Real Estate's New Reality-Part 3

 I'm sure you're all hoping I can sum this up now. There's just soooo many feelings and thoughts, it's hard to get them all out. 

The first court ruling found NAR liable for several things and NAR took immediate action to remedy most of them. There is a purposed settlement on the table in which Associations, MLS's, brokers and agents are to take action by mid August, even though the settlement won't be approved until November (2024), like we don't have enough in November going on this year, but anyway.... Below I will highlight a few and how they affect the transaction.

First, we must establish agency between the agent and a buyer BEFORE showing any property. This means they all must sign a Buyer's Agency Agreement. The terms may differ on each contract, such as the length of time, the area, the type of property and how much the agent will be paid.  Regarding payment, in the past we were able to select a box that said the agent would be paid whatever was offered in the MLS if they didn't want to charge a set fee. This was our go to practice as it set the buyer at ease knowing that whatever the commission was, they didn't have to bring any of it to the table. Checking this box was also pretty safe for us as every seller offered some commission and it was usually a market rate. Now that box has been deleted and you must enter a set amount regardless of what the seller may or may not offer. If the seller is not offering anything it will be on the buyer to pay their agent themselves.

How does this affect you? As a seller you now have the option to offer the buyer's agent a payment instead of paying a fee to the broker and it automatically being split. Your listing broker will charge you a fee for doing the listing and ask if you wish to offer payment to the buyer's agent as well. There are two sides to this....you will save money if you don't pay the buyer's agent, but buyer's will see it differently. If you don't pay their agent then they will have to and the cost of your home just went up considerably. Which means they may just decide not to even view your home at all. However, the buyer does have options, they can ask the seller in their offer to pay their agent, or they can ask for a credit and they can use that to pay their agent. Yes there's a difference, just ask your mortgage lender. The amount required to pay the buyer's agent can become a negotiating point. But to make it even more complicated those numbers can be adjusted as necessary. Example, the seller offers up front to pay the buyer's agent X amount. The buyer's have a signed agency agreement to pay their agent X.5 amount. The buyer can ask the seller in their offer to pay the .5 difference. Make sense? Don't worry it will one day.

How does if affect agents/brokers? In our state it isn't very different from the past. We have had Buyer's Agency Agreements for over 30 years and they've been a requirement for 12. But many states have never had to deal with these new contracts and they are stressing far more about it than we are. What is different is how we will get paid, will it come from the buyer or the seller?

Second, we must remove the requirement to offer compensation in the MLS. If you remember way back in part 1 I mentioned that the sole purpose of the MLS was broker cooperation, which included payment of a commission to the buyer's agent. That was actually done in our MLS several months ago but starting August 6th the field for buyer's agent commission will be removed completely from the system. So what will happen now is that the buyer's agent will have to call the seller's agent prior to making an offer to see if the seller is offering any payment to the buyer's agent. If the seller is offering a payment then the brokers must get a signed agreement between themselves to ensure payment.

How does this affect you? As a seller you will sign a listing agreement which will spell out if or how much you would like to offer up front to a buyer's agent. If you offer nothing then it's possible that you may have buyer's requesting you to pay their agents. But that is completely up to you and is a point of negotiation between you and the buyer. Agents are not a party to the Purchase Agreement (offer). As a buyer this means you will not know when looking at listings online if your agent's fee will be paid by the seller or by you. Your agent will need to find out ahead of time prior to making an offer or perhaps even prior to even viewing the home. You will then need to decide how or if to proceed with viewing this home.

How does this affect agents/brokers? It really just adds a lot more work. We now have to call ahead and see if or how we will get paid. We are just getting used to using online systems for showings and offers, now we got to make phone calls again?? Yuck! Younger (than us) agents are notoriously bad about picking up the phone and making a call. The problem is it is not allowed to put this anywhere in a system except for your own listings on your own website. It cannot be mentioned in the MLS and there are very stiff fines if you try. It cannot be mentioned on any site/system that receives a feed from MLS, or third party vendors that are linked to MLS. It has purposely been made difficult in order to force us to change how we practice, more on that in a minute.

There is a lot more to the settlement but these two changes are the biggest that affect the public. Here's how I view it...Is it fair for the seller to pay an agent that does not represent them and ultimately is working against them? I can see where that answer is no, I get that for sure, why should I pay someone to work for someone else, definitely a valid point. You could, though, look at it as a finder's fee. We could go back to the one agent per transaction that I talked about in part 1. One agent ran both sides of the deal, hmmm what could go wrong with that? Well, let's not forget why we have buyer's agents in the first place and that was for the good of the buyer. Buyer's now have someone to advocate for them, to negotiate, to keep the deal on track, to help with legal issues, to follow the terms of the contract...all of these things that go into buying a home. It's the largest purchase in your life, don't you want an expert to help you with that? Then the reason that sellers traditionally paid both agents was because they were the ones receiving the most money. This helped to stimulate the housing market and make it easier to buy a home. That is part of the American dream, right? As I stated before, if the buyers have to pay their agent then the cost of purchasing a home increases greatly.

Ultimately it comes down to the DOJ and how they think the real estate industry should work, and that doesn't work for the buyer. Their goal is to remove any kind of upfront offer of compensation to the buyer's agent by the seller. This is in fact already happening out west, which we all know means it's coming this way. As we go forward and the public gets used to this new way, it will have a tremendous impact on the housing market. The buyer's agent fee will regularly become a point of negotiation and those that can't afford it will lose out in competition to those that can.

Now that you've read both fact and (my) opinion, here's my prediction. The DOJ will get their way but it won't last long. The housing market will become even more difficult to enter especially for first time homebuyers, which by then will be the largest generation in our population and their governmental representation will swing the pendulum back the other way to ease the burden on buyers. In the meantime we will probably see an uptick in lawsuits from buyers who chose not to use an agent at all to avoid the cost and will perceive that they were taken advantage of by the sellers and their agents. They will miss contract deadlines, they will forego inspections, they will not negotiate enough, and well, that's got to be somebody's fault.

Happy house hunting, we would of course be delighted to help you with that!