Utah already ahead of the curve when new commission rules hit

John Rogers
Business Journal

New nationwide laws that protect homebuyers from predatory commission practices by real estate brokers and agents that went into effect last month may not be a big deal in Utah, according to industry sources. While the dramatic changes in real estate commission disclosure and negotiating practices — stemming from legal settlements regarding commissions — are expected to significantly impact the real estate market in many parts of the U.S., Utah is less likely to see dramatic shifts.

Utah has been ahead of the curve in terms of transparency and consumer-friendly practices. For over two decades, Utah real estate agents have used buyer-agent agreements which clearly outline commission structures. This means that buyers and sellers in Utah have long been accustomed to understanding and negotiating commissions, unlike in many other states where these practices are only now being mandated due to the legal settlements.

The lawsuit that led to the new real estate commission laws was filed in the U.S. District Court for the Western District of Missouri. This case, known as the Sitzer/Burnett lawsuit, was filed against the National Association of Realtors (NAR) and several major real estate brokerages. The plaintiffs in this case accused NAR and the brokerages of conspiring to inflate buyer agent commissions by requiring home sellers to pay the commissions of both their own agent and the buyer’s agent, thereby keeping commissions artificially high.

In October 2023, the jury ruled in favor of the plaintiffs, finding that the NAR’s practices were anti-competitive. This verdict led to a $418 million settlement and prompted changes to how real estate commissions are handled nationwide, including the removal of certain commission disclosures from MLS listings and the end of mandatory blanket offers of compensation to buyer agents .

“We don’t feel that the lawsuit is going to have a big impact here in Utah,” said Adam Kirkham, president of the Utah Association of Realtors in a statement. “Anyone that sold a home could expect to receive a postcard about the class-action suit. The lawsuit did not originate here because in Utah we have been using buyer-agent agreements for 20 years. Consumers in Utah have been more informed about what the commissions were.”

While the new laws require changes like the removal of buyer’s agent commission details from MLS listings nationwide, Utah Realtors and consumers might not see as much disruption, Kirkham said. The impact here will be more procedural, as Utah already practices many of the requirements now being imposed elsewhere .

However, like in other states, Utah is not entirely exempt from the ongoing legal battles related to real estate commissions. A class-action lawsuit was filed in U.S. District Court of Utah in February, joining a broader national trend challenging traditional commission structures. While that suit is ongoing and the results are to be determined, it could lead to further changes in the future .

The suit was brought by a seller in the Salt Lake City area who paid a 6 percent commission on a home he sold in October 2022. He alleged unlawful conduct and a conspiracy to keep the commission high, similar to several dozen other cases filed since the 2023 Sitzer/Burnett verdict. The defendants include the NAR and about a dozen Utah brokers and agents.

Historically, buyers were not expected to pay their real estate broker directly. That’s because agent commission fees — to both the buyer’s agent and the seller’s agent — were paid by a home seller. Commissions usually total 5 percent to 6 percent of a home’s selling price, so for a $450,000 home, roughly the average price of a home in the U.S., a seller would be responsible for $27,000 in fees. Many experts have said these commissions have been added to a home’s selling price, inflating home prices.

But beginning on Aug. 17, sellers’ agents will no longer be allowed to advertise commission fees to buyers’ agents on multiple listing services that agents use to list and find homes for sale and to facilitate transactions. That means that a buyer’s agent can no longer use the database to search for houses based on how much they’ll get paid, a practice called “steering,” which led some agents to skip over showing homes that fit their client’s criteria solely because a seller was offering below-market commission rates, critics allege.

Overall, while the fundamental changes in commission transparency and negotiation are being felt across the country, Utah’s pre-existing practices might soften the impact compared to other states.