Everyone is talking about the National Association of Realtors (NAR) lawsuit settlement, and I have a few thoughts too. It’s important to cultivate objectivity and keep some things in mind about buyers, sellers, and concessions.
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3/26/24 Orangevale MLS meeting 9am
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4/25/24 HomeSmart iCare Realty (details TBA)
4/26/24 Prime Real Estate (private)
5/9/24 Empire Home Loans (details TBA)
5/15/24 Investor Meetup (details TBA)
6/6/24 Golden 1 Credit Union (details TBA)
6/11/24 Elk Grove Regional MLS Meeting 8:30am
6/13/24 Sacramento Realtist Association (details TBA)
WE NEED TIME TO SEE THE TREND
There are so many ideas about how the NAR settlement will affect the housing market, but we need time to understand what this is going to mean for the marketplace. What will it mean for real estate agents, sellers, and buyers? And what will it mean for comp selection? Do we start to think of the buyer’s commission as a concession too? The truth is change is on the horizon, but only time will answer these questions. My advice? Stay focused, stay hopeful, stay grounded, avoid sensationalism, and figure out how you need to adapt if you work in real estate.
THE FUTURE WILL HAPPEN NO MATTER HOW YOU FEEL
If you work in real estate, here’s my advice. Cultivate objectivity, stop doomscrolling, read all you can from trusted sources, avoid sensational voices, and stay away from the comment section. There are some seriously toxic threads right now, and it’s not likely to do anything constructive for business or mental health to drink from the firehouse of 24/7 content. But hey, if that’s your thing, go for it. All I’m saying is it’s easy to get drunk on worry and fear, but I have to think there is a better way. The truth is the future is going to happen no matter what. Either you’ll get there after stressing for months ahead, or you can get there after being intentional about cultivating objectivity, purpose, and a plan.
EVERY ESCROW WON’T BE THE SAME
There are many strong ideas right now, and often the truth is found somewhere in the middle with most things in life. The thing to remember about escrows is it’s not going to be the same thing for every transaction ahead. Some sellers will offer a commission to the buyer’s side, sometimes it will be a hybrid situation where it is less than expected but something, sellers will still offer credits of various kinds to help the buyer, and other times the seller is not going to offer anything. We don’t know right now how much of each category will exist, so only time will tell. I find some people are saying it’s the death of the buyer’s agent, but others are convinced nothing at all will change. Who is right? The market will let us know eventually. Personally, I’m not a fan of either extreme. Ultimately, buyers will figure out how to navigate their end to make things work, and sellers will figure out what it looks like to be able to command top dollar.
WILL BUYERS BECOME MORE SENSITIVE?
One thing on my mind is the psyche of buyers. In recent years, buyers have become really picky about condition, price, and location, and I’m wondering if we’ll see more sensitivity ahead. I think the key is what happens in the marketplace. If we see buyers having to pay more out of pocket, it’s not hard to imagine more sensitivity. Also, will buyers expect to pay a lower price? Will we see more FHA financing since FHA allows up to 6% as a credit? These questions will only be answered as the market unfolds.
WILL SELLERS BOTH FLEX AND LISTEN?
The temptation for sellers right now is to flex all the money they’re going to save by only covering the commission of the listing agent. Well, here’s my advice. Sellers, don’t forget to listen to buyers while you are flexing. The reality is buyers are struggling to afford the market right now, and many buyers are going to need to find a way to cover the cost of a buyer’s agent commission. This is where sellers come in by offering something to the buyer’s side. Look, we don’t know what the market is going to look like, and every escrow is likely to look a little different. I’m just saying, don’t sleep on the idea of needing to meet buyers where they are at right now.
WILL A COMMISSION BE A CONCESSION?
Commissions for the buying and selling side have basically been baked into the market, so it’s not really something appraisers have had to consider because these fees have been normative. Well, with a buyer’s agent commission now potentially being handled like a concession, this is something new that we need to analyze. The gist is we’re going to have to see if there is any price difference between homes with and without the buyer’s agent commission covered. This isn’t just something appraisers will have to ask either. Real estate agents are going to dig into this, and savvy buyers too. If you were a buyer looking at comps, wouldn’t you ask, “Did the seller pay for the buyer’s commission on this one?” That seems like a relevant question when considering what to offer, right?
APPRAISERS AREN’T TRYING TO BLOW UP DEALS
When looking at these comps, does it seem like concessions inflated the price? Do you see how properties with concessions generally sold for more? In this situation, if an appraiser was using these properties as comps, it would probably be fitting to adjust some of the comps down since concessions look to have boosted the price. Appraisers don’t do this to try to blow up deals or devalue properties. Keep in mind, an inflated contract price might help a deal happen, but that doesn’t mean the property is actually worth that amount. Yet, appraisers don’t always adjust when there are concessions. Imagine a scenario where homes with and without concessions sold at the same price. In a case like that, it’s hard to justify an adjustment if these homes are all at the same level. Maybe the sellers who gave concessions were generous, full of compassion, or maybe they needed to move quickly and appeal to buyers.
I wrote more about concessions here. I’ll keep writing as needed too.
GETTING INTO TROUBLE
I’m not an attorney, and I don’t have legal advice, but I’d recommend for real estate friends to be very careful about commission language in light of antitrust laws. I strongly recommend brokerages to have conversations about this with your agents. What can you discuss? What is off limits? I’m surprised at some of the comments I’m seeing online, and I’m concerned for some friends who are talking in such a way to advocate for a minimum concession amount.
CLOSING THOUGHTS
This is a loaded issue, and it’s a bit of a hot mess right now to say the least. My advice? Don’t let this overwhelm you, but it’s important to talk about potentials. Keep in mind, this isn’t even official yet. A judge still needs to ratify the decision. Ultimately, the market will figure this out, and people who work in real estate will figure this out too.
Thanks for being here.
Questions: What’s on your mind about the lawsuit settlement? Is there anything you anticipate about the future?
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I’m so glad that you jumped on this topic. Your level head always helps me to find my place in the conversation.
Thank you so much Gary. I appreciate the kind words.
I love your perspective and your analogies. We all need to stay positive and lean in! Change is coming!
Thank you Carolyn. I agree. Positivity and running toward change.
The comment section statement is so true. Nothing but pure negativity on so many posts I see.
Thanks Nick. It’s brutal right now. I think it’s even bad on real estate forums. Just too much negativity, and that’s not helpful on so many levels.
Good thoughts. The USA is an outlier, and it was only a matter of time before big changes. For instance, in New Zealand (and many other countries), the idea of a “buyer’s agent” is almost unheard of — a buyer simply calls the seller’s agent directly. The seller’s agent is required, by law, to equally represent / disclose both buyer’s and seller’s interests. Failure to do so can result in jail time. There is rarely a problem, as parent real estate agencies can also face big fines. In complex transactions, a buyer will sometimes retain a RE atty on a flat fee, generally quite low. Oh, and a NZ seller’s agent commission is typically 2%, often less for a $$$ home.
Thanks Josh. You know, it would be fascinating to read up on different models in various countries. I have to think someone has a blog post out there somewhere. I guess my only concern is, how does one agent advocate for both sides at one time? Typically, a buyer’s agent is going to help get the lowest price possible, and a seller’s agent is going to get the highest. Granted, maybe the agent is more of a mediator than an advocate in that model. And for any onlookers, I’m not looking for arguments about dual agency. That is not illegal in California.
Yup. This is a common argument. In NZ, there are low-cost “real estate solicitors” that can represent and advise buyers on a flat fee, very common. Some use them, most don’t. And most NZ buyers rely heavily on appraisers to assess true value. A deal can be cancelled if the appraisal comes in over the sale price.
Personally, I think the idea of a buyer’s agent “negotiating a deal” is over-rated. But to each their own.
Very interesting to hear. I’m going to read up on that. Yeah, I get the commonality of the critique too. There is a viable question here I think. What is the role of an agent? Advocate? Or facilitator? I guess I’ve always viewed an agent as being an advocate. Some of that likely stems from my role as a neutral guy. Yet, it makes logical sense to me that the agent would theoretically advocate for the best possible scenario for the client. I will say the last house we bought, our agent helped negotiate a lower price during a hot market after the pest report for the deck came back. Very glad that happened. I’m not so sure I would have navigated that so well alone.
Yup. And one could also argue that a buyer’s agent has no incentive for reducing the sale price, hence reducing their own commission. +1 for a flat-fee agent. Too many tradeoffs!
Good morning all. Excellent commentary on this topic. Here on Maui, dual agency is quite common and also not illegal. I find it a bit tricky to rep. both sides of a deal with off island buyers sometimes not well represented. I think it most important is the integrity/character of the parties that matter most.
Thank you Dan. I really appreciate hearing. I have to think dual agency can work very well in some situations, but maybe not all situations. I obviously defer to agents on this since I’m not on that end of things. Not illegal here in CA either. Hoping to get back to Maui eventually. We went there last June. What a beautiful place.
Being a dual agent isn’t difficult if the agent knows what he/she is doing. Basically, the agent needs to protect the interests of both sides and have mutual agreements. Not difficult at all.
Thanks Flavia.
I think assessors will be most affected when a sudden step down impacts their intake.
An optimist and an entrepreneur (me) have been following this case and see opportunity in it. As an appraiser, I could see being of assistance to buyers that are left unrepresented in the transaction. A consultation or an opinion of value from a trusted professional with no skin in the transaction might be of value to a buyer. Real estate agents and other professionals that are willing to pivot and look to other countries, and how they handle this same situation, may find opportunities to expand their businesses. Changes in policy are not always cause to cry and moan. Policy changes can offer opportunity to change and prosper. Chin up buckaroo(s), your cup is half full.
Thank you Mark. It can be hard when a system changes, but change is inevitable. I’m going to watch the new Road House movie on Thursday night on Amazon Prime instead of renting it from Blockbuster. Nothing stays the same….
Good article, Ryan. How do you think this might affect dual agency?
Traci, I would think it would increase dual agency. It’s hard to say because anything can happen, but that seems logical to me. Any thoughts on that?
In 1999, as the Web started to rise… and the dot.com bubble rose… HELP U SELL.com appeared… with no agents– just the promise to post a LISTING on the MLS on behalf of the home / seller… The word on the street, was this would be the epic monster in the woods that would devour all who stood in its way….. so many RE Agents openly started hand wringing with sweaty palms, that the END was near… and their industry would collapse… Where is HELP U SELL today? Gone… what replaced it? RE AGENTS (and Appraisers) with personal service, sound communication, and a solid reputation for reliability… that will not change…
Thanks Bruce. You know, there is nothing like working with a true professional.
Hey Ryan,
Thanks for opening the discussion. Voice of Appraisal had an interesting take about the settlement. Phil’s concern is that it will lead to more off market transactions and lead to a decline in the usefulness of the MLS. That’s not good to consider and I hope we don’t see that here.
Yeah, that would be bad news. I would have to think most agents would continue to subscribe to the MLS, so why not list for exposure sake? On a related note, I’m a huge fan of data being in one place, but there may come a time where we have to check different sources (such as a home being listed on Zillow alone). I’ll listen to his show. I’m curious to hear the rationale.
Thanks for writing this article. There is a need to take a step back in order to know where to go forward. Your perspective is greatly appreciated. I think human nature is adverse to changes but time and time again it showed it can adapt.
Thank you Diane. Yep, you nailed it. It’s not easy to embrace change even though it’s inevitable. It is easy to deal with change on paper. Not so easy in real life.
A perspective:
I might be missing something obvious, but…
If I were a buyer, I would just approach the listing agent directly to inquire about a house I see on the internet that I might want to make an offer on. In other words, I would solicit the listing agent to be a dual agent and not have to pay a buyer’s agent at all.
Therefore, if California Association of Realtors actually cared about consumer protection and about preserving the role of a buyer agent, the CAR would lobby the legislature to end dual agency, altogether.
Let’s be honest. It was never true that one agent could have a non-conflicted fiduciary to two parties at once. Why? The interest of the buyer is different from that of the seller. Thus, from a legal perspective, and in an adversary system, you cannot advocate as a fiduciary for two parties at once when their interests are divergent.
CAR should lobby to end dual agency.
That said, until such a time as CAR figures that out, then agents would be foolish not to concentrate 100% on getting listings because as never before: “the buyers will come.”
As never before, the buyers will come to you, the listing agent, and buyers will cut out the buyer agent altogether.
And in the last 72 hours I have heard from three different sources that even if CAR wanted to end dual agency, it would be an uphill battle. Why?
According to several sources it is because the CA trial lawyers, or similar lobbying groups make too much money day-to-day from litigation over dual agent conflicts of interest. This seems like a cynical view to me, but the older I get the more I see that people can rationalize anything.
Little people get sued and / or go to jail for breaching fiduciary (the affirmative duty to put the interest of another ahead of one’s own interests).
Yet, politicians at the highest level appear to breach fiduciary to their constituents to the extent that it now seems normal.
What am I missing?
Steve Hurley
Broker/Appraiser/Educator
Thanks Steve. I’ve wondered if there would be a movement to end dual agency. Though that would also appear very self-serving at the moment.
Hi Steve,
If you were the listing agent with an agreement to list the home for, say, 2.5%, for a seller who chooses to not offer a buyer-agent commission, then what is the incentive to become a dual-agent with a sign-call buyer? You take on the heightened risk of being a dual-agent without any additional compensation unless you have your sign-call/looky-Lou open house visitor pay your commission (unlikely). I don’t think an agent that knows their value & with a smart broker will take on buyers like that. I don’t think the new landscape is quite the listing agent’s paradise as some are projecting.
Buyers need to be better informed that going directly to the listing agent could end up being a dead-end or not save them money if the listing is not offering a buyer commission.
Sellers need to be better informed that not offering buyer-agent compensation will end up being penny-wise and pound-foolish.
Agents, it’s our time to shine, articulate our value and have transparent, upfront convos with clients. Let’s do this!
You have a good point when the listing agreement calls for 2.5% to be paid to the agent listing the home.
Should buyers show up, unrepresented, I think most listing agents would be open to taking on the buyers too, assuming they would be willing to pay 2% more than the 2.5% I would already be getting upon sale of the home.
Of course both the seller and the buyer would need to agree to dual agency. My guess is most of the time, both the lister and the seller would agree.
While working for a decade in the offices of a mega-agent, I saw time and again where she would “double-end” a deal by amending her relationship with the seller from a total commission (both sides) of 5.5% (2.75% per side), down to 4.5% (2.25% per side). That is all it took for unrepresented buyers, and the existing seller to agree to dual agency.
My main point is that 18 states do not allow dual agency for a VERY good reason: Stated simply, you cannot be a true “fiduciary” to two sides when the system is adversary, and the interests of both parties are distinctly different.
C.A.R. can achieve the greatest protection for buyers and seller alike by getting rid of dual agency.
It is the opinion of current C.A.R. leadership that the attorney lobbies in Sac are to powerful to get such a reform through the legislature. Anybody who knows such leadership ought to ask them if this is indeed the issue. It may or may not be true.
Hey Ryan thought this was interesting, stepping back in history from my agency CE booklet…
In the 50’s Licensees were all sub-agents of the listing broker, who was the agent of the seller.
Because this method allowed no agency relationship with the buyer, the buyer was always unrepresented.
“Buyer beware” was how the business operated until the 1990s when public demand brought about buyer
representation.
Will this be a step back to the future because buyers don’t want to pay for agent representation?
Thanks James. Definitely something to consider. Things change. And sometimes the ways of the past have a way of creeping back in. I’m eager to see how this unfolds. To your point, I think we need to be open to a different type of a model. The market gets to decide. Or maybe it’s policy change deciding.
Thanks for the narrative, Ryan. In 25 years of selling homes the market(s) have adjusted and we have all had to adapt. We’ve gone from selling the homes with only a pest inspection…now we look at roofs, fireplaces, sewers, etc. and have them all inspected if deemed necessary.
I feel fortunate to work in an office that has a great manager/broker who advocates for continued education and training to stay ahead of the curve.
I choose not to operate in fear and know that I will adapt as I have in the past. I am a life-long learner and surely can learn to change my business model.
I hope my fellow agents will calm down, not live in fear and prepare to change as deemed necessary when this is all sorted out.
Preach!!! That was a great sermon, Gail. Solid stuff. Thank you for sharing. It’s wild how much things have changed. I see a similar dynamic with expectations for appraisal reports also.
As the dust settles, one good thing for surviving agents will be fewer competing agents.
It’s been a tough time in real estate with such low volume. Diversification is key to hang on…
Change has been and will continue to be the only constant always…. this too shall pass and a new way of conducting business will emerge and we will figure it out as we go!
Yep. It’s a new season. People will figure this out.
Ryan, sure enjoy your ability to break down the potential outcomes to a topic that feels like a huge open wound for the real estate profession. Love the ‘cooler heads should prevail’ point you’re making! I can’t help but think once the dust settles, there’s a great chance the new norm re how buyers agents get compensated may not be that entirely different than the norm we’re all used to.
This sure feels similar to the LO comp reform act that took place in 2010, which turned out being a great thing for us…….will it be for buyers agents? Time will tell!
Thank you Jeffrey. I appreciate the kind words. I’m eager to see how this shakes out. I need to read up on the LO comp reform. It’s been a minute since I’ve thought of that. Was that a part of Dodd-Frank? Seems like HVCC was happening around that time. In truth, I started my blog in February 2009 to be proactive since HVCC / Dodd-Frank was poised to change the appraisal business.
VA Pamphlet 26-7 : 3. Fees and Charges the Veteran -Borrower Cannot Pay. (a) The lender may not charge the borrower for attorney fees. (b) Read the VA’s thought patterns. (c) Brokerage Fees: Vet cannot be charged fees or a commission by a real estate agent or broker in a VA loan. Read the VA’s included thought patterns.
As a Seller, how do you feel about a Listing Agent promising to represent you, explaining the 5, 6, 7% ‘fee’ for selling and then saying it is so high because we include a fee for the Selling Agent, ‘do you want encourage offers from other brokers”, and then keep the ‘Double Whammy”.
Florida does not allow dual agency. However, like Washington, the Broker with a fiduciary obligation can ‘move down” the client to a legal dual agency fiction where there is really no agency, only an obligation to ‘do right’.
Agents are all talking about “How can we hide the weenie?” “There must be a way we can get around the intent of this ‘agreement”.
Do you, the Seller feel cheated? Do you, the Buyer, feel like you are the sucker? Or are you like most buyers and sellers, silently offended, hold your nose and complete the deal, moving on with life.
As a Seller, why did I just buy the Listing agent a new car? As a buyer, I knew my wife would be angry if she had found ‘the’ house, now I was being cheap, and she can’t have the house because I won’t pay a Listing Agent. I want my own agent, but I can’t justify paying a gob of money for really nothing.
As an appraiser, hold your nose, close your mouth, and do what you have really never done before: document your effort to contact both agents, learn all you can about the transaction, document and support your written conclusions about ‘concessions” in the current market and report such.
After 50 years in the business, color me skeptical. I never have a buyers agent when I go to Safeway. I hold my nose and pay the freight. I don’t even return crummy products. Apparently it ain’t worth it.
McClatchy Boy
Lots of issues here. It’s a weird dynamic to basically create a system where agents now have to call each other to find out if there is compensation. I heard one person wondering if we’d see a rise in negotiations like, “Will the seller offer to pay if we offer X amount?” Only time will tell. So many questions.
Thank you Ryan! It is always great to get your thoughts!
Thank you DeeDee. I appreciate the encouragement.
Ryan, thanks for the insight and value you continually provide!
Interestingly, I had a seller of an upcoming listing call and bring up the settlement. Rather than complaining that she was having to pay a commission (being that she’ll be on the market before the ruling takes effect), she, while being an extremely bottom-line-driven individual, stated that she couldn’t see NOT offering a buyer commission because it would limit her exposure.
I think communicating with fellow agents in our marketplaces will be key to seeing/guiding how things shake out.
Thank you so much Noel. Yeah, I suspect we will see many sellers offering something to the buy side.