It’s been a week of big news in the real estate world, but perhaps not quite what you’ve been reading.
NAR announced they settled an ongoing lawsuit that alleged they conspired to keep real estate commissions artificially high by coupling buyer/seller agent commissions together and putting the onus on the seller to pay both.
So what does this mean? In a nutshell:
NAR has agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS. The purpose of this is to “decouple” the listing agent fee with buyer agent fee, which currently get grouped together in most cases and are both paid for by the seller. This does not mean sellers can’t continue to offer buyer broker compensation, and there are many reasons to still do so, but it is no longer allowed to be advertised in the MLS.
NAR has also agreed to enact a new rule that would require MLS participants (agents) working with buyers to enter into written agreements with buyers before they are allowed to even view a property. In the past, most agents wouldn’t get these signed right away because it felt awkward and pushy to do so with someone you’ve perhaps just met, but don’t be surprised when you are now required to enter into an agreement with an agent before you can even tour a property. This doesn’t mean you can’t interview potential realtors to work with, but you cannot physically go tour a home before signing such an agreement, which would include a negotiation of that broker’s commission and who is responsible for it.
News coverage has been horribly misleading, saying NAR fixed rates at 6% when that was never the case, and painting agents as greedy and dishonest, when in reality the average real estate agent closes 6 transactions per year and makes a modest income and is likely working 50+ hours/week to support themselves and their family. The misinformation from reputable new sources has been nothing short of heartbreaking for me to read. I hope this will change as the news settles.
One thing they have not made clear in any of the coverage (yet) is how profoundly this may affect buyers, especially first time homebuyers with limited funds for down payment who now may also need to pay their agent or go unrepresented. Same for veterans using VA loans, the rules for which currently do not allow buyers to pay their own agents.
I also have a hard time believing this will reduce housing prices because these fees are “baked in.” Home sale prices are dictated by the laws of supply and demand, not agent fees, and I doubt sellers will be willing to list 3% below market value as a result. Most will probably continue to offer some sort of buyer agent compensation to be attractive to buyers. And buyers may find they need to offer MORE money on a property to get the seller to pay their broker fee, which seems like it would artificially inflate homes costs, not the other way round. Time will tell.
That said, I don’t necessarily disagree with the ruling because more transparency is a good thing! This will allow buyer agents to truly show their value and explain to their clients what they are doing behind the scenes and how they are compensated. Agents can still dictate the minimum they will work for but it opens up options for buyers to negotiate the rate based on what they can afford. In reality this will mean they are not going to be able to offer on every property nor be able to afford every agent.
I can’t stress enough that there have always been brokerages and agents who will work for less and commissions have always been negotiable. But ultimately, the public can expect to pay more for a better, full-service agent and less for a limited service agent. Kind of like doing your taxes with TurboTax vs hiring a pro.
The bottom line: It will be confusing for a bit while we all figure out what this looks like in practice, but I hope this leads to more transparency and fairness for everyone involved. In the meantime, it is business as usual until these new rules are approved by the DOJ and take effect, likely in June or July of this year.
Many of you have already called me to discuss this week and I’m happy to chat and share more on this any time. I will also keep everyone updated as things develop and new best practices are established.