Perfect Timing For Bright MLS to Release Its Myths vs Facts Analysis About Real Estate Commissions and the MLS

Perfect Timing For Bright MLS to Release Its Myths vs Facts Analysis About Real Estate Commissions and the MLS

Now is the perfect time to combat the misinformation and irrelevancy of stale data found in the press, the class action lawsuits, and the settlements. Along comes Bright MLS — under the direction of President and CEO Brian Donnellan and his Chief Economist Lisa Sturtevant, PhD – to release its comprehensive research analysis entitled “Dispelling Myths About Real Estate Commissions and the MLS.”

Hats off to Brian and Lisa for sharing this enlightening information with the real estate industry.

For the full report with statistical data that distinguishes the MYTHS from the FACTS,  click on

NAR-Dispelling-Myths

We’ll CURATE highlights below:

From the Opening Statement:

  • Homebuyers and sellers are hearing misleading, and in some cases, inaccurate, reporting on the real estate industry, real estate commissions, and multiple listing services (MLSs) in the wake of the recent class action litigation. Some of the discussions have relied on old and irrelevant research that does not reflect current market conditions. In addition, there has been little explanation about the potential negative impacts of the proposed settlement on fair housing and access to homeownership.
  • What has been missing from the discussion is analysis of actual home sales data in the current housing market. To fill that gap, Bright MLS undertook research on four years of home sales transactions and found that many statements being echoed by the media are simply not supported by actual market data. Furthermore, the research demonstrates the important role of MLSs in ensuring a transparent, efficient, and fair housing marketplace.
  • On March 15, 2024, the National Association of REALTORS® (NAR) announced that they reached a settlement in the litigation against NAR and many brokers, associations, and MLSs. The agreement would resolve nearly all of the lawsuits, in exchange for NAR paying hundreds of millions of dollars and requiring brokers, agents, and MLSs to adopt new practices.
  • The MLS does not have data about either the fee paid by a seller to his or her agent or the compensation ultimately received by the buyer’s agent. These agent fees could—and still can be— negotiated during the homebuying process.     The settlement agreement will change some things about how these negotiations work, but many current practices will not change. Buyers and sellers can still negotiate commissions with their agents. Sellers can also still agree to have their agent share part of their commission with a buyer’s agent. And sellers can still offer to pay a buyer’s agent directly or offer concessions for buyers to apply to closing costs. In turn, buyers may pay their real estate agent directly or ask the seller to cover those costs. Of course, buyers and sellers may still choose to go without representation during the transaction.
  • The changes coming as a result of the settlement, which will go into effect late this summer, will prohibit listing agents from using the MLS to communicate offers to pay a buyer’s agent. Listing agents may still communicate those offers, just not through the MLS and websites that rely on the MLS for property information. The settlement also will require buyers to sign a buyer-representation agreement with their chosen agent, agreeing on how much the buyer’s agent will be paid. The proposed changes have the potential to make the homebuying process more complicated and less transparent, if not implemented with care by agents, brokers, and MLSs. The proposed changes could result in more listings taking place outside of the MLS, which is less efficient and creates fair housing challenges. Furthermore, the changes create a risk for first-time homebuyers and more moderate-income homebuyers who may go without representation.
  • There are many assertions being made about the homebuying process in the wake of the draft settlement agreement. For instance, some assert that real estate agents “steer” buyers away from properties with low offers of buyer-agent compensation and that high commissions drive up home prices. Bright MLS researchers conducted an analysis of more than one million home sales transactions that took place in the Bright MLS service area to analyze some of the claims about the residential real estate industry. We ultimately found many statements being made in the media and by others are simply not supported by market data.

FACT #1 Agents do not “steer” buyers to homes with higher buyer agent commissions.

  • The argument that buyers are “steered” away from homes with lower buyer agent commissions have referenced just two research studies, but neither of these studies reflect current housing market conditions. The first study examined home sales in the Boston area between 1998 and 2011 to conclude that homes with lower buyer agent commissions were more difficult to sell. However, there have been major changes in the housing market since that study, making the findings largely irrelevant. The research was conducted on sales that occurred long before online searches became ubiquitous to the homebuying process.
  • Most buyers now find their home online and use a real estate agent to tour homes, identify and resolve potential issues with a property, evaluate homes and neighborhoods, arrange inspections and appraisals, negotiate a price and concessions with the seller and his or her agent, and prepare paperwork needed for the purchase. Because home shoppers are seeing properties online, it would be very difficult for buyers’ agents to keep their buyers from touring a home. It simply is impractical for a buyer’s agent in today’s market to attempt to engage in the type of systematic steering being suggested.
  • Our analysis examined over one million home sales transactions taking place in the Bright MLS service area, which includes six states and the District of Columbia. The data analyzed includes listings that were entered into Bright MLS on or after January 1, 2019 and sold sometime between January 1, 2020 and December 31, 2023. The dataset includes information on the offer of compensation to the buyer’s agent, as well as a range of other property characteristics and information about the transaction, including days on market.
  • If agents were “steering” buyers to homes with higher offers of buyer agent compensation, then we would expect to see homes with lower offers of compensation take longer to sell and homes with higher offers of compensation sell more quickly. This would mean a negative relationship between compensation and days on market.  Instead, we see a weak, positive relationship between compensation and days on market. This weak, positive relationship is observed across years, price points, and each of the states served by Bright MLS.
  • The coefficient on compensation percent is also significant and it is positive, which means that controlling for other factors, properties with higher offers of buyer agent compensation take longer to sell compared to similar properties with lower offers of compensation.

FACT #2 Commissions do not drive up home prices.

  • Reports on the settlement have suggested—and in many cases, outright stated—that high commissions are causing high home prices.
  • If higher offers of buyer compensation led to higher prices, we would expect there to be a positive correlation between the offer of compensation and list prices for similar homes. The charts below show scatterplots for three-bedroom, fee-simple homes that sold between 2020 and 2023 in the Bright MLS service area. The correlation between compensation percent and list price is negative, indicating that higher offers of buyer compensation are actually associated with lower list prices for similar homes. The relationship is consistently negative in each of the four years in the dataset.
  • Mortgage rates were also a significant predictor of list prices, with higher mortgage rates associated with lower list prices, holding all other factors constant. The sign on the compensation percent variable is negative, indicating that similar listings with higher offers of buyer agent compensation actually have lower list prices. Specifically, for each 1 percentage point increase in buyer compensation, the average home list price decreases by $21,523, holding all other characteristics constant.

FACT #3 Listing a home on the MLS creates an open and fair housing marketplace. 

  • Under the proposed settlement agreement, NAR agreed to create a new rule for MLSs prohibiting a blanket offer of compensation to buyers’ agents in the MLS system.
  • The change means only that offers of compensation cannot be communicated via the MLS as they currently are able to do, but buyers and sellers can still negotiate who pays what. The mechanism by which buyers and sellers can negotiate and communicate about commissions is still unclear.  It has been reported that the offer of buyer agent compensation in the MLS allows buyers’ agents to search by that compensation field and “steer” buyers away from properties where the commission to the agent is lower.
  • There is evidence that homes sold outside the MLS make the housing market less fair and less efficient. A 2018 study of the real estate market in Houston found that listings marketed off the MLS as pocket listings resulted in discrimination in the housing market, with minority homebuyers much less likely to get information about homes available for sale. The research found that white real estate agents are more likely to use pocket listings and are most likely to circulate information about pocket listings to predominantly white networks. The study found that this practice of pocket listings increases housing inequalities, reinforces residential segregation patterns, and raises fair housing concerns.   Bright MLS research staff conducted an analysis on a more recent set of data and came to similar conclusions
  • Bright MLS research staff conducted an analysis on a more recent set of data and came to similar conclusions. In an analysis of closed sales in the Bright MLS service area between 2020 and July 2023, we identified homes that were sold as “office exclusive” or “pocket” listings, meaning homes marketed by an agent but not through the MLS, and compared them to properties listed by the agent on the MLS. We examined the characteristics of the neighborhoods where these office exclusive (OE) and non-OE listings were located.   The research found that OE listings were more likely than non-OE listings to be in neighborhoods with higher shares of white residents. OE listings were also more common in higher-income neighborhoods. The differences were statistically significant at the 1% level.
  • Listing a home on the MLS makes sure that every prospective homebuyer can see all available homes for sale. This helps to ensure that homebuyers are not excluded from the market simply due to where they live or what agent or broker they know. The MLS also makes the homebuying process more efficient and competitive. Bright MLS research found that homes marketed on the MLS sell more quickly than similar homes initially marketed as an office exclusive. In addition, because sellers have more prospective homebuyers viewing their listing, homes sold on-MLS bring sellers more competitive offers.

FACT #4 Homebuyers highly value a knowledgeable, professional buyer’s agent.

  • While the annual surveys of homebuyers and sellers report on opinions about and experiences working with agents, the data tends to be very high level, without an in-depth analysis on the reasons why homebuyers choose to work with a real estate agent and what specifically they value about having a buyer’s agent. To fill that gap, Bright MLS worked with Remesh.ai to conduct a live, in-depth conversation with 110 recent homebuyers and renters across the country. The online conversation was conducted on Tuesday, December 12, 2023, from 7 to 8 p.m. Eastern Time. The conversation participants, who were recruited by Remesh.ai, included 85 recent homebuyers and 25 renters.
  • The conversation was a mix of poll questions, where participants were asked a question and had to select their response from a list of options, and open-ended opinion questions, where participants provided a written free-form response. Most poll questions also included follow-up opinion questions to better understand the “why” of the response. These follow-up questions were used to analyze whether there was consensus around certain topics or ideas.
  • ‘When you buy a home, you should definitely have someone who represents your interests during the whole process.’ 76% Agreed
  • “Buying a home is something you can do mostly on your own, perhaps with a lawyer to help with the paperwork.” 24% Agreed
  • Consumers think it is important for buyers to have representation. Most homeowners who participated in the online discussion used a real estate agent or broker when they purchased their home, and most respondents said they had a positive experience with their real estate agent. More than three-quarters of participants said that when you buy a home, you should definitely have someone working with you who represents your interests.
  • In the follow-up question, most participants emphasized that having representation is important because experts understand the buying process, know about properties, and can handle complications. Additionally, participants remarked that having a professional ensures fewer errors, provides valuable knowledge, protects the buyer from being taken advantage of, makes the process easier, assists with legal aspects and negotiations, and helps secure the best deal.
  • Nearly all recent homebuyers searched for homes on an online real estate portal. Participants commented that online real estate portals have improved the homebuying process by making it easier to access information, compare homes, find homes with specific characteristics, see virtual house tours, narrow down choices, and search from long distances. However, there was broad consensus among focus group participants that online real estate portals are not a substitute for working with a professional real estate agent. Our focus group research found that consumers feel overwhelmed by the amount of information available online. Most focus group participants agreed that while you can view homes online, it’s still important to work with an agent and that an agent has knowledge and expertise that is not available through an online portal. Consumers value that knowledge and expertise.

CONCLUSION

There is a lot of misinformation swirling around about the residential real estate industry, real estate agent compensation, and multiple listing services. Our research uses actual data from home sales transactions and survey data from recent homebuyers and renters to provide context about how the housing market works.

  1. There is no correlation between buyer’s agent compensation and length of time to sell a home, contrary to some comments being made by the media and prosecutors.
  2. Agent commissions have not been driving up home prices; rather, property and neighborhood characteristics and mortgage rates have fueled home price appreciation.
  3. Listing a home on the MLS provides tremendous value both to buyers and to sellers. When homes are listed on the MLS, all homebuyers have an opportunity to see all homes available for sale. Sellers get more “eyes” on their property, which brings them the best offer.
  4. When recent homebuyers are asked about real estate agents, there is widespread consensus that it is important for a homebuyer to have their own representation during the complex and sometimes stressful homebuying experience.

ABOUT BRIGHT MLS

Bright MLS was founded in 2016 as a collaboration between 43 visionary associations and two of the nation’s most prominent MLSs to transform what an MLS is and what it does, so real estate pros and the people they serve can thrive today and into our data-driven future through an open, clear and competitive housing market for all. Bright is proud to be the source of truth for comprehensive real estate data in the Mid-Atlantic, with market intelligence currently covering six states (Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia) and the District of Columbia. Bright MLS’s innovative tool library— provides services and award-winning support to well over 100K real estate professionals, enabling their delivery on the promise of home to over half a million home buyers and sellers monthly. Learn more at BrightMLS.com

 

 

 

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2 Responses

  1. This is a greta summary which can help agents prepare their dialogue with data for their clients. There are always examples of what not to do, but important to focus on what to do. I am passing this one on to agents and as a resource for my updated CE credit class. Thank you John!

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