** On Friday, March 15, 2024 the National Association of Realtors (NAR) reached a settlement agreement following a many years fought lawsuit (Sitzer/Burnett and Moehrl) regarding the way commissions are paid in real estate brokerage. The Settlement still needs court approval and no decision is final yet. Terms of the proposed settlement were released and broadly shared in the media. No decision or changes are expected before July 2024.
The day the proposed NAR settlement was announced headlines started getting splashed everywhere declaring real estate agents would lose their commission, real estate brokerage would massively change, and home values could go down. A lot of real estate agents took to social media, angry and panicking over the news.
Did I worry? No. For one simple reason: change happens and those who are smart and great at what they do can navigate change. They innovate and know how to expertly guide and thrive in any situation.
There is also a second reason I am not worried about the headlines, and nor should the real estate industry be. To be direct, the headlines over the last few days regarding the NAR lawsuit have been very misleading at best, and flat wrong at worse. It is apparent that many of the publications spewing out recent headlines did not actually read the results of the court case and/or do not understand how brokerage works. To be clear: (1) Commission rates have always been negotiable. (2) Buyer’s agents will still be paid a commission. (3) Listing agents will still be paid a commission. (4) It is very likely that in most transactions Sellers will still pay a buyer’s broker to sell their property. All that will change is (A) the contractual forms that stipulate commissions will shift (it will move from the Cooperating Broker Agreement to the Residential Purchase Agreement in most cases) and (B) the transparency of commissions will now become less transparent as commissions use to be public record (on the MLS) and now commissions will not be public record (but they will still be paid – at least until the day comes that we find a labor force willing to work for free… which won't happen).
You can read about the settlement and lawsuit anywhere so I’m not going to rehash it.
Let’s talk about a few of the big things that are in this settlement agreement, which will go into effect in mid-July 2024.
Along with now advertising commissions outside of the MLS, sellers can also still offer “seller concessions” which can be used for the buyer as a credit to pay for the compensation that was agreed to in the above-mentioned Buyer Representation Agreement.
Let’s be very clear. Few people work for free, and real estate agents assisting buyers will still be compensated for their work. The only person with a product to sell is the home seller, and the home seller, understanding how all products in the world are sold, will be more than willing to compensate a person (the buyer’s agent) for finding a buyer to purchase their home. I’ve always said, listing agents (the agent that represents the seller) do not sell homes. Listing agents market homes. It is the buyer’s agent that always has and always will be the ultimate agent that sells the home. The forces of economics and business will all but ensure that sellers will continue to compensate listing agents for marketing the home and buyer’s agents for selling the home.
So how will buyer’s agents get paid? Remember, this isn’t a hobby for agents, it is a livelihood. This is a career and just as you are paid at your job, real estate agents are paid for their job, the time they devote, and the value they bring their clients.
Importantly, many first-time buyers do not have additional funds to cover an agent’s commission – they are often scraping together what they do have for a down payment.
Some sellers will offer up front a payment to a buyer’s agent for selling their home (understanding that to incentivize a person to work at selling your home, you must compensate that person for their work, time, and effort). Some sellers will not offer up front a payment to a buyer’s agent, and what will more than likely happen in these instances is buyers will write offers that will ask for seller credit to cover the buyer’s agents commission. Either way, the seller still pays the buyer’s agent for the act of “selling” the seller’s house.
Scenario: Stop for a minute and pretend you want to sell your home. You want as many people to come to your home as possible. You want offers to be as high as possible. We want to create a bidding war on your home. What is one way you can do that? Offer a seller concession of a certain dollar amount. The buyer can use this as they wish. In fact, we see this already – sometimes homes for sale will have a note saying things like “seller offering $10,000 for buyer to use for interest rate buy down or towards closing costs.” The seller isn’t doing that out of the kindness of their heart. They are doing it to get more offers and higher offers.
Now, let’s address two of the consequences of this settlement that The New York Times said could occur:
In San Diego we just experienced two of the biggest months of price increases that we have seen since record keeping began (home prices increase 11%+ December through February). That is with interest rates in the high 6% - 7% range. Imagine if interest rates drop and even more buyers want to purchase homes and rush to buy a home. This will just increase home prices more. Removing a 2.5% buyer agent commission (which as discussed above is not being removed) would not lower home values. The only thing that will slow home price escalation is the addition of more supply.
You as a consumer are making one of the biggest financial decisions of your life. You shouldn’t be working with someone that isn’t a full-time professional agent who knows how to expertly guide you and navigate hundreds of pages of legal documents, difficult negotiations, and uncommon scenarios so you have as little stress as possible and you know your purchase, sale, or investment is protected. We need agents who do not work full time within the profession to leave the business and I am OK if this is what it takes to make that happen. Great agents will survive and thrive. The rest will wash out. And that is what is best for consumers.
When change happens, the people who can innovate, who are creative, and who are smart are just fine. We are a top producing Diamond level team in San Diego and in the top 1% of all real estate teams in the United State with more individual and team awards than any other residential team I know of in San Diego. We know we will succeed even with these industry changes.
I have no doubt that top agents will be just fine. You know who else wins? Consumers. I cringe whenever I hear about a consumer using a second cousin twice removed who has sold 1 or 2 homes to buy their first property or sell their largest investment. That shouldn’t be. Consumers need to be protected and that happens when they work with a full-time intelligent agent who has their back and is a professional. If this lawsuit and the settlement agreement helps elevate our industry and the professionals in it, then we all win.