03/16/2024
It's taken me a day to start to wrap my head around yesterday's real estate news regarding the National Association of Realtors settlement and what it means for consumers as well as the industry going forward.
It's extremely difficult to summarize the ramifications of this in a FB post. For many of you, this will be too long to read, I know. But if you're in the market, or ESPECIALLY if you're hoping/intending to be a first-time homebuyer anytime soon, this is really important.
The current way commissions are handled was put in place in the 90s for consumer protection purposes. It ensures that buyers get full and proper representation in the home buying process. Most buyers, especially first-time homebuyers, cannot afford to buy a house and also pay an agent. So it was decided that the agents who represent the sellers would offer half/a good part of the agreed-upon brokerage fee to the cooperating agent (the one who brings the buyer). This ensures separate, full legal and fiduciary protections for both parties in the transaction, the buyer and the seller.
What yesterday's settlement does is take away the requirement that the listing agent offer any compensation to the buyer's agent. It also prevents the disclosure on the MLS of any offer of compensation, which really just means a lot more phone calls and texts on all sides to try to get a full picture of what is offered. To be clear, sellers still can (and should, in my opinion) offer concessions to help the buyer buy their house and also pay their agent. I think that is something I will get into in another post, since this one is already going to be long enough.
Starting in July, we will likely start to see sellers listing their homes for sale with a listing broker for typically somewhere in the 2.5-3.5% range, telling buyers that they will be responsible for paying their own agents if they want them. Some buyers will reach out to the listing agent directly, who will then facilitate both sides of the transaction. The key word is FACILITATE. They will NOT be REPRESENTING both sides. They will be representing the sellers. The buyers will be on their own trying to figure out things such as:
How should you write a competitive offer without overpaying?
How can you compete with offer terms when you may not be able to compete on price?
What even are "terms"?
What contingencies should you include in your offer?
What happens if the listing agent, who is writing your offer, pressures you to remove contingencies? What does that mean for you?
What does your earnest money deposit need to be and how do you protect it from the sellers taking it?
What disclosures should you be getting? When in the course of escrow should you be getting them?
What inspections should you do and how should you deal with the inspection results?
What do you do if the seller turns away your inspectors when they show up?
What additional questions should you be asking the seller to ensure you have all the information necessary to make a wise purchasing decision and avoid buying a money pit?
How can you trust what the listing agent is telling you when they work for the seller, not you, and they're just trying to get this house sold?
Should you ask the seller to make the repairs themselves or ask for a credit so that you can make the repairs or find a contractor you trust to do so?
What do you do if the seller refuses to do anything at all?
What do you do if the seller isn’t doing what they agreed to do during escrow?
What do you do when the appraisal comes in? What if it comes in lower than the agreed-upon price?
What do you do if you've agreed to close in 30 days but for any myriad of reasons you're not ready and now you've been issued a Notice to Perform giving you 2 days to close or you're canceled, have lost money, and have to start over?
What do you do when you’ve hired movers, given notice to vacate and the seller isn’t moving out?
What do you do when you're dealing with an aggressive seller or listing agent, and you don't feel like you know what you're doing?
These are just a few of the questions I believe savvy buyers will ask themselves before ultimately deciding to hire a professional. But then the question is, how do they pay for it?? If you're a buyer who has just sold a home and made a profit, hopefully you'll have saved some money back for the purpose of hiring an agent on the buy-side. But if you're a first-time homebuyer, where is this money supposed to come from?? These are the ones this ruling hurts the most - the first-time homebuyer who has been scrimping and saving to try to get into homeownership, who has already had a hard time financially getting ahead, and now is going to have to pay for their own agent in order to ensure their own protection in the process. It just moved the goalpost in a terrible way for these people.
For the people who have bought a home and the process was smooth, it can be difficult to understand that IT WENT SMOOTHLY BECAUSE YOU HAD AN AGENT DOING A MILLION THINGS TO MAKE SURE IT WENT SMOOTHLY!!! By its very nature, it's difficult to see and understand what DIDN'T happen.
One example I can share...someone I know recently tried to buy a house without an agent. He was working with a friend of 28 years to buy a house that had been left in the family. There were decades of trust, and he relied on that. He spent upwards of $15,000 and many hours on his buying venture, between having things repaired in a house he didn't yet own but believed he would, prepping his current house for sale, selling things off he believed he would no longer need, having inspections done, etc. He spent many hours and a large amount of effort, and moved into the new house..... for one night. The day he got there, his friend decided he didn't want to sell it, but he would rent it to him. My friend turned right around the very next day and moved back into the house he had just left (thankfully it hadn't sold yet). This is just one example of what can happen when you don't have proper protections in place. And this happened with someone he knew for 28 years and trusted!!! Imagine what can happen with strangers you don't even know.
Going forward, we as agents are going to have to do a better job of explaining the value we bring to buyers in a transaction. But my sincere hope is that listing agents learn now to explain the value to their seller clients of why it's in everyone's best interest for them to continue to pony up for the buyer's agent. Because it's going to be sheer chaos for a while until we find the right path forward through all of this. Imagine the lawsuits that will be brought by the buyers who had to go unrepresented against a seller/listing agent who took advantage...or was even just PERCEIVED to have taken advantage.
One comment I saw yesterday could not be more true - the lawyers did themselves a solid with this one. They were the big winners in this lawsuit. I read that the plaintiffs themselves each got something like $3 (this needs confirming). The rest went to the lawyers. So not only did they win big with this settlement, but they set themselves up for thousands and thousands of upcoming lawsuits in the fallout.
Feel free to share this around. There's a lot that remains to be seen, and possible scenarios we haven't even thought of yet. I'll do my best to keep you all informed as things unfold and more information becomes available.
