You may have recently heard of a case from the State of Missouri called the Sitzer-Burnett Class Action Lawsuit involving numerous real estate brokerages and the National Association of Realtors (NAR). The Sitzer-Burnett Trial Verdict was recently announced, and it’s important to note a few things:
- It covered transactions in Missouri, Kansas, and Illinois
- It covered transactions approximately from April 2015 through to June 2022
- The issue in the case is the cooperative compensation model, where the Seller pays the fee for both the Buyer’s Agent and Listing Agent commissions from the proceeds of the sale.
The Benefits of using a Realtor when buying a Real Estate Property
It’s important to note the value that Buyer Agents provide to their clients. Buyer representation helps Buyers find a property they like and walk them through the process every step of the way, including:
- Provide Buyers with names of reliable mortgage lenders to secure preapproval for the Buyer before showing properties
- Real Estate Agents find, schedule, and show properties to Buyers
- Presenting comparative market analysis and securing back-up information on properties and neighborhoods of interest to buyers
- Preparing and explaining the offer process and offer to Buyers and presenting the offer to Seller’s Agents.
- Negotiate with Seller’s Agent and prepare any counter-offers
- Track all contingencies and make sure all deadlines are met so the Buyer is in compliance with the Executed Contract
- Help the Buyer by providing names of inspectors and helping with scheduling inspections
- Real Estate Agents Provide Buyers with broker’s names for Homeowners Insurance if needed
- Provide Utility information to the Buyer
- Provide Next Steps information and explain the appraisal process
- Explain the Title and review Title Commitment when received
- Attend inspection and final walk-through
- Real Estate Agents schedule and attend the closing
- Update Buyer after closing on important items (file for Homestead Exemption, transfer any warranties, etc.)
- Be a continuing resource for integration into an area/neighborhood
How will Buyer’s Agents Get Paid After the Sitzer-Burnett Trial Verdict?
It’s important to note that the Sitzer-Burnett commission verdict will likely be appealed, and change may come slowly. Sellers were never forced to pay a Buyer’s Agent any commission.
Still, Buyer’s Agents do a lot of work. So, unless a Buyer is able and willing to pay a Real Estate Agent, will they be able to secure a professional to represent their needs?
It always seemed to make sense for a Seller to offer this, which was normal (but not required) in the industry. I don’t know if that will change because Buyers will not be allowed to roll this expense into their loans (at least, it isn’t currently an allowable expense that a lender will roll in).
For example, on a $300,000 house, that amount is $9,000 to a Buyer. Will Buyers only look at homes where Sellers are paying the commission if they can’t afford to pay it themselves?
Commissions currently can’t be included as part of a mortgage as they are a service. Why you ask? Because there is no way for a lender to recover the value of the service in the event of a default on the mortgage.
What the Sitzer-Burnett Verdict Means for Property Buyers
There are lots of questions. Buyers Agents are willing to show Buyers all the properties, but Buyers need to be aware of this going forward. Also, the Buyers Agent is committed to representing a Buyer’s best interests and delivering value during and after any real estate transaction.
These items will be discussed in advance when signing a Buyer’s Representation Agreement. Nothing in this lawsuit requires that Buyer’s Agents work for free. Therefore, a Real Estate Agent could simply choose not to work with a Buyer who couldn’t afford to pay their commission.
Having a Buyer’s Representation Agreement signed has always been important. Still, extra care and attention will be taken to ensure a Buyer is willing and able to pay if a Seller does not offer compensation and that a Buyer completely understands this.
What the Sitzer-Burnett Verdict Means for Property Sellers
As for home sellers, this isn’t simply a case of no longer having to pay a Buyer’s Agent commission. You never had to, but the previous cooperative compensation model allowed buyers to purchase a home without having to save up more money (generally 3% more).
Sellers do not have to offer to pay a Buyer’s Agent commission (they never had too). Although, it’s important to note that unless a Buyer can pay their Real Estate Agent (and are willing to), their home might not be chosen by a Buyer who is unable to roll this into their mortgage loan.
There is no such thing as a set commission, and sellers have had the right to offer to pay whatever they want, and this is not changing.
Final Thoughts
No one knows how the Sitzer-Burnett Trial Verdict will affect the market going forward. But it will undoubtedly cause uncertainty and confusion and possibly negatively affect some listed properties.
If a Seller is offering to pay zero commission to a Buyer’s Agent and a Buyer is unable to pay their Real Estate Agent, will they be able to secure professional representation? Will they want to see the Seller’s home?
No one knows what will happen next. I think Sellers, once they’ve thought it through and have a better understanding, will see the value in the cooperative compensation model and continue to offer to pay the Buyer’s Agent.
About the Judi Wright Team
Judi Wright, The Judi Wright Team, is a real estate group specializing in Frisco, Plano, and the surrounding areas and the suburbs of Dallas. Named the “Best Realtor in Dallas” by D Magazine 17 times and a Five Star Realtor with Texas Monthly 13 times. Judi is also a Company-Wide Top Performer with Ebby Halliday, a Berkshire Hathaway affiliate.
