New rules for buying, selling homes take effect Saturday after lawsuits

First, before a seller may show a residential property or a buyer may tour a property, real estate professionals and their clients will be required to enter into a written representation agreement outlining the terms of realtors’ compensation, said Ali Whitley, president of Ohio Realtors.

Written representation agreements must include an expiration date, information on fair housing and blockbusting laws, whether the relationship is exclusive or nonexclusive, and terms of compensation, according to House Bill 466, which was recently approved in addition to the settlement agreement.

Stephen Brobeck, a senior fellow with Consumer Federation of America, told this news outlet that the lawsuit and resulting ruling is based on the fact that for the last century, the real estate industry has effectively set commission rates.

“DOJ (the Department of Justice) has been working for 80 years to try to force the industry to create a more price-competitive market ... but the real watershed was the jury decision in the combined Sitzer and Moehrl cases,” he said. “A jury found the the industry defendants guilty of price fixing and awarded the Missouri plaintiffs over $5 billion including triple damages.”

For decades, real estate agents have typically been paid a certain percentage of the sales price once the home is sold. A typical agent’s commission has been 6% of the sale price, split between the agents or companies representing the buyer and seller.

Brobeck said in the new system, it is important for people who intend to buy or sell a home to carefully select an agent ahead of time who is both honest and competent. Before deciding on an agent, the buyers and sellers should get a proposed contract document from the agent and have an opportunity to read and understand it. He said the agent should be willing to discuss the contract before the buyer or seller selects them.

“If an agent will not present a readable contract that is consumer-centric, a consumer should look for another agent,” Brobeck said. “And it’s that refusal by consumers to work with agents presenting unreadable contracts that will persuade the industry to improve them.”

Second change: Compensation

Real estate professionals will be prohibited from offering cooperative compensation on listings on multiple listing service (MLS) databases, Whitley said. That includes all listing types that appear on the MLS, including residential, commercial and rentals.

“What that means is that if the buyer’s broker is authorized by the buyer to accept commission compensation from a different party than the buyer, then they’ll need to just get that communication directly from the listing agent or the seller,” Whitley said. “What a buyer should expect moving forward is that we have a written representation agreement that will delineate what the services of their broker or agent is to them, and the fee for those services. So prior to showing any homes or to touring any homes, they will have a written representation agreement with their agent.”

Buyers and sellers can still negotiate compensation arrangements directly with real estate professionals outside of the MLS. Additionally, sellers may continue to offer buyer concessions, such as closing cost contributions on the MLS.

Whitley said the changes are meant to be transparent and provide clarity to both the sellers and buyers in the transaction.

“Instead of there being a perceived situation of a listing broker determining what will happen moving forward with a buyer’s broker, it will be very clear that it is the seller and the agent are having a conversation and determining that the seller is or is not willing to offer cooperative compensation,” she said. “And if they are willing to offer cooperative compensation, what is that amount that they are wiling to offer.”

On the buyer’s side “it’s clarifying that the buyer’s agent provides services to the buyer ... and they advocate on behalf of the buyer,” Whitley said. “And so the written representation agreement will delineate what those services are, and then also what the fee is that that broker is charging for those services. And then the buyer and the buyer’s broker will be able to negotiate from there what that commission is that will be paid and how it will be paid.”

Whitley said the compensation obligation can be satisfied through the purchase agreement, if the seller is willing to offer it.

“It also can be negotiated between buyer and seller during the time of a purchase agreement, or the buyer could say ‘I prefer to pay my own agent because they are working on my behalf ... or any combination of those things can happen,” she said.

Kelly McCormick, president of Dayton Realtors, said commissions were “always negotiable.”

“Now, creating that clarity between buyers and sellers is something that the real estate industry and agents will be doing every single day,” McCormick said. “There’s always going to be a cost to sell and a cost to buy. Those costs are always provided, as far as a lender of good faith estimate, and now both buyer and seller will have potentially more clarity in how that cost impacts their purchase and their sale.”

Austin Castro, a team leader at Coldwell Banker Heritage, said part of the impact from the changes could come as a result of people signing agreements with buyers agents up front, as opposed to down the road.

“What I think that means is when someone wants to sell their house, there was always a big interview process?” he said. “They’d call three or four different agents. They’d sit down and interview them. They’d talk about it, you know, and then they sign an agreement to sell their house with whoever they thought was best fit for the job. I think we’re going to start to see that now with with buyer’s representation.”

Castro said buyers, when choosing an agent, used to go with the first person they met, someone they met at an open house or a friend of a friend.

“Now I think it’s going to be a little bit more of a interview process for buyers representation because people are signing those agreements up front, disclosing ‘Hey, this is what my agent makes on this transaction,’ so I think that’s probably where we’re going to see a biggest change is going to be maybe buyers putting a little more thought on who they’re going to have represent them,” Castro said.

Credit: JIM NOELKER

Credit: JIM NOELKER