Real Estate's New Reality-Part 1

 Many of you have heard things on the news or on social media about recent court rulings against NAR (National Association of Realtors). But maybe you're confused by what it all means, well you're not alone. The settlement, which doesn't actually get full approval until November, has left a lot of Realtors confused as well. Luckily here in Central Virginia our MLS and Association made some of these changes  months ago and even some of them years ago.

So here's a quick synopsis and keep in mind, I am in no way a legal expert, this is purely my point of view.

It started out west with a lawsuit filed by sellers that did not like the fact that they were paying the buyer's agent a commission. They felt it wasn't fair to pay someone to work against them and they testified that they were not aware that it was their money going to the buyer's agent. All of this lead the DOJ to start looking into real estate practices. This is where and when it all blew up 💥 

Up until about 30 years ago when you bought or sold property there was one agent who handled both sides. They were enlisted/employed by the seller who would run both sides of the transaction and get paid from the seller. I actually have an old receipt from when my grandparents sold their home in 1962, there was one agent and he was paid 4% of the sales price. Eventually buyers started to realize that they too need someone on their side to represent and advocate for them which ushered in the new field of "buyer's agents". In Virginia around 30 years ago our Associations recognized this relationship and legal agreements were offered to agents to establish the boundaries of this relationship. These legal agreements were not required up until about 12 years ago when they became required if you were a member of our local MLS (so many side notes....the MLS was set up to establish the agreement between brokers to offer compensation and by being a member you agreed to cooperate with your fellow brokers. Note this did mean they were required to offer anything, it was merely a blanket agreement that if it was offered by the seller, it would be paid.) 

Back on track....now I can only speak to our local practices because many states did not officially recognize the buyer's agency relationship like Virginia did which is why they are having a harder time adjusting now. In our Listing Agreements it was agreed that the seller would pay X amount to their broker and that broker would split it in some way, not always equally with the buyer's broker. Both those payments were spelled out in the contract and were always completely negotiable (remember this, it will come back later). The listing (seller's) agent would put the buyer's portion in the MLS for only agents to see. Yes, there is a side of the MLS that is available only for agents to view, mostly it's the seller's info and maybe special instructions on how to access the home and of course how much the buyer's agent would make. So stay with me here....the sellers would agree to pay their broker X amount, that broker then agreed to pay part of it to the buyer's broker. On the Settlement Statement from the closing attorney it would show up as Y amount to one broker and Z amount to the other broker. (note i'm using the term broker and not agent because there is a difference and that perhaps is another post on just how much does the agent make) It was common practice to split that commission equally up until about 10 years ago when we started to see the listing brokers earning more than the buyer's broker. That was completely up to the listing broker and their individual business practice but those splits would have been in the listing agreement that was signed by the seller and the broker. We also began to see that the total commission was lower than what most of us were used to seeing. Now this of course is the American way, good for the economy and good for the consumer. This is how capitalism and competition works, nothing wrong with it at all. The very first thing that happened during these lawsuits was that our MLS and many others made that buyer's commission available to the public. This was in response to DOJ's concerns regarding transparency. Because the original lawsuit was based on the premise that the sellers were unaware of where their money was going, NAR started to change this and make it available to the public of what the buyer's agent was earning, although the seller's commission was not made public, go figure.

Once the first lawsuit was ruled in the seller's favor, NAR began coming under fire for many of it's practices and being accused of breaking fair trade practices and collusion amongst it's members and many other seemingly horrible things. This is also when the media took this ruling and ran with it, making many false and misleading comments. This caused many agents to become not only confused but angry with how they were being portrayed. 

I'll break this up so you don't fall asleep but in part two we'll discuss how agent's view of all this and how it might affect you as a consumer on either side of the transaction.