Long Island real estate industry implementing major change in how agents get paid 

A significant change to how real estate agents are paid took effect Aug. 8 on Long Island following antitrust litigation against the National Association of Realtors that alleged brokers conspired to inflate commissions. 

But while it will alter the nature of relationships between buyers, sellers, Realtors and their brokerages, experts said it’s hard to say how it will affect home prices. 

OneKey MLS, the multiple listing service that includes Long Island, will prohibit listing brokers from disclosing on its platform how much a homeowner is willing to pay a buyer’s agent in commission.

The local MLS, which is owned by the Long Island Board of Realtors and Hudson Gateway Association of Realtors, implemented the changes ahead of an Aug. 17 deadline when all Realtor-owned multiple listing services must put the changes into effect.

Traditionally, offers of compensation had been listed on the MLS and listing brokers split commissions with a buyer's broker. Those brokerages then shared commissions with the agents involved in the deal.

"Sellers must understand they have the ability to negotiate commissions," said Doreen Spagnuolo, CEO of the Long Island Board of Realtors, noting sellers have always been able to negotiate. "These changes are about consumer empowerment."

The changes aim to address concerns put forward by a group of Missouri home sellers in litigation against the National Association of Realtors and large national real estate brokerages. The plaintiffs charged that the commission splitting among brokers had artificially kept fees higher.

The National Association of Realtors pushed back, saying commissions already had been negotiable, but agreed in March to settle the lawsuit for $418 million and make changes to the way information about commissions is shared on multiple listing services.

New rules for buyers' agents 

Realtors who specialize in working with buyers will still seek payment. Under new rules for participating in OneKey MLS, those agents will be required to have a signed buyer representation agreement before taking clients to tour homes.

That agreement will include how much an agent expects to be paid, what services they will provide and whether they will seek payment from the buyer directly or negotiate their payment with the listing agent.

The change will require buyers’ agents to sell consumers on their services in a way they haven’t needed to before.

"It’s significant from the standpoint that it does represent change," said Richard Haggerty, CEO of OneKey MLS. “ … I personally feel those brokers who adapt quickly and convey [their] value proposition are going to thrive."

Buyers could choose to skip using an agent. In that case, a listing agent could handle both sides of the deal, and it’s possible they would accept a lower commission for doing so.

Consumers must understand that the listing agent has a fiduciary duty to help the seller get the best price in those situations, Spagnuolo said.

Requiring buyer-broker agreements will help consumers understand they have a right to pay for their own agent to represent their interest, she said.

It’s unclear what effect the changes will have on home prices. Some sellers could stand to pay less if they opt not to pay the buyer’s agent’s commission, but that doesn’t mean they will lower their asking price.

Rob Hahn, a real estate industry consultant based in Las Vegas who grew up on Long Island, said he didn’t expect agent commissions to fall immediately but over time some buyers’ agents could start charging less, pushing costs down.

In a seller's market like Long Island's, in which home prices have set records this summer, homeowners likely would reap the savings. 

"I do think most of the economic benefit will be captured by the seller," he said.

Upheaval anticipated

Deirdre O’Connell, CEO of Daniel Gale Sotheby’s International Realty in Cold Spring Harbor, said she expected some upheaval in the days after the changes take effect, mostly because some agents won’t be as prepared as they should be.

But she has heard from agents at her brokerage that homeowners haven’t balked at continuing to cover commissions for buyers’ agents — at least so far.

"My agents are telling me that when they have conversations with the sellers they don’t really change their thinking," she said. "They believe in getting the most exposure for the house and making sure every buyer who wants to purchase their house has that incentive."

One potential outcome floated by agents is that sellers will cover the cost of buyers’ agents through concessions or agree to pay as a condition of a buyer's offer.

For example, if a buyer’s agent sought 2% in commission on a $500,000 home, or $10,000, a homebuyer could submit an offer on the home of $510,000 and seek a concession from the seller. The concession could be used to pay the buyer's broker.

The seller would still receive the $500,000 they asked for, and the $10,000 concession would cover the commission of the buyer’s broker. 

The extra $10,000 would be included in the buyer’s mortgage, so the home would have to appraise for the higher $510,000 to secure a loan.

Sellers will be able to indicate on OneKey MLS that they are open to offering concessions and could specify how much they are willing to offer. But they cannot require a buyer to use that concession to pay their broker.

Ultimately, sellers should have no problem offering concessions if the net amount they receive from a buyer represents the best offer, said Cory Knopf, an associate broker at Compass in Oceanside.

"We’re going to review the net number and whichever [offer] has the best net with the best terms is the deal we’re going to take," she said.

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.