Commissions

Commissions have been in the news quite a bit lately. There are several lawsuits in a few states regarding real estate commissions, with one big one, Burnett vs. NAR (National Association of Realtors) et al, catching most of the attention. I have been a part of a few conversations with different folks about what this means, from webinars hosted by the California Associaton of Realtors (CAR) to clients to vendors to friends. And I am not here to explain that case as the information is readily available on line; the summary is that a group of sellers in Missouri sued NAR and several brokerages for setting commissions too high and not being transparent about where that money was going. NAR et al lost that suit, with the jury returning the verdict quickly.

The most important thing to know, in California, where I work, is that commissions are negotiable, by law. I cannot collude with other brokerages to set commissions for anyone else but myself and my brokerage. I cannot even discuss commissions with other agents not in my employ as that could be construed as violating anti-trust laws. When I sign a new listing agreement, the top of the contract states in bold lettering that the commission is negotiable. The forms I use, produced by the CAR, are very clear about the negotiability of commissions and where those commissions are going.

In my understanding, the sellers in Missouri were not clear that half of the commission money they were paying to their brokers were going to the buyers’ agents. I have trouble understanding how that could be, but that is because here, in California, this is so clear. We fill in a blank with the commission rate and we fill in a blank that states what percentage of that commission is going to a buyers’ agent.

There were some other issues in that lawsuit that are also hard to see in California. One is that no zero percentage commissions were allowed. In California you can set the commission at zero; in California you can say that the seller’s agent is the only one the seller is paying; in California there are fee-for-service brokerages in operation. Additionally, there are laws in California that confirm the pro-consumer and competitive benefits of MLSs.

What does it all mean? Well, since NAR is planning to appeal, the story isn’t over. The main thing that we as agents have to take away is that we need to be even more clear on commissions with our clients. We need to make sure our sellers know that they can negotiate our commissions, that we use the MLS to share both their listings and information about the commission a buyers’ agent may receive, that we need to have discussions with buyers about how we are to get paid and have them sign agreements with us as well. I’m happy to sit down with you and answer any questions you may have about commissions and commission sharing.