Real estate is back in the news and as you might’ve heard, um, some things have happened.
Primarily, the NAR settlement.
NAR YOU SERIOUS
In short, the National Association of Realtors (NAR) settled a lawsuit brought by a group of home sellers in Missouri regarding commissions, after a federal court sided with the home sellers.
A cloud of confusion has followed since the settlement, largely due to the inability of the NAR to control any of the messaging.
As expected, people have questions and we have thoughts, but no one knows for sure what’s to come – particularly since the settlement hasn’t been approved yet.
So, we will attempt to de-confuse you based on the info available so far, and, spoiler alert, you’ll probably still be confused.
WHAT HAPPENED?
In October, a jury in Missouri found the NAR and several residential brokerages liable to pay $1.78 billion in damages for conspiring to artificially inflate commissions for home sales.
Last month, the NAR agreed to a $418 million settlement which, if approved, would make some significant changes to the way commissions are structured, and the way Buyers are represented. We won’t bore you with those details here, but you can read about it further via Housingwire.com.
WHAT DOES THE NAR SETTLEMENT MEAN?
Broker compensation can no longer appear on MLS listings, and the terms of the NAR settlement ban the association from establishing rules that would allow a seller’s agent to set compensation for a buyer’s agent. Additionally, agents must have buyers sign a buyer’s agency agreement before showing them homes.
WHO DOES THE NAR SETTLEMENT HELP?
Sellers, sort of. While they are no longer “required” to cover the commissions of the buyer’s agent, negotiations with buyers without representation will become much more complicated – particularly when it comes to showings, and if the listing agent ends up handling both sides of the transaction. Will the headaches be worth the money the saved? Possibly, but time will tell.
Also, institutional investors. If you aren’t familiar with these companies, you should be; they gobble up housing stock (particularly at the entry-level) and turn the properties into rentals, further depleting our already anemic housing stock.
This segment of the industry had been starting to attract some unwanted attention from regulators, etc., but with the NAR settlement being framed as the solution to skyrocketing home prices, institutional investors might now be in the clear. Because of course… why focus on the inventory issues that have caused prices to rise more than $100K in just a couple of years, when we can focus on 1-2% in real estate commissions instead.
WHO DOES THE NAR SETTLEMENT HURT?
Buyers. Particularly, first-time buyers. The idea that Sellers will reduce the price of their listing now that they aren’t paying the Buyer’s agent’s commission is disingenuous at best. Sellers will sell their home for whatever they can get, keep as much of it as possible, and buyers will either have to pay their agent’s commission out of pocket, or via their closing costs.
Or, buyers won’t be able to use an agent at all.
Experienced buyers on their second or third go-around might be ok handling the search and transactional details themselves (or can afford to pay for assistance), but for first-time buyers with limited funds and zero experience navigating the insanity of the current market, yeesh. Disastrous.
Also, real estate portals (Zillow, Redfin, etc). For companies who specialize in selling ad space on their listings to everyone EXCEPT the actual listing agent, whooo boy, this is gonna get ugly.
If you’ve ever tried booking a showing on Zillow, you might know what we’re talking about – you click on a showing time, and an agent (usually not the listing agent but an agent who paid for ad space) calls you back/shows you the house.
Now, as a stipulation of the settlement, they must have everyone who schedules a showing sign a Buyer Agency Agreement with the showing agent. Sure, they’ll probably come up with a 2-hour agency agreement instead of traditional 6-month or 1-year agreements, but most people won’t want to sign anything and the portals will lose a massive amount of currency (see: leads). Wall Street has taken notice.
DOES THE NAR SETTLEMENT AFFECT NEW HOME EXPERTING?
Fortunately, builders have required us to pre-register clients for years, often before clients were even sure they were looking for a house, so this is nothing new for us.
As for commissions, many builders pay Realtors via 1099, so the funds come from their marketing budget, not from the proceeds of the closing. In general, builders (especially the large publicly traded ones) expect significant Realtor participation in most projects; when we all worked for Centex Homes, it was established that our goal should be 50% of all sales come from Realtors.
If builders want to keep hitting numbers and maintain investor happiness, that won’t be stopping anytime soon.
However, the amounts they pay fluctuate with the market – when homes are selling, they tend to pay buyers agents less, and when they aren’t they tend to pay buyers agents more. It has always been that way.
And that gets to the heart of this lawsuit, and how the NAR failed so miserably on the messaging: commissions have always been negotiable – they are not fixed; at least, not nationwide. What Sellers (builders) pay to buyers agents (us) has always fluctuated with market conditions, and the difference can be pretty dramatic.
By the way, it’s not just with new construction; all across Metro Detroit (and on the east side in particular), commissions on resale listings have fluctuated between 4-6% for several years now, with Sellers setting the market rate, not agents.
To hear how this has been reported, you’d have never known there was any flexibility when it comes to commissions.
So for us, it’s business as usual until we hear otherwise. In the resale market however, things could get interesting.
If you have questions, send them our way, or let’s set up a time to chat.
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