58 questions agents should be asking about commission lawsuits

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As the Sitzer | Burnett commission lawsuit unfolds, a tidal wave of potential change is upon us. Right now, there are more questions than answers. No one knows the trajectory of this litigation, how all will shake out, and, more importantly, if the jury rules that sellers no longer must compensate agents representing buyers, how the details and mechanics of all will be implemented.

While no one knows enough to be able to provide specifics at this early stage, here are 58 questions agents should be asking:

Enforcement of buyer agency agreements

If buyer’s agreements are going to be required to be used, will they be enforced, and if so, how and by whom — the local MLS boards?

I am licensed in both California and Florida and took some time to review the current buyer agency forms available for use. Nothing speaks to enforcement should the buyer be in breach. They just lay out circumstances where the buyer will be expected to pay the brokerage the agreed-upon fee and the details involved regarding that, but no clause about “This is what happens if the buyer does not pay.” 

• Is it enough to simply produce an agreement showing Buyer A was a client of Agent X?
• What if Buyer A signs multiple buyer agency agreements with different brokerages or agents within the same brokerage over time that remain in force and were extended accordingly?
• What would happen if a buyer purchased a home with one of those agents or someone else entirely?
• What if the buyer made no disclosure of who else they have been working with (most never do without an agreement and might be more hesitant to commit as they want an “out”) or disclosure of any properties they have been engaged with other agents on?

I understand procuring cause allows a buyer to use whomever they want to write an offer, even if that agent did not show them the property, but how does that play out if a buyer hasn’t been truthful whether they have signed one buyer’s agreement with one brokerage/agent or signed multiple ones because they saw the agent they were talking to as a means to get what they want at the moment (tour of properties they wanted to see, etc.).

• Will there be a battle royale amongst brokerages and agents for a piece of the commission check if the seller is willing to pay compensation on a home the buyer bought?
• Will they collectively go after the buyer for fees owed as laid out in the buyer agreements?

This seems highly doubtful, but I’m asking the question. Fee structures and amounts are likely to vary, and you can just see the confusion start to set in. 

Registration of buyer agency agreements with the MLS

• Will buyer’s agreements be required to be registered with the local MLS, much like registering listings that want to be excluded from being entered into the MLS?
• Will buyer’s agents need to send a copy of their buyer’s agreement to the listing agent when scheduling a showing and include their manager, the listing agent’s manager along with the compliance department of the local MLS, for example, to protect themselves?
• Will additional staff be needed at brokerages and MLS boards alike to help coordinate and track these agreements?

I would think providing these agreements or some kind of related documentation to key parties will need to be done as a way to “CYA” and hold brokerages, agents and buyers accountable so all have been made aware of who is working with whom when a property is shown. 

• Will buyers and the agents working with a buyer identified on a buyer’s agreement be tracked in any sort of local “MLS Compliance Database” so they can be cross-checked?

This could be like registering buyers with a builder so they know the buyer is working with X Agent should they write a contract. In some cases, the buyer is already in the builder’s system and depending on the builder, how long ago they were registered, what the market is like, how strict the builder’s policy is, if the agent is known to them, etc. there could be flexibility in this regard if the agent will be allowed to work with the buyer on a builder sale and earn a commission. 

Listing agents playing nice in the sandbox 

• If buyer’s agreements must be submitted to a listing agent before or at the time of showing a property, what is to prevent a listing agent from back-channeling the buyer?

It is very easy to look anyone up today and find a way to contact them, thanks to the internet and social media. The buyer, who was head over heels about a property, suddenly ghosts their “buyer’s agent,” and they choose to work with the listing agent because the listing agent promised them they could get a better deal because the seller doesn’t have to pay the buyer’s agent a commission and the buyer won’t have to compensate the agent they signed with, saving them even more money.

• What incentive does a buyer have to stick to a buyer’s agency agreement because there is no way to enforce it?
• Is this situation treated like an agent “going behind the sign” of a listed property and contacting a seller?
• Will there be MLS rules speaking to this? 

Buyer breach of buyer agreement

• Should a buyer be found to have been in breach of their buyer agreement by either signing multiple agreements or ignoring whatever they signed, playing dumb, faking amnesia, or whatever else, realistically, what ramifications, if any, could be pursued against the buyer and in the form of what measures? Litigation, arbitration or mediation?
• Will brokerages have the staff and financial bandwidth to spend the money running interference with bad buyer behavior?

Realtor associations may offer arbitration and mediation services, but if the agents involved do not have to belong to these, the rules of trying to resolve these kinds of disputes will get muddy.

• Will MLS boards need to offer these services to all members regardless of whether they are a Realtor or not?
• Will brokerages want to risk their reputation and goodwill by going after buyers?

Buyers may become fearful of signing these agreements for this reason.

• Could buyers be required to put up a deposit, like an escrow deposit as a sign of good faith and commitment to working with their agent?
• If the buyer successfully completes a closing with the agent and brokerage, depending on the fee arrangement in the buyer’s agreement, will they receive that money back, as a credit towards their closing costs or as a rebate, etc.?

Some brokerages/agents may not ask for this, hence buyers will want to pursue the avenue with the path of least resistance to them. 

Management of buyer-paid fees

• Are brokerages equipped or planning on being equipped to manage the bookkeeping associated with the fees buyers may be paying to the brokerage they retain to assist with their property search?

Recognizing that they may not earn a commission working with buyers, or a dramatically reduced one, brokerages may have to pivot to a fee-for-service model or a hybrid of that in some way. Real estate brokerages and their agents still have a right to get compensated for their services.

Some of the general public may still be unaware that no compensation is paid until a transaction closes. This could turn into an accounting nightmare.

• What kind of procedures and disclosures will be required?
• What if the buyer wants a refund of those fees for whatever reason — they don’t feel they were serviced properly or a frivolous concern that really was more about the buyer wanting “an out.”

This will require more oversight by state licensing agencies, similar to the rules and regulations of escrow deposits. Many brokerages don’t like to hold escrow deposits and now could be dealing with buyer-paid fees upfront to retain the services of an agent. 

What rules? Whose rules?

• With some brokerages no longer requiring agents to be members of NAR, and perhaps more to come, will NAR and state and local associations separate MLS access from membership?
• Will MLS rules and regulations need to be strengthened to ensure all who participate in the MLS play by the same rules?

If there are agents behaving badly, it will surely be a conundrum of who is and isn’t a member of NAR and possibly state and local associations that are all bundled into that. Not all agents could be found in violation of the NAR Code of Ethics if they aren’t a member of those organizations.

• Will membership still be required for state and local associations?
• Will there be different fee structures/membership levels with respect to accessing the MLS for association and non-association members?

Some of this already exists depending on the market, MLS board and association(s) where you are located, but you have to dig deep to figure it out and read the fine print on what that entails to ensure you are still able to do business and access the fullest extent of tools available to serve clients to the best of your ability. 

MLS consolidation

• Will multiple local boards in a metropolitan area end up consolidating to pool resources and simplify things for agents in their communities?
• Will MLS’s (for those that don’t already do this) move to consolidate into one statewide MLS so all is cohesive, streamlined and more comprehensive?
• Will we see a national MLS?

Buyer class action lawsuits

• Will class action attorneys see another opportunity to go after buyers as victims and claim they were taken advantage of because of this ruling?

Buyers had to pay for representation they largely could not afford because obtaining buyer representation became too complicated, and as a result, even though they knew their representation would be compromised going through the listing agent, they participated in a transaction where their best interests were not accounted for.

As it currently stands, transactions where the agent represents both the buyer and seller are at risk for a high degree of liability, and one party or both invariably feeling they got the short end of the stick with various aspects of the transaction.

Now, a system may exist where buyer representation has gotten more complicated, and the buyer may feel like having all these agents wave an agreement in their face is too overwhelming. The fallout is buyers going into buying a home without true guidance on the price to pay and how to navigate through all of the challenges that typically arise in a transaction from inspections, financing and appraisal contingencies. 

Rules of agency

• Will rules of agency need to be revamped to address the real possibility of more than one buyer going through a listing agent to buy a home?
• How will this be handled?
• What are the rules of engagement or is it going to just be the Wild West with buyers out for themselves?

I have worked equally with buyers as well as sellers. I am always concerned when buyers cross my path as a listing agent who claim they aren’t working with someone and only want to go through the listing agent. They typically expect a discount for that and tend to have very little appreciation for the risks representing both sides and the process involved.

Their list of demands is often never-ending, and the agent feels backed into the corner. 

The billable hour

• Will the industry need to determine a billing system for real estate, similar to how attorneys, accountants or other fee-based professionals invoice for their time?
• Will more brokerages be inclined to collect a professional service fee upfront, which can be credited back to the buyer if the brokerage/agent receives compensation from the seller at closing?

As agents, we all know the countless hours spent with a buyer or seller. Have you ever tracked the actual amount of time you spent from the initial phone call or meeting with the client until closing? Some files have over 300 plus emails, while others only have 30. And let’s not forget to count all of the text messages.

• Will buyer representation with respect to agent compensation start to look like an attorney bill?
• Without enforcement mechanisms (which seem like a pipe dream at this point), how will brokerages/agents protect themselves to ensure they get compensated with a buyer’s agreement should the seller not want to pay a commission? 

Menu of fees

• Along those lines, will a variety of fee structures have to be devised, such as an initial consultation for a predetermined amount of time at no cost, but, past that, will there be fees assessed depending on the time spent or number of properties shown and/or number of offers written?

Contract preparation and negotiation will have to be considered along with attendance at inspections, meeting vendors, “measuring,” walkthroughs and the list goes on. Of course, all fees are negotiable and up to the brokerage/agent to determine based on what they will be tasked with in assisting the buyer client. Every buyer, their search, the time involved, and the process is different. No two buyers are alike, nor are two property searches.

For example, what if the agent must spend a tremendous amount of time and money trying to locate something not publicly listed because they have a very specific property in mind? Then you must factor in buyers that may be conducting their search from afar as well and how that plays into the agent’s time.

Sometimes that involves more time because the buyer is not physically there, and agents have to spend a tremendous amount of time taking photos, videos, etc. 

Transparency

• With regard to the litigation, where does transparency stop, and where does it start?
• Will this open a floodgate of lawsuits in real estate-related businesses or other industries?
• Have buyers paid too much with regard to mortgage loans over the years?
• Have lenders pushed certain loan programs over others so they could make more money?

While Dodd-Frank required more disclosures and transparency, we still do not see what the loan officer and the company they work for, whether that is the mortgage brokerage firm or a bank, actually get paid on a closing statement.

Buyers don’t have a choice when presented with what a lender’s closing costs are and seem to accept those at face value.

• Should they be able to negotiate those fees, or should more transparency be provided about them?
• How are those fees determined?

Most buyers don’t know the language of lending, and lenders package these fees in various ways: origination fee vs. no origination fee, etc. Lender compensation can be tricky and complicated depending on the lender, type of loan, mortgage broker, correspondent lender, etc.

There are some loans, depending on how they are originated (broker, correspondent lender, etc.) where the loan officer may have to return the commission if the buyer refinances in less than a year, or they may be telling the consumer that to deter them. Is that transparent? As always, the details are in the fine print, but a consumer doesn’t know what they don’t know or are aware of and should be asking. 

• With regards to builders that typically offer incentives to sweeten the deal so buyers will use their preferred lender, is that really in the buyer’s best interest?
• While builder/lender paid closing costs may completely cover or reduce the amount of cash the buyer has to bring to closing, how much is the lender and or builder profiting from the use of the preferred lender?
• What about builders that mandate the buyer use their closing and title services because of “quality control” issues vs. the buyer being allowed to choose?

Using the builder’s preferred vendors is nearly always a condition of being able to receive the builder’s incentives. When this has been challenged with builders, especially when the buyer is not using the builder’s lender, the answer is almost always no to a buyer being able to shop and select other vendors who may offer competitive pricing, etc.

Some builders have a preferred list of home inspectors claiming they meet their liability insurance requirements, and the buyer has to choose from that list only. While I can understand the requirement of wanting to ensure adequate liability insurance, should buyer choice be restricted to a certain list of inspectors? Do those inspectors give the builder a cut of their fee behind the scenes for being referred? That is something we will never know. 

In booming markets, “It’s all good.” Builders aren’t offering much in the way of incentives, and buyers feel pressured to buy before another round of price increases as the same home they looked at one week could be significantly more the following week.

In tough markets, the idea of an interest rate bought down by the builder to 4.99 percent, for example, sounds like a great deal and, on the surface, might make sense, but:

• Are there hidden fees associated with that? What is the fine print?
• Does the buyer fully understand going into something like this that the buydown may be temporary, and if so, the mechanics of what that means for their mortgage payment in the future?
• In areas where there is now a supply of new construction stacking up as well as existing homes, how will buying a new home impact their value vs. buying a resale?
• What if they should have to sell their home unexpectedly within a year or two?
• Does the buyer have a clear understanding of what they could be competing with? 

Also, we never really know the percentage of profit a builder aims to make on each home. While armchair discussions may take place about that behind the scenes, the consumer walking in the door has no idea, and the agent representing them likely does not either.

I’m not sure a site agent would candidly answer that question or how much they know, depending on the builder or what they are allowed to say. It’s not like a buyer can say, we want to buy the home at your cost plus 5 percent vs. the builder’s “normal” markup.

That’s why in part, the builder usually won’t disclose that and prices are typically inflated to allow for incentives so the buyer feels they have gotten “something.”

• What about the prices set for title insurance?

The amount of those fees never seems to be questioned; they are what they are, but should they be less? Especially with rising home prices?

• What about the cost of closing fees charged by a title or escrow company?

In escrow states, the fees can vary widely by company, price of the property, whether it is a cash purchase or there is a loan involved. I have seen instances of escrow companies including a disclosure in their escrow instructions that, should the transaction be canceled, they will deduct a $500 fee from the buyer’s escrow deposit. 

• What about homeowners’ insurance?

Insurance premiums have risen in many areas across the country, and consumers can’t make sense of things beyond being told the cost of reinsurance has gotten expensive along with weather events triggering higher premiums. Still, it is a game of smoke and mirrors when buyers get quotes for insurance or when a consumer is on the verge of getting dropped and has to scramble to get a new policy.

It seems like insurance companies can do whatever they want with little oversight. While some reform efforts have been made, it’s clearly not enough. The insurance companies are private businesses and can charge as they see fit, except for state-backed “insurers of last resort” that, in Florida, are attempting to push homeowners off their policies to privately held ones. 

• And home warranties? What about their representatives continually pushing their brand to be used in a transaction?

While brochures can identify what is and isn’t included in a home warranty and there are various levels of coverage, the consumer finds out the hard way when an issue in the “gray area” appears and the coverage they thought would take care of an issue does not.

• How much of a cut does the home warranty representative receive every time a warranty is sold?

Everyone has their hand in a real estate transaction which is fine, but I think there needs to be greater transparency across the board. If broker commissions must be shown on websites to the consumer, the consumer ought to get an accounting at closing as to the compensation received by all the parties involved who get paid as a result.

Sure, the cost of a home warranty is a line item on the closing statement, but we don’t see how that amount is apportioned between the home warranty representative and the home warranty company and who made what at closing with all the services involved. 

I could go on and on, but these lawsuits have created an entirely new set of issues that might not have been considered, especially in regard to all of the ancillary businesses (and there are quite a few) that feed off the real estate train.

We are the only profession that essentially has always worked with no compensation upfront and only paid if the listing we took sold, the buyer bought, the property was leased or we found a prospective renter a place to live.

Having a buyer’s agency agreement might tame some buyer disloyalty, but, at the same time, it could encourage it, and does not contain protections to ensure the buyer’s agent is compensated, however that is established.

Installing some guardrails (once all this litigation is resolved, assuming it continues to go in the direction of requiring buyers’ agency agreements) will ensure our industry is not upended into total chaos. 

And lastly, one minor detail: An accounting of where all this settlement money goes, the number of actual homesellers who joined the lawsuit and how it gets divided up between the plaintiffs and attorneys involved would sure be a nice thing to know — you know, in the interest of transparency.