The Devastating Effects of Dropping Unilateral Offer of Compensation

It would seem that the plaintiff's victories in the Massachusetts court and Missouri court are on track to eliminate the commission field in the MLS. This field is where the seller's broker presents a unilateral offer of compensation to any buyer broker who submits an accepted home purchase agreement. No doubt as you are painfully aware from the daily media coverage, changing the rules for that field to permit zero instead of $1 as the minimum value does not seem to go far enough to satisfy the long and influential reach of the Department of Justice (DOJ).

Last month, NAR Chief Economist Lawrence Yun released some interesting language in a statement regarding the November Housing starts data (I added in the bolded emphasis):

As homebuilders ramp up production, more supply will reach the market. In November, single-family home construction rose 18% from the prior month and was up a hefty 42% from one year ago. Homebuilders' sales have been up this year despite high mortgage rates due to the offer of incentives on buying down interest rates and the long-held business model of offering co-op commission to buyer agents. That's the free market way of doing business in a very competitive industry. Even more homebuilding will be needed with the housing shortage persisting in most markets. Home price appreciation can only moderate from drastically improved supply. Another 30% rise in home construction can easily be absorbed in the marketplace, especially in light of recent weeks' plunge in mortgage rates.

Yun highlights, for the first time, the long held unilateral offer of compensation to buyer agents – which should read buyer broker instead of agent. Regardless, NAR is microdosing their messaging and communications with support for buyer broker compensation.

If the court and the DOJ have their way, I fear that the unilateral offer of compensation might disappear from the multiple listing service data set. This is not to say that the buyer broker agency service will go away, only that it will no longer be the role of the MLS to publish any commission offer to the buyer broker at all. It follows that if the unilateral offer of compensation is removed from the MLS, the rules that govern the offer of unilateral compensation – and the role of the association of REALTORS in providing arbitration services – may also be washed down the drain along with the compensation rules.

Emergence of buyer commission chaos

I do hope that the DOJ thinks through their decision carefully before cleansing the unilateral offer of compensation from organized real estate. I have written about how the removal of the offer of compensation from the MLS and the removal of all buyer broker commission rules could be easily attained. It is a simple fix which an editor could complete in an hour. Remove the field from the MLS and strike-though all of the MLS and association model rules related to commission and commission arbitration. Following that, the buyer's broker will submit a commission request along with the offer to the seller's broker. The buyer to pay $XX for the home, and the seller to remit $XX in buyer broker compensation at closing. In the new world, price and commission will be negotiated. This scheme seems tidy enough, but I worry about bias and discrimination.

Bias and discrimination are unsavory human conditions. From our very first breath, the world teaches us to differentiate one thing from another, one person from another, and the basic logic of "if this, then that." It takes hard work and self-mastery to evolve one's consciousness to overcome bias and discrimination. My fear is that in the absence of MLS and association oversight, buyer broker compensation will be fraught with the evil influence of bias and discrimination. Friends will negotiate better compensation for friends than they will for strangers.

The lack of a unilateral rule regarding commission offering will create a foul disease which will overwhelm and undermine the benefits of cooperation among competitors. Hatred and bitterness will be the product of little or no compensation when a buyer's broker and agent work their tail off for a home buyer.

The risk of little or no compensation on buyer agency will undoubtedly steer agents away from providing homebuyer services to any consumer who cannot guarantee payment. Let's face it, the wealthy will have a strong advantage over most buyers.

The mess that the DOJ seeks to create will create more harm than good

I have seen this script play out with professional services my entire life. I have noticed that there is favor given to some people when they hire an attorney, or an investment advisor, buy a car, rent an apartment, or different types of home improvement work; the ability to create certainty around payment drives lower pricing. The cash offer always wins.

Imagine the plight of the first-time home buyer, the immigrant who speaks little English, the poor, the handicapped, the single mother, the out of area home buyer. Who among you endeavor to help them when there is uncertainty of getting paid for your time, your experience, your education, your investment in technology and the advancement of the profession?

A dark cloud is coming to real estate in America, and it's hitting our shores at the worst possible time. All in all, 2023 was a fragile year that saw commission production drop 35% across America. Our businesses are already on the precipice of financial ruin. Now this storm brings strong winds that will blow most buyer agents out of the industry. Heavy rains will decimate the buy-side revenue for brokers. The storm surge will drive many buyer technology companies into bankruptcy.

In fact, should these class action lawsuits with their treble damages hold the REALTOR associations, MLSs, and brokers liable, then everyone will be in bankruptcy court – all 106,000 brokers, all 500-or-so MLSs, and every local, state, and national member of the NATIONAL ASSOCIATION OF REALTORS®.

Fare Thee Well, a Stór

Silent tears stream down the glen
Fill the rivers to the shore
Silent echoes on the wind
Your voice I hear no more

— Pádraigín Ní Uallachaín

To view the original article, visit the WAV Group blog.