Industry leaders are hoping for the best but bracing for the worst, and say it could take years to sort out a new normal for real estate agent compensation. Stock illustration

The Massachusetts real estate industry has just entered a new era of how commissions are paid to listing and buyer agents – and it could take years to sort out expected confusion and controversies surrounding agent compensation issues.

According to terms of the landmark commission-fees settlement signed earlier this year by the National Association of Realtors, member real-estate brokers and agents across the nation must now comply, as of Aug. 17, with new negotiating and contract rules designed to give consumers more choice and power when setting commissions.

Gone are the days when listing agents basically told sellers that they’d handle payments to buyer agents out of their own commissions.

And gone are the days when Massachusetts buyer agents could casually go without signing contracts with their clients. From hereon in, agents in Massachusetts will be required to sign contracts with buyers before showing them any homes – and even then, compensation and who will pay them may likely vary from deal to deal.

To further complicate matters, MLS PIN, the largest multiple listings service in New England, has been making major listing changes as well, as part of a separate legal settlement with plaintiffs upset with its commission practices.

The bottom line: Industry leaders are hoping for the best but bracing for the worst in coming months and years, as brokers and agents adjust to the new rules and choices tied to agent commissions.

“We’ve been preparing for these changes for quite a while,” said Theresa Hatton, chief executive of the Massachusetts Association of Realtors. “I can’t tell you how many hundreds of presentations we’ve made to [agents and brokers] to help educate them on the changes. We want things to go smoothly, but we’ll see. It’s going to be a learning curve.”

Linda O’Koniewski, CEO of Leading Edge Real Estate, thinks the transition to a new system could get choppy.

“I’m expecting a little chaos,” said O’Koniewski, whose firm has 143 agents working under the Leading Edge brand. “My firm is ready. But a lot of the industry is not up to speed on what needs to be done. It could get confusing.”

Contracts with Options Likely

Unlike Maine, New Hampshire and other states, Massachusetts brokers and agents weren’t previously required, by law or NAR rules, to sign buyer contracts with clients. That changed as of Aug. 17.

Now buyer agreements are required even before agents can show a home to a client.

And because sellers’ agents can no longer compensate buyer-agents on home-sale deals, how agents are paid on the buy-side, and how much they’ll get paid, will have to be written into contracts with homebuyers.

The contracts will more than likely include a number of payment options and scenarios, depending on how an individual home-sale deal is structured, industry officials say.

Technically, buyers can compensate buy-agents directly after a sale is completed. That would be the easiest route to take – but also probably the least likely.

Most industry leaders believe buyers will opt to have the home sellers somehow compensate buyer agents. But that’s where any confusion and controversy might arise. And mortgage-buyers Fannie Mae and Freddie Mac made clear in April they won’t count a seller’s decision to pay a buyer’s agent as a concession.

Moving forward, MLS listings can no longer, in some instances, stipulate sellers’ buyer-compensation preferences if they’re dealing with NAR-associated members.

Who Pays the Buyer’s Agent?

So, buyers and their agents will have to get buyer-agent compensation details directly from sellers or their listing agents on a case-by-case basis.

“That’s going to be the most confusing aspect of these changes,” said MAR’s Hatton. “It’s going to require a lot of explaining.”

From the standpoint of buyer agents, the most dreaded scenario is buyers opting to go without any agent representation – and thus without having to pay any buyer-agent commissions.

And the industry is bracing for that scenario, too, with MAR having developed a new “unrepresented buyer agreement” form that sellers or their agents can have buyers sign for liability reasons, before a deal is officially finalized.

“It’s basically a disclosure form that sellers are not representing them,” said Hatton. “Buyers will know that they’re on their own.”

Hatton and other industry officials expressed concern that some, if not many, buyers might opt for self-representation, warning such buyers won’t have the experience and knowledge needed to deal with sometimes complex legal and financial sale transactions.

“I really hope these changes don’t deter people from hiring buyer agents,” said Hatton. “Having representation, in my opinion, is critical.”

At least one local lender is stepping into the breach: Leader Bank. The Arlington-based community bank was already a major player in the Greater Boston and Cape Cod mortgage markets before announcing last week that it will help buyers finance their agent’s commission up to $50,000 or 5 percent of the home’s value.

The financing comes in the form of a home equity line of credit and is, for now, only being offered to customers already taking out a mortgage from Leader, who also have stellar credit and who are putting 20 percent down. That pool should expand next year, said Jay Tuli, Leader’s president.

Sellers Face Conundrum

Changes to seller’s agent contracts are not as dramatic as those on the buy-side of transactions. But changes are indeed coming.

First off, most listing agreements are expected to make clear up front that commissions are not set by law and are fully negotiable. That message was the essence of the NAR settlement agreement – i.e. giving sellers clear power over setting commission levels for both listing and buyer agents.

Previously, contracts usually stipulated that a buy-agent’s commissions would be paid out of the listing-agent’s total negotiated commission, which often meant a listing-agent split a final fee 50-50 with a buyer-agent.

But that’s no longer the process under the terms of the NAR settlement agreement.

New forms, whether developed by MAR or brokerage firm themselves, can only stipulate what exactly a seller agrees to pay to a seller’s agent – and they then can separately note what a seller agrees to pay, if anything, to a buyer-agent who brings in an actual buyer.

Theoretically, a seller can refuse to pay a dime to a buyer’s agent. But some fear the seller then risks buyers’ agents not showing prospective buyers a home, even if that kind of commission-based steering is at the heart of federal antitrust prosecutors’ concerns about how the real estate market is organized.

O’Koniewski said there’s yet another issue looming for sellers and sellers’ agents alike: What do they do with buyers who have decided not to hire buyer agents?

She said she’s seen one industry survey indicating that as many as 25 percent of people might opt to go unrepresented by a buyer agent.

And that could lead to more time explaining terms to novice homebuyers and reviewing documents in transactions.

“This could be a huge deal,” said O’Koniewski of dealing with unrepresented buyers. “It may require much more work to complete deals.”

MLS PIN Changes Complicate Picture

Since it’s not owned by a Realtor association MLS PIN isn’t a party to the NAR settlement. But New England’s largest multiple listings service still has to implement various listing changes tied to a legal settlement it signed in a separate compensation-related lawsuit filed against the service and some brokerages.

As of last month, MLS added new options to individual home-sale listings designed to accommodate the compensation needs of both NAR-associated and non-NAR-associated agents and brokers.

“We’re just trying to be more flexible,” said Erminio Grasso, CEO of MLS PIN. “There are many different types of comfort levels” for those listing homes for sale.

The MLS PIN listing options include: stipulating a buyer’s agent compensation (mostly for non-NAR members); stipulating if there’s no compensation at all; stipulating that a seller is offering buyer-agent compensation but not via MLS PIN; and, finally, an option to simply ignore, or skip over, all compensation options.

And starting soon, MLS PIN plans to allow brokers to shut off all compensation options to their agents, so that they don’t accidently include something they’re not supposed to in a listing.

“Every brokerage will have to decide their own path” on listing compensation details, Grasso said.