Thoughts on the Proposed NAR Settlement Pt. 3

In our family, April is officially birthday month. We have so many birthdays to celebrate (yes, mine was yesterday) and it’s such a fun time of year!

It’s a good thing there’s so much fun going around because the proposed NAR commission settlement and its yet-to-be-seen impact is one of the less fun things happening in our industry. Although, I always like to remain positive, so here’s to all the transformative, innovative outcomes this change will bring!

And speaking of industry changes, let’s get right into Part 3 of my thoughts on the proposed National Association of REALTORS® (NAR) commission settlement. (Read Part 1 here and Part 2 here.)

The theme of today’s message is change, and taking a deeper dive into what exactly is changing and what isn’t.

Let me start off with something that is absolutely not going to change: NAR doesn’t currently and never will set commissions. In real estate, commissions have always been negotiable between buyers, sellers and their brokers. This won’t change and this hasn’t changed. The lawsuit certainly brought commissions into the spotlight but it isn’t changing the fact that they’ve been a negotiation point in the transaction forever.

According to a recent article by the California Association of REALTORS® (CAR), here’s another thing that won’t change: “Historically, nearly 90 percent of home buyers have opted to work with a real estate agent or broker, and that figure is unlikely to change.”

CAR goes on to list all the ways experienced agents add value to the process of buying and selling, including:

  • Demystifying local markets and neighborhoods
  • Providing access to detailed, important information about homes
  • Helping buyers with budgeting and financial options
  • Offering insight into property values, taxes, regulations and zoning laws
  • Overseeing the due diligence process
  • Negotiating on behalf of clients and keeping their best interests in mind throughout every aspect of the transaction
  • Connecting clients to lawyers, lenders, contractors, inspectors and other home services professionals

And you know what? This CAR list is great, amazing, fantastic even but the reality is, it hardly scratches the surface to describe all the things a listing agent or buyer’s agent does for their clients.

Our work is never-ending and its scope is massive. The services we provide reflect of years of experience and expertise, plus nuanced knowledge of market trends, marketing, pricing and more. Ask any agent who has really worked a market for years and years to give you a valuation of your property in that market, and I’d bet my favorite bottle of Santa Ynez Valley-produced wine that it’ll be more accurate than whatever you find online.

The truth remains: Real estate agents are in the know. You cannot replace them with algorithms and expect the same, human-centric result. We understand the ins and outs of the freshest comparable sales. At one point or another, it’s likely we’ve sold (or know the agent who sold) the home you’re looking to buy. It’s a tight-knit community, an intelligent community and our willingness to collaborate and share what we know is also something that will not change.

Let’s travel back in time to the 90s, and yes, since then a lot has changed. I’m not just talking about bold hairstyles or questionable fashion choices, I’m also talking about commissions. I remember there was a huge company called Home Savings and Loan, which ironically is no longer around, that would offer buyer’s agents a full 4% or 5% commission because they wanted to get certain foreclosed properties off their books. Let me tell you, every single one of those foreclosures had over-bidding and multiple offers because the company was incentivizing the buyer’s agent to bring a buyer. It was similar to what the NAR lawsuit claimed is going on today but like all-denim outfits and hairdos with frosted tips, that kind of practice has gone totally out of style.

Unfortunately, I think some less experienced buyers (especially first-time home buyers) aren’t aware of the fact that commissions are negotiable and it’s the savvy, experienced clients who know they can negotiate. Of course, this should change. But that change must happen through education. When you review the contract with your client, you can show them it’s stated right there in the contract that commission is negotiable.

There are even rules in place forbidding using commission as a negotiating tool right now. If you’ve offered, let’s say, 2.5% commission to the buyer’s agent in the MLS, you can’t then go back and say, “Sure, I’ll sell the house but I’ll only pay you, the buyer’s agent, 2%.”

For years that was not allowed and if the buyer’s agent agreed to the contract, they could go back to their Board of REALTORS® and pursue the listing brokerage for the balance of the commission that was offered in the MLS. Commission was not allowed to be a negotiating tool in the negotiation process.

That is what this lawsuit is trying to change. They’re trying to turn real estate into the Wild, Wild West where this commission amount is no longer published in the MLS and every buyer has an agreement with an agent, called a Buyer Broker Agreement, which is almost like a listing contract for exclusive representation of that buyer for some agreed upon period of time. In the contract, a buyer agrees to what an agent’s fee will be to find them a house. If that percentage is 2.5% but a seller is only offering 2%, then it’s possible the seller will want the buyer to pay the difference.

The other problem is, you won’t even know the commission percentage, because if the new rules are approved in July, the commission offered won’t be visible in the MLS.

In this new world, a buyer’s agent would have to call a listing agent and say something like, “Hey, is your seller offering a commission and if so, what commission is your seller offering? My Buyer Broker Agreement has 2.5% commission, so if they’re offering less … ”

And that’s when the fun begins. It’s a conversation that gets us all into uncharted waters, and those waters are not going to calm down come July. I predict that figuring things out could take months if not years, especially in California where we haven’t used a Buyer Broker Agreement, compared with a state like Connecticut where they’ve been using one for years.

What about the very start of the home buying process under these new rules? Let’s say you’re searching on the internet, find a house and want to buy it. What happens next in this scenario? Well, then you get into representation issues. Who will represent the buyer? I’m not a huge fan of dual agency, where the listing agent represents the buyer and the seller, unless you have very reasonable parties on both sides of the transaction and it’s a very easy, smooth deal at the right price for everyone. Usually, it’s a difficult spot to be in for a broker, a precarious tightrope to walk making sure you’re representing both sides fairly. (In fact, in some states, dual agency is illegal.)

I hear this conversation happening today: “Oh, you don’t need a buyer’s agent. You can find a house on the internet and just buy it.”

Well that goes back to some of the services listed by CAR, all those benefits you get when you have a buyer’s agent working for you — the network of home professionals they’ve established, the information they’ve gathered, the expertise they provide. Is a buyer really going to be aware of that obscure environmental hazard near the property if they don’t have detailed knowledge of the community and what’s happening where? Probably not. Sure, you *could* just buy a house on the internet but you’ll be making a terrible investment.

There has to be a balance. There has to be a scenario where the buyer has proper representation, where buyers understand why they should have proper representation  — this knowledge is up to the real estate community to impart — and why all the services of a buyer’s agent are understood to be worth the commission they receive.

An experienced agent can do so much for buyers and sellers. An agent with decades of experience, professional relationships, negotiation skills, advice and knowledge of the industry provides benefits that are truly too long to list. But maybe, as an industry of real estate professionals, we should start doing just that — so whatever happens this July, buyers and sellers alike will understand that our unquestionable value, our undeniable benefit to them is never going to change.

Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 •