A Brief History of MLS in Light of NAR Settlement

Many of my customers are asking about compensation for REALTORS® since headlines are highlighting the recent NAR settlement. While it is not fully known how it will impact the world of real estate, some details are beginning to clarify the path ahead. A short history of agent compensation will help: Big thanks to one of my wonderful customers, Wenford Hood, a long-retired, extremely successful real estate agent who dominated in his field in South Florida many decades ago. Wen allowed me to pick his brain for the purposes of this article.

Long before the MLS or internet, when someone wanted to buy or sell a house, they walked into a local brokerage for help. The broker working with a seller priced the house for sale and created a listing contract for both parties to sign outlining their mutual responsibilities and compensation for the agent to secure a buyer. The agent then advertised the house in anticipation that they would eventually earn a commission to cover expenses and waited for the right buyer to walk in the door of the brokerage.

If buyers came into the brokerage looking for certain criteria not available in any of the brokerage’s in-house listings, they would go to another brokerage looking for the ideal house. Agents began reaching out to other brokerages to inquire about their listings and share info about their own in-house listings. Agreements were made to split commissions if a neighboring broker produced the right buyer for another agent’s house. Eventually, brokers were creating weekly data sheets on listings and driving them to neighboring brokerages. In addition to info about the houses, the data included the amount of commission agreed upon by the listing agent and their sellers on each house with an offer to split that amount, typically ranging between 6-8% of the purchase price. Commission amount has always been negotiable, by the way. If one broker charged too much, a seller could go down the street to find someone charging less for a different level of service. The same is true today. This sharing of info coupled with growth in technology gave birth to the modern MLS, which requires agent-paid dues in exchange for membership and access to the housing data. No more driving data sheets around every week.

This arrangement of sharing listings amongst brokerages is a win-win for all parties. Greater and easier exposure of listings is not only convenient for buyers because they can form a trust relationship with one agent to help them find the right home and represent their interests; it also guarantees highest and best offers for sellers, since the biggest pool of buyers has the opportunity to consider the property and make offers.

With all this said, the settlement agreement now prohibits offers of compensation on the MLS and requires MLS participants to enter into a written agreement with a buyer before touring a home. Among other things, the agreement must specify the amount of compensation the agent will receive for securing a satisfactory house for the buyer at terms the buyer agrees upon. Since the settlement now prevents offers of compensation on the MLS, there will be cases when the buyer is on the hook for paying the agent’s commission when they find a house. This can be a considerable factor when adding commission to down payment and closing costs.

It is my belief that sellers who want to receive highest and best offers will continue to pay their own listing agents an amount sufficient to split with another agent who brings a buyer. If they don’t, their pool of buyers will diminish drastically to only people who can afford to pay their own buyer’s agent out of pocket. Obviously, offers on those houses will likely reflect that buyer concession, but more often, buyers may just turn their attention to other houses.

I’ve heard it said often recently that real estate agents wake up every day unemployed, so it is a very high-risk profession since bills keep coming. The service we provide is worthy of pay commensurate with our expertise. Since the purchase or sale of a home is often one of life’s most difficult and valuable undertakings, in order to navigate it successfully, buyers and sellers will continue to depend on hiring and adequately paying the right person for the task.