If you are a real estate agent, buyer, seller, investor, casual perusaler (ok, not a real word) of real estate, or just haven’t had your head under a rock these few months, you’ve seen the big news regarding NAR (National Association of Realtors). Last March, NAR announced that they had reached a settlement agreement to resolve litigation brought by home sellers related to broker commissions. Once that story broke, the media had a field day with misinformation. Agents everywhere began profusely sweating and drinking heavily. So, facts first:
1. NAR is required to pay out $418 million over the next four years.
2. NAR agreed to create a new MLS rule prohibiting compensation offers on the MLS (Multiple Listing Service).
3. NAR also agreed to create a new rule requiring MLS participants working with buyers to enter into written agreements with their buyers before the buyer tours a home.
When the news came out, media outlets everywhere began distributing disinformation. Yahoo, NBC, and Joe Biden himself all had something to say, and what they said was largely untrue.
It was falsely reported that prior to the settlement, real estate commissions were a required and fixed amount of 6%, with 3% going to the listing agent and the additional 3% to the buyer’s agent. Further reporting insinuated that the commissions were legally mandated and set by the National Association of Realtors, the government, or even the Grand Poobah of Greedy Real Estate Professionals Everywhere—whoever that is.
The truth is that commissions have always been negotiable, not required. Sure, 6% became the industry standard, but it was not the industry requirement. There are many flat-fee agents, brokerages that offer discount services, and even brokerages that specialize in 1% listings.
It has always been well within a home seller’s (or buyer’s) rights to negotiate commission.
The real problem is crappy agents, specifically listing agents, who do not do a good job of communicating details to their clients. Essential things like how much listing their house is going to cost and the fact that while a listing brokerage may have a standard fee that they charge, those fees are not some mandated amount that can not be negotiated.
As an agent, disclosure and accounting are part of our fiduciary duties. So, instead of holding those agents responsible for neglecting their fiduciary duties, what was once a pretty transparent process has now been convoluted.
How? I’m so glad you asked. Let’s compare the new process to the old. Grab yourself another cup of coffee (or a shot of whiskey), and stick with me.
1. Listing process/listing agreement.
Pre-NAR ruling: When listing a property with a brokerage, you must sign a listing agreement that discloses all the deets and allows that brokerage to sell your property. One of its most important parts is disclosing how that brokerage gets paid. Previously, and depending on your state, that information was a paragraph that included a place for total commission collected at closing and then a place that discloses how that commission might be split between buyers and sellers agents. Again, commissions have, and always have been, negotiable. However, it was typically expected that the seller’s agent would pay the buyer’s agent for bringing a buyer.
Post NAR ruling:
Truthfully, we don’t know yet how commissions will be addressed. I believe there will be a place for the listing commission and perhaps another place for the seller to offer a buyer’s agent commission.
Or not.
I assume there will be because the settlement does not say that the seller can’t offer the buyer’s agent a commission. Moreover, the suggested verbiage currently being discussed is about as clear as the congressional budget.
2. MLS (Mulitple Service Listing rules)
Pre-NAR ruling: Listing agents would list the amount the seller was willing to offer the cooperating broker to bring a buyer. It was typically between 1% and 3%, depending on the NEGOTIATED amount.
Post NAR ruling: Seller agents are now prohibited from disclosing any amount of commission that might be offered to cooperating brokerages on the MLS. That line item will be removed from the listing input completely.
3. Written buyer agreement.
Pre-NAR ruling: I can’t speak for every agent but I ALWAYS required buyers to sign one of these. A written buyer agreement clarifies the difference between being a customer versus a client and lays out the agent’s and client’s responsibilities. It enables the agent to receive commission and, depending on your state, gives the agent exclusivity with that buyer. Meaning the buyer must use the aforementioned agent to buy a house. Most importantly, at least for me, was protection. If a buyer signs that agreement, it means I have personal information, probably a pre-qual letter from a lender, their driver’s license, and the peace of mind that they’re probably not a serial killer trying to lure me to an abandoned house and murder me.
Post NAR ruling: This is now a requirement for agents working with buyers….which….again…I thought was already a thing. However, the new agreements will include a place for the buyers to check if they are willing to pay their agent’s commission out of pocket if the listing agent doesn’t pay it.
This has led to multiple media outlets, who have no actual idea how this works apparently, to claim the ruling is a win for home sellers and will drive down housing prices as real estate commissions are expected to fall 25-50%
HAHAHAHAHAHAHA!!!
Right.
I’d like to see some agents convince their sellers to lower their list price by $10,000-$20,000 or more in some cases since they’re not paying a buyer’s agent. Not gonna happen.
This ruling and the subsequent garbage analysis being tossed around are doing nothing but confusing people, hurting sellers, and marginalizing certain buyers.
Think I sound dramatic? Lemme tell you why. First, sellers who believe it will help them financially not to offer a buyer agent a commission will do nothing other than limit their buyer pool. First-time homebuyers, who make up more than 50% of the market, will be disadvantaged. Most have saved up for a down payment, closing costs, and inspection fees. They don’t have the extra $10,000 plus to pay an agent. So those buyers probably aren’t going to come through Mr. Seller’s doors. The house may sit longer on the market, requiring multiple price drops and leaving the seller with less money than if he just offered compensation to the buyer’s agent.
Some first-time homebuyers will also have fewer choices if they don’t have extra money to pay a buyer’s agent and have instructed their agent only to show them properties offering a buyer’s agent commission. Other buyers will lose out on properties in competitive markets. Yet other buyers may find themselves trying to navigate the process on their own, and becoming unfairly taken advantage of.
How many lawsuits will come out of this?
I’m not a betting woman, but I might take this one.
Unfortunately, I believe we will see an increase in significant issues in areas that have been unproblematic for years. This NAR ruling forces good agents to walk a very thin tightrope in providing our clients with the fiduciary duties they are sworn to perform as members of the National Association of Realtors.
Stay tuned for some fallout.
Meanwhile, I intend to continue giving each client my very best.
Just with a little more paperwork and a lot more coffee.
The Overly Caffeinated Agent 