds light on the absurdity of Realtor commission practices, detailing how sellers like Burnett were pressured into paying exorbitant commission rates with no room for negotiation. Kamin’s account is a damning indictment of NAR and Realtors.
In the article, Kamin recounts Burnett’s listing appointment and states Burnett’s Realtor, “presented her with a form that detailed how much commission they would pay, with choices in four boxes: 6 percent, 7 percent, 8 percent or 9 percent. Ms. Burnett was instructed to select one, and she picked 6 percent. The rest of the form, which stipulated that the commission would be evenly split among the buyer and seller agents, was already filled out.”
That’s a promulgated form, as it’s illegal for licensed real estate agents, even Realtors 😀, to write contracts as it constitutes the practice of law. The promulgated form Burnett’s Realtor used was provided by NAR and their state association, ultimately written by a real estate attorney.
This is the crux of the issue. Sellers were not given real options; they were coerced into paying inflated commissions because that was “just how it was done.” The article highlights how NAR’s practices have led to a complete lack of transparency and negotiation in commission rates, further cementing NAR and Realtors’ role in creating the current chaos.
The exclamation point at the end of this revelation? Nothing new is being introduced here. These are not groundbreaking changes that agents must suddenly adapt to. The changes in promulgated forms must be used by Realtors, but technically, licensed professionals who do not pay for the Realtor designation aren’t required to use the new forms. On the contrary, agents should have been disclosing commission details transparently and offering negotiation options to their clients all along. The fact that Realtors programmatically weren’t is a glaring indictment of NAR and the Realtor brand. It’s not just an oversight; it’s a systemic failure and genuinely calls into question the fitness of the criminally convicted trade association’s continued existence.
Subtle Nuances & Hidden Facts Most Consumers Don’t Know
Beyond the headline-grabbing legal battles and the NAR’s obvious failings, there are subtle nuances and facts that most consumers—and even many real estate professionals—are completely unaware of.
1. MLS PIN’s Independence from NAR: MLS Property Information Network (MLS PIN), which is Massachusett’s largest MLS system, is not a Realtor-owned MLS. Unlike other MLS systems, MLS PIN is not obligated to follow the NAR settlement rules. This distinction is crucial because while NAR-affiliated MLSs must adhere to new guidelines about commission transparency, MLS PIN has the discretion to set its own policies. This autonomy could lead to a divergence in practices across the state, adding another layer of complexity for consumers.
2. MLS PIN Not Realtor-Led but Acts Like They Are: While MLS PIN is not actually owned or operated by Realtors, they have historically mirrored the practices and rules of Realtor-owned MLS systems, reasonably leading many to believe they are directly tied to NAR. This connection, or lack thereof, is a key element in the ongoing Nosalek v. MLS Property Information Network lawsuit. In June 2024, MLS PIN took a proactive stance in response to industry turmoil and the pending settlement it faces, which will undoubtedly include a multi-million dollar financial penalty and very specific changes to its compensation rules and regulations, by instituting its own MLS PIN-specific compensation policy changes. Notably, MLS PIN eliminated the requirement for sellers to offer compensation to buyer’s agents as a condition for listing a property in their system.
This move, independent of NAR’s legal battles, has further blurred the lines and added complexity for consumers and MA real estate professionals alike. The fact that MLS PIN isn’t Realtor-led but acts as if they are, and went so far as to implement the commission changes prior to NAR doing so at a national level, raises important questions about their motivations and the broader implications for the industry.
3. Blurred Lines Between Realtors and Non-Realtors: Not all real estate agents are Realtors. While Realtors are bound by the NAR’s rules and the recent settlement, non-Realtor agents are not. However, consumers often do not know the difference between Realtors and non-Realtors – while NAR would dispute this because it’s obligated to protect its trademark, to the public, the difference between Realtors and non-Realtors is the same as the difference between Kleenex and tissues. This confusion could lead to inconsistent practices and further misunderstandings about commission negotiations and disclosures.
Unfortunately, because the lines are so blurred between Realtors and non-Realtors, all licensed real estate agents, along with their clients, are going to be best served by consistently utilizing the same newly updated MAR promulgated forms and having the same transparent dialogue with clients.
4. Historical Lack of Transparency, Only in Certain States? The commission practices that are now under scrutiny have been in place for decades. While the actions of NAR and Realtors undermine the statement that real estate commissions and fees are not fixed, that doesn’t change the fact that there are brokerages and licensed agents in the business that want and do act with transparent integrity. The initial NAR lawsuit was filed in Missouri, yet in Massachusetts, the promulgated forms put in front of sellers were very different than what Burnett saw, for instance, the standard exclusive right to sell listing agreement promulgated by the Greater Boston Real Estate Board, which is the promulgated form that a majority of Stuart St James agents have used for over a decade, simply has blanks for how much compensation is going to be offered to any agent who becomes a party to the sale. Unlike in Missouri, where Burnett was given 4 boxes to choose from, ranging from 6% to 9% (and who on earth pays 9% to sell their home, come on!), the Massachusetts form does not assume anything, and a conversation with the client must occur.
Guidance for Massachusetts Real Estate Agents: Navigate the New Commission Era
With the real estate commission landscape shifting, agents must adapt to the new reality—one that should have been the norm all along. Here’s what agents need to know moving forward:
1. Establish Fluency in Messaging and Understand the Overlaps: It’s often said that to truly know a topic, you must teach it to someone else. Walking clients through the promulgated forms that guide residential real estate transactions has always been about coaching and teaching. Embrace the change in process, understand how all the forms overlap and are interconnected, and be able to explain the matter to a consumer with the essence of the matter at the forefront, that is, bringing a higher level of clarity and understanding to the consumer, demystifying how real estate agents get paid.
There’s certainly overlap across all the newly updated forms, here’s an example of the confusing overlap you need to be able to explain to clients: MLS PIN, operating independently and out in front of NAR introduced a one-page Exclusive Sale and Listing Agreement Addendum which is moot if a listing agent uses the newly updated Listing Agreement – Exclusive Right to Sell (#709) (NEW) promulgated by the Massachusetts Association of Realtors (MAR).In the end,
it’s straightforward, the interconnected, yet ambiguous, web of forms is meant to give greater transparency to consumers. As noted herein, this is a nuanced landscape, but there’s nothing new here at a fundamental level. From where or whom your compensation comes may be different. Moving forward, your fluency on this topic and how simply you can explain it to your clients will be directly proportional to your compensation.
2. Working with Sellers: Agents should use the newly updated promulgated forms, even if they are not Realtors. MAR recently released a new batch of forms that align with explaining all the compensation nuances, including an updated buyer representation agreement, a contract to purchase real estate (aka Offer to Purchase), and an exclusive right to sell listing agreement. Agents must ensure that sellers understand these forms and the options available to them, including the right to negotiate commissions, which they’ve always had. Explicitly outline sellers no longer have to offer compensation to a buyer’s agent for their listing to make it into MLS PIN.
Hands down, if you’re operating as a listing agent, this is far more straightforward and “easy”. However, in a discussion of buyer’s agent compensation with the seller, don’t just “toss it over the wall”, you’ll be on the other side of things on transactions and you too will appreciate the courtesy or a cooperating broker educating their client. Also, don’t forget to set expectations with your seller that they should be prepared to see offers come in where buyers and their agents ask for buyer’s agent compensation as a seller concession.
3. Working with Buyers: Similarly, agents representing buyers must be transparent about the commission process. While buyer representation agreements were relatively uncommon in the past, given the ambiguity about how a buyer’s agent will get paid in the new normal changes the dynamic and it should now be your policy to fill and sign a buyer representation agreement, this is, of course, separate and in addition to the Massachusetts mandatory licensee-consumer relationship disclosure. MAR has a newly updated promulgated form that now contains whole sections that discuss compensation. Discuss the buyer representation agreement in detail and ensure your buyers are aware of how commissions may be paid in the new normal, highlighting the fact that for the first time ever, buyers may be the party to pay you for your work, and what their responsibilities are.
No doubt, buyer’s agents have been put in a terribly ambiguous position. The conversation with buyers, specific to how buyer’s agents get paid, has fundamentally changed. From a buyer’s agent perspective, your level of compensation is, admittedly, in doubt. Bottom line, you must first establish for yourself a value for your services, and now more than ever, you need to be ultra-confident that your brokerage can support your new business model (see #5 below). Set the expectation with your buyer that you do not have a crystal ball and do not know where the market will trend, but reasonably, your compensation could come from a mix of sources, including a seller concession at the closing table.
4. Consistency Across the Board: It’s important to note that while Realtors are obligated to use the newly updated promulgated forms, not all real estate agents are. However, to avoid confusion and ensure consistency, it is advisable for all agents—whether Realtors or not—to reference and discuss these matters in the same way. The last thing the industry needs right now is more confusion.
5. Give Your Brokerage a Hard Look: The scandal has made Realtors either embarrassed by or eager to distance themselves from the NAR and the Realtor brand. With the need for flexible business models more pressing than ever, agents should evaluate their current brokerage and consider if it’s enabling them to thrive. Explore no-nonsense, no-hassle brokerages and evaluate the pros and cons of a 100% commission brokerage model, which offers the best chance to maximize income in the new real estate commission era.