There’s been a lot of buzz about what the National Association of Realtors (NAR) settlement means to the real estate business. I’ve seen many blurbs on the news, read several articles and had a few conversations about what this could mean to business as usual.
To catch you up
If you haven’t heard, some unhappy sellers in Missouri got together and sued NAR and a few other big brokerages claiming commissions are fixed and this is an antitrust issue. There are laws in place that keep businesses from price fixing, keeping prices at a certain level and basically not allowing lower prices in a market. The jury concluded that NAR had price fixing strategies in place and were ordered to pay in excess of $1.7 billion. I don’t know what information was provided to the jury for them to come up with this verdict. I do know, in our experience as real estate agents, commissions have always been negotiable. NAR filed or planned to file an appeal but then agreed to a proposed settlement. The settlement still needs approval by the courts so it is not final yet. However, the terms of the NAR proposed settlement are now public and are causing quite a stir.
What may change
The true impact of the proposed NAR settlement will likely take a bit to shake out. If accepted, the changes in the proposed settlement are planned to be in place this summer. As a buyer or seller, there are a couple of things that will be different. As a buyer, you will have to sign a contract with your real estate agent that spells out how much the agent compensation will be before the agent can show you a home. As a seller you may have a more in depth conversation than you had in the past about the buyer’s agent compensation. When you receive an offer, the buyer’s agent’s compensation may be another item to take into consideration during negotiations.
For real estate agents and brokerages, these changes will make everyone determine their rates and fees when working with buyers. Some may choose to receive a paycheck the same way it has been, with a commission from the sale of a home. Others may choose to charge for the tasks they perform; a charge for showing a home, another charge to help with a purchase. Or perhaps there will be a flat fee charge for six months or a year of services, whatever they happen to be. Regardless of the fee structure, the amount of commission agents will receive from the listing broker will no longer be available in the broker database (MLS). Listing agents can still pay buyer’s agents, that hasn’t changed. Buyer’s agents will just need to have a conversation with the listing agent prior to showing a property to find out how much compensation is being offered. If the amount offered is different than the amount agreed to between the buyer and their agent, the buyer may be responsible to pay the difference.
Unfortunately, this change may make buying a home more difficult for buyers with limited funds. It may also push buyers away from using a real estate agent for their purchase. For someone that is unfamiliar with real estate transactions, no representation could result in them being taken advantage of, paying too much or getting into a home with issues they aren’t prepared to handle. As a real estate agent, I’m sure we can come up with solutions to continue to help buyers buy homes and for agents to still make a living.
What won’t change
The media has been making assumptions that we can expect house prices to go down, and that real estate agents will make less money.
ASSUMPTION: If a seller doesn’t have to pay the buyer’s agent, which, I need to point out, has always been negotiable, the seller will sell their home for a lower price.
RESPONSE: Generally, a seller always wants to sell for the highest price possible. When a product will sell for a specific price, it is rare that the price will go down because the related costs go down. Pricing is a result of supply and demand and that will not change.
ASSUMPTION: If a seller doesn’t have to pay the buyer’s broker, they won’t.
RESPONSE: Depending on the home, not offering buyer’s agent compensation could limit the buyers that can buy the home. Remember, a contract that commits a buyer to pay their agent will be required to be signed prior to seeing any homes. Fewer buyers equals less competition and could lower demand. It may be in a seller’s best interest to offer buyer agent compensation.
ASSUMPTION: When a buyer has to agree to pay their real estate agent, they will choose not to have an agent.
RESPONSE: Buying a home is one of the largest purchases a person makes in their lifetime. It’s not a frequent purchase and is unfamiliar to most people. Having someone that knows and understands the the market in your area, what similar properties are selling for, and the transaction process is a valuable service.
ASSUMPTION: When a buyer has to agree to pay their real estate agent, agents will be forced to lower their commission.
RESPONSE: Fee structures may change. However, being a real estate agent is a career and not just a hobby for many agents out there. It is how they feed their families, pay for health care, and hopefully fund their retirement. It is an occupation without any guarantees of income. Many hours are put in and expenses incurred without knowing if there is a paycheck coming. To expect agents to continue to take on liability, keep up to date on the industry and markets, help buyers for as long as necessary to find the right home, and to do it for little to no compensation is unlikely. I believe consumers will continue to receive value that is well worth paying for.
Is there more to the proposed settlement?
There are other terms in the proposed settlement, mainly liability releases and the payout of financial compensation. If the settlement is approved by the court, expect to see some changes when buying or selling real estate this summer. As always working with an experienced real estate agent can make the process be as smooth and enjoyable as possible.
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