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Understanding commissions and the role of MLSs

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Understanding commissions and the role of MLSs

Addressing misconceptions and disproving myths helps make sense of the real estate industry landscape.

Recent class action litigation has stirred up a storm of misinformation in the real estate industry, particularly concerning real estate commissions and the role of multiple listing services (MLSs). This misinformation, often based on outdated research and needing more consideration of current market conditions, has left homebuyers and sellers bewildered. Additionally, the potential negative implications of proposed settlements on fair housing and homeownership access require more discussion.

The agreement announced by the National Association of REALTORS® (NAR) on March 15 aims to resolve most lawsuits by mandating NAR to pay substantial sums and implement new practices among brokers, agents, and MLSs. A significant aspect of this settlement is offering buyer agent compensation within the MLS. While changes are forthcoming, many current practices will remain intact. Buyers and sellers will still be free to negotiate commissions with their agents, though listing agents will be barred from using the MLS to communicate offers to pay a buyer’s agent.

However, if not executed carefully by agents, brokers, and MLSs, these changes could complicate and reduce transparency in the home-buying process. This could potentially lead to more listings outside of the MLS and pose challenges to fair housing, especially for first-time and moderate-income homebuyers.

Bright MLS conducted a comprehensive analysis of over one million home sales transactions in response to various assertions following the settlement agreement. This analysis, covering the Mid-Atlantic region, debunked several common myths and challenged misconceptions about real estate agent behavior and commission impacts on home prices.

Bright MLS’s data-driven research aimed to address misinformation and provide clarity. Key findings include dispelling misconceptions about buyer agent compensation, debunking myths with data analysis, highlighting the crucial role of MLSs in fair housing, and emphasizing the value of buyer’s agents in the purchasing process.

Addressing misconceptions about buyer agent compensation

A vital element of the recent settlement focuses on revising how compensation for buyer agents is conveyed within the MLS. The report states that “under the proposed settlement agreement, NAR agreed to create a new rule for MLSs prohibiting a blanket offer of compensation to buyers’ agents in the MLS system. The change means only that offers of compensation cannot be communicated via the MLS as they currently are able to do, but buyers and sellers can still negotiate who pays what. The mechanism by which buyers and sellers can negotiate and communicate about commissions is still unclear.”

Disproving myths through data analysis

Through an extensive examination of over a million home sales transactions spanning various states and the District of Columbia, Bright MLS effectively debunked numerous misconceptions. Contrary to common assertions, no substantiated evidence indicates that real estate agents steer buyers toward properties with higher commissions. Furthermore, it’s essential to recognize that high commissions do not drive home prices; factors such as property attributes and mortgage rates exert a more substantial influence.

Highlighting the vital role of MLSs in promoting fair housing

MLSs are pivotal in fostering a transparent and equitable housing market by facilitating broad access to property information. However, proposed alterations in the settlement agreement regarding the communication of buyer agent compensation via MLS could impact transparency and efficiency if not executed with care.

Emphasizing the importance of buyer’s agents

Despite suggestions of declining significance, Bright MLS’s research underscored the invaluable role of knowledgeable buyer agents in the home-buying journey. The expertise and guidance provided by these professionals are indispensable for navigating the intricacies of the real estate landscape, particularly for individuals venturing into homeownership for the first time.

Bright MLS’s research offers valuable insights into real estate commissions and MLS practices, emphasizing the importance of understanding market dynamics and a commitment to data-driven solutions in ensuring fairness and accessibility in the housing market. When evaluating the potential impacts of proposed settlements and implementing changes to industry practices, stakeholders must consider these findings.

Image credit: Freepik

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