How does Sitzer-Burnett trial impact home buyers?

Written by Omkar Pathak on 08/17/2024

tldr; The overall goal of the Sitzer-Burnett trial is to create a more accessible housing market by providing a renewed, fair and transparent pricing model.

The case: Sitzer-Burnett is a class-action lawsuit filed in Missouri federal court by a group of home sellers in the state against National Association of Realtors (NAR) and other real estate broker defendants. The plaintiffs claimed that real estate commission rates are too high, buyers’ representatives are paid too much, and NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants practices, lead to inflated commission rates. The NAR has agreed to implement practice changes effective August 17, 2024 impacting realtors, MLS and the overall housing market.

What changes for home buyers?

• Additional paper work

  Real-estate agents associated with the NAR will now require buyers to sign a written contract before showing them (virtually or in person) any houses. This contract, often referred to as an "exclusive buyers representation agreement," outlines the services provided by the agent and how they will be compensated. This is a shift from previous practices where such agreements were not commonly required from buyers. Read more about buyers agreement in this  article.

• Buyers pay commission

  The trial will no longer mandate the seller to compensate the buyers agent. Instead, buyers will mutually agree a compensation with their agent representative while signing the buyers agreement. Buyer agents are legally required to disclose to the buyer any seller or third party compensations they may receive. This change aims to prevent “steering”, where agents might direct buyers to properties offering higher commissions.

• Negotiations with real-estate agents

  The new buyer agreements will clearly state that broker commissions are negotiable. This change is intended to enhance transparency and empower buyers and brokers to negotiate compensation that suits their needs. The trial is also intended to combat anticompetitive nature of real estate agents. Buyers should negotiate compensations with multiple NAR agents before signing any exclusive agreements.

• Impact on Closing Costs

  When buyers are required to pay their agents commissions directly, it could increase the cash needed at closing. This change could affect buyers' debt-to-income ratios and their ability to qualify for financing, especially first time and minority home buyers, potentially impacting the closing process. On the other hand, listing prices may decrease since sellers wont compensate buyers agent directly.

• Financing buyer agents commission

  Buyer agent compensation will not be financed directly through the buyer's mortgage. Buyers may explore other financing options such as down payment assistance programs or separate loans to cover these costs. However, these options may affect loan-to-value ratios and debt-to-income ratios, potentially impacting mortgage approval.

What doesn't changes for home buyers?

• Free open houses

  The fundamental nature of open houses wont change after the trial. Interested home buyers would be able to view listed properties with or without a buyer representative. However, scheduling tours outside of open hours would require a signed buyers agreement.

• Online property listings

  NAR agents will continue registering new listing on MLS as they appear on the market. This means that data aggregators like Zillow or Redfin would keep listing properties for sale. The near-real-time democratization of MLS data, paired with an intended transparency between agents and buyers will revolutionize the housing market.

• Loans and interest rates

  Interest rates, mortgages and lenders may not be impacted after the trial. Although cost structures and distribution of closing costs will be impacted, the applications and processes of financing should be unaffected.

While the transition to the new pricing model and homebuying process will be tricky, it will improve transparency in the home-buying process in the long term.