It’s a mess out there right now since the NAR lawsuit went into effect. Well, sort of. It feels messy that concessions information is no longer in MLS, there’s some confusion about how appraisers are handling some of this, and we have a new question to ask. Let’s talk about it.
UPCOMING SPEAKING GIGS:
10/18/24 Prime Real Estate (private)
10/22/24 Culbertson and Gray Group (private (I think))
10/23/24 SAFE Credit Union (details TBA)
10/29/24 Orangevale MLS Meeting
11/7/2024 Think Like an Appraiser (3 hours) TBA
11/19/24 Downtown Regional MLS Meeting Q&A 9am
A BIG MLS BUMMER
It’s a bummer that so many MLS systems across the country removed the concessions amount field after the NAR lawsuit went into effect. So, after a sale has closed, I can no longer instantly see that a seller gave a $12,000 credit for closing costs. Instead, I only see in our local MLS if an agent says “YES” or “NO” to whether there were concessions. There is no longer any amount listed, and the only way to find out specifics is to get that from someone who knows about the transaction. I suspect the removal of this information was based on the perception of liability or anticipation of future lawsuits. Or maybe the pendulum simply swung too far. Whatever the case, it’s unfortunate since this is so important for comp selection for agents and appraisers.
THE COMMISSION IS NOT A CONCESSION
I’ve noticed quite a bit of confusion, so I want to hopefully clarify that the commission is not considered a concession from the appraisal perspective. This is how Fannie Mae, Freddie Mac, and HUD see it at this present time, and it’s why the seller paying for any portion of the buyer’s agent commission does NOT count toward the concessions allowed. The commission is about compensation to the real estate agent, and concessions are things like a credit for repairs, credit for closing costs, personal property, rate buydown, etc… (not compensation). Yet, I get the confusion today because a seller might give a credit for the commission, so it really feels like a normal concession. Moreover, it seems like NAR is saying compensation can be a concession if I’m reading this article correctly (someone please speak up about this). If that’s the case, there is a real disconnect from the way NAR sees concessions compared with appraisers and Fannie Mae. Am I reading this right? In my mind, it would be useful to consider concessions in MLS more like how appraisers and Fannie Mae think about it. In other words, we don’t want to input commissions information (about compensation) in a concessions field (not about compensation).
DO APPRAISERS DEDUCT VALUE IF THE SELLER GIVES CONCESSIONS?
Any adjustment given for concessions happens to the comps. NOT the subject property. In short, if a seller gives a credit of $25,000, that doesn’t automatically mean the subject property is worth $25,000 less. We have to look to the comps to understand value instead of penalizing the subject property value right away because of the concession. Granted, all of us have seen contracts get inflated beyond a reasonable value due to concessions. But it’s the comps where appraisers look to understand value (and adjust the concessions down in the comps if needed). Here’s an Instagram reel to help explain this with a practical example. I know this can sound confusing.
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A SPICY QUESTION TO ASK
In a post-NAR lawsuit world, I find we have an important question to ask. Is there a difference in price between homes where the seller paid for the buyer’s side commission and didn’t (if that’s happening)? We haven’t really had to ask this much before since commissions have basically been baked into sales, but if the way things are done changes, we could have different questions to ask. And today, if a property looks to have sold for too little, for instance, one of our questions can be, “Did the seller pay for the buyer’s agent commission or not?” I’m not saying we need to adjust for this, but could we potentially need to give more or less weight to some of the comps based on what happened with the commission? I find some real estate professionals have been dismissive about this conversation because “commissions have never affected value,” but my sense is we are in new territory where we could start to see a price disparity in some of the comps depending on seller and buyer behavior (see Matt’s example). All that said, as I talk to many local agents, I’m hearing overwhelmingly that sellers at the moment are offering something to the buyer side. What I’m saying here is let’s keep our real estate antennas up about the issue, watch the comps closely, keep an eye on seller and buyer behavior, and be aware of any changes in the way things are done. This all matters.
Here’s an example of what I’m talking about from Matt Castillo in the Bay Area. This is a DM from a few days ago. Thanks for letting me share. This is exactly what I’m talking about with a potential disparity in price between homes where the seller paid and didn’t pay for the commission. What would you do when encountering comps like this?
APPRAISERS DON’T ADJUST FOR COMMISSIONS
Okay, let me be clear. There is not a place on the appraisal form to adjust for commissions, so don’t expect appraisers to adjust. Appraisers might adjust the comps for concessions if needed, but like I said above, a commission is NOT a concession from the perspective of Fannie Mae, HUD, Freddie Mac, etc…
PICKING UP THE PHONE OR TEXTING
I’m not happy that concessions information is no longer instantly available, but the good news is we can pick up the phone, text, or email. The problem is I don’t always hear back. And let’s be real. How long are real estate agents expected to remember the property details when people are asking about concessions in many months from now?
AN EXAMPLE OF ASKING ABOUT CONCESSIONS
Here’s an example of me asking about concessions this week for a comp. Thanks Nadya Malenko for letting me share this, and thank you to real estate agents for being awesome about responding to appraisers. By the way, I don’t have a template for texting, but on this day, I used the same verbiage in my two examples below. Can you see how I’m trying to be quick, respectful of time, and also open to reciprocating value?
YES, I AM ASKING ABOUT COMMISSIONS NOW
Here’s a different example of me asking about concessions AND the commission. It’s on my radar to know more about the buyer’s agent compensation because I’m wanting to know what is happening in the marketplace and if there is any difference in the comps between homes with and without commissions. Thanks Jasmine for letting me share.
DEAR MLS SYSTEMS
If I had my wish, I’d love to see MLS systems have a new concessions field where there is not just a blank field for agents to write whatever they want, but instead a drop-down menu where agents can select the type of concession given by the seller. Maybe there could be a drop-down selection for closing costs, credit for repairs, personal property, rate buydown, etc…. (commission would NOT be an option). And then there would be a secondary field pop up to allow a dollar amount to describe the specific concession that was selected (dollar amount only – no words allowed). A group of appraisers from REAA in Sacramento has suggested this already to our MLS, and I’m grateful for an MLS that has listened to the idea. I don’t know if this is even possible in a post-NAR lawsuit world, but let’s try to figure out how to retain the value of concessions information for both agents and appraisers.
WE’RE AT THE BEGINNING
The market will figure this out. Real estate professionals will figure this out. Buyers and sellers will figure this out. MLS will figure this out. We need time to see the trend, and we are still at the beginning of this. Let’s keep conversation open and add new ideas to our bag of tricks if needed.
PLEASE DON’T MENTION A PERCENTAGE
If you comment on this post, please do NOT advocate for a minimum commission amount or a standard commission. I’m not saying this to be anal, but anti-trust laws are serious business, and I don’t want anyone’s verbiage here to be a screenshot for impropriety or a future lawsuit.
Thanks for being here.
Questions: What are you seeing right now with concessions? Anything to add about real estate commissions, buyers, or sellers? I’d love to hear your take.
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As an investor, we don’t use a “buyer’s agent”. But we do use an attorney for offers and paperwork review. I think this improves our bargaining on concessions, etc.. (an agent -ultimately- just wants a sale). We actually had an agent tell us “under the new rules, you MUST use a buyer’s agent.” There’s a lot of misinformation out there. Thanks for your excellent blog.
Thanks Josh. Yeah, there is a learning curve here with what the lawsuit means. Interesting that you use an attorney. I’ve not seen much of that locally, though it’s not like I have an exhaustive look at all contracts either.
Our MLS has a different report called “appraiser report”, looks virtually like the “agent report”, i say this is simple, put the concessions field on the appraiser report and do not give agents access to this report type
Thanks Diana. We have an appraiser view too. I hear what you’re saying, and I will take whatever we can get. Though my only thing is agents can rely on concessions information too. It’s a big deal to know what is happening in the comps, and knowing concessions can influence perception of value and definitely advice given to buyers and sellers. So, I think we all need it. But do appraisers rely on it more? Well, probably so.
Hi Ryan, glad you are back in the Saddle. As to commissions at some point this may very well be a factor and just because Fannie, Freddie say not to consider, they don’t work under USPAP the appraiser does. I have a feeling in the very near future this could very easily become an issue that can’t be swept under the carpet. Oh, wait a minute maybe it can remember 125% financing and AAA rated mortgage back securities. No body cared then either. UGH. This will be interesting. I did have an agent down in my neck of the woods who included all of the concessions and how they were broken down, including the commission paid out and by whom. That helped explain the total concessions she indicated. I did reminder her that commissions aren’t concessions. Agent indicated that there was squabble in the negotiations over who was paying for what and she went ahead and added all the changes and negotiations. That was a breath of fresh air. I called and told her thank you. Any way good hot topic. Sure, this will continue to be a mess as most folks really don’t understand what is right and wrong, right now.
Thanks Brad. Yeah, we may have a learning curve ahead with how we think about some of this stuff. The thing that’s interesting to me is that the GSEs have basically said their stance on commissions not counting toward concessions has not changed, and that’ll be the case as long as it remains customary to see the seller pay. I just wonder how they would measure that since the commission is no longer in MLS. Maybe some other entity will have this stat?
Hi Ryan,
Great article, very informative as always. I do think some agents are confused by concessions and compensation and the difference. I call and asked the agent if the seller is cooperating with a professional buyers agent and if so what is the compensation. Some agents are very upfront about the amount and others say “send us your SBPP and we will see”. This is difficult for buyers because they need to know upfront prior to viewing a home. Who wants to fall in love with a home and then find out the seller isn’t compensating the agent after the offer is submitted and then they have to figure how they are going to pay or walk away. That’s a difficult thing to address with your buyer after viewing a home. Although, I haven’t had an issue with seller’s paying compensation yet. One of the biggest issues I have had is with new homes sales. Some not all of them do not compensate therefore the buyer must pay if you have a BRBC. I have one now and I feel grateful that my client is compensating me. I look forward to your next article.
Thank you Geanne. I really appreciate hearing your perspective. And I can understand how frustrating it must be for buyers to not know if compensation is being offered. That one factor can be the green light or red light for a buyer.
Ryan, up here in Portland, we have never had a field for concessions. Welcome to our world. We have been emailing and texting for this information since the beginning of time. Such a pain, but your point about asking what the concession is for is so important as well. A concession to fix something is very different than a closing cost concession or a commission “not concession”. Love that you’re having this conversation. Now, I can’t remember after reading your article, do we adjust the subject for concessions? 😀 If this goes through, either I’m very bad at math or your human field keeps erroring on me.
Well, here we are following Portland’s lead yet again… 🙂 I do hope we can get some sort of element of this field back. I’m a big fan of having more information where possible. But like you said, we can get this information in many ways. Yeah, I hope I don’t confuse people about the adjustment. For any onlookers, the subject property is NOT adjusted down when there are concessions. We look to the comps for value, and we might adjust some of the comps down if needed for the concessions in those comps. This is where appraisers have to be really careful to not give the contract terms of the subject property all the focus and weight. Let’s look to the market for value.
Hey Ryan, thanks for sharing this with the local and national real estate community. I’m glad we’re having this discussion.
Appraisers and everyone else involved in residential
real estate should care about concessions because they are required to determine the cash equivalency of a sale. If a house sells for $500,000 with a $25,000 credit to the sellers for closing costs, did it sell for $500,000 or $475,000? Hiding this information from market participants is not good. On the other hand, who wants to be sued out of existence if agents are not abiding by the rules and using concessions to report buyer broker commissions? I’m very hopeful that locally we’ll see this information come back as everyone gets used to the NAR settlement.
Thanks Joe. Yeah, concessions are so important for anyone pulling comps and trying to figure out value. Definitely not something to ignore. And I share that hope too. Fingers crossed.
They are definitely a concession. I would prioritize a buyer with no agent or one that can pay his own agent. This just means our government is colluding with the NAR to carve out some exemptions. Nothing real new there.
Thanks Chad. Seems like the commission has not historically been treated like a concession though, so this is a new thing. I think there is confusion in terminology right now too between various groups.
his is my review of “Compensation, Commission and Concessions”, an article by NAR at https://www.nar.realtor/magazine/real-estate-news/sales-marketing/compensation-commission-and-concessions.
This is a bad article.
Even the title is confusED, not confusING. The writer is confused. I am not confused, though. We must remember that lawyers created this solution. Lawyers don’t want to be paid on commission. Otherwise, they’d sell real estate.
Then the article flat out states that a seller concession can be a commission. This is covering their stupid reasoning behind this solution. The removal of MLS fields is a stop-gap because they forgot that post-sale metadata will be wanted by fellow travelers (appraisers, et al.). But providing this metadata must include concessions AND COMMISSIONS.
A concession has always been a “stipend to the buyer”.
A commission has always been a “payment to brokers”.
Both concessions and commissions come from the bucket of money that the buyer brings to escrow. Concessions and commissions get “shaved” off and the remainder goes to escrow, [inspectors], other vendors with a valid demand, and the seller.
Seller pays commissions because the seller really “doesn’t get that money from the bucket”.
So why do the lawyers want to wordsmith? Because it’s easier?
Thanks Jay. I wish agents were more vocal about the value of this field. But maybe it’s not as much of a felt need. It’s such relevant information though. I think you’re right that concessions and commissions come from the same bucket. I get why they are being lumped together. It’s definitely not ideal though.
P.S., If FNMA agrees with me, are they guilty by association. After all, I’ve been colluding with buyer brokers for 20 years.
I can understand that prior to close of escrow MLS would not want to have a field showing the amount (if any) that a seller is offering to pay a buyers agent, but after the sale isn’t that information fact, and no longer affects the transaction as it is completed? I believe that the commission does affect the final sale price, and I think that having this information after the fact to compare the terms of the sale it’s important for appraisal purposes. Personally, in the past if I had a non-lender assignment for something like a divorce or an inter-family buyout, I would include a statement that market sale prices typically include a standard commission built into the price. I won’t include that anymore until I know what the market is doing, but in my view it does affect what a buyer will be willing to pay for a property. Thanks so much Ryan for having a conversation about this prescient topic.
Thanks Alanya. Yeah, I think MLS systems are being really cautious. What would help us here is to make the concessions field about everything besides compensation. And the commissions field… Well, that’s just not going to happen in light of the NAR lawsuit. I hope all is well with you. Have a wonderful weekend!!!
In real estate transactions, both concessions and commissions refer to different aspects of a deal.
Concessions make the deal more attractive to buyers and can ease the cost burden, while commissions compensate the agents involved in the transaction. Both concessions and commissions are negotiable and can vary depending on market conditions, location and the specific details of the transaction.
Yep, that’s a great way to put it.
Great information as always, Ryan. Thanks for expanding on this very important topic. I really hope there will be some way that this information can be shared on MLS so that appraisers don’t have to chase after it. Our job is difficult enough without adding even more steps to the process. Keep up the great work.
Thanks Tom. Agreed. I will say one thing I’m grateful for is our MLS kept historical data present for concessions (not commissions). That is super helpful for appraisers. It’s just a different world as of mid-August 2024.
Hi Ryan!
I feel so badly for appraisers and agents trying to comp a property. However, we are being told by CAR to specifically use the term “concessions” as a way to at least indicate there can be or was a commission involved in the process. Sadly, “commission” has become a bad word that we are not allowed to use to avoid further issues with the DOJ and continued lawsuits.
Interesting to hear that. To me, that seems confusing. You’re right that commission has become a dirty word. I feel like I hear compensation more often now too.
Fortunately, here in southern Oregon the MLS still has a field for concessions Y/N and a field for concessions amount. The amount field is not always filled in but at least I can know which sales I need to call /text to verify concessions. I think this is an important field for all who use the MLS and it should be mandatory nation wide. But I realize that there will always be MLS that refuse to provide this meaningful data, like my friend Gary from Portland pointed out. I also agree that concessions and commissions are not the same, they may come from the same “bucket of money” they serve different purposes and benefit different parties to the transaction. I like the idea of a drop down to describe what the concession is for. In example: repair concessions indicate that the sale price did not represent the actual condition at time of sale. I also believe that Alana makes a good point and that is after the sale closes the information such as agent compensation becomes a fact and could be disclosed without affecting the transaction that has been fully executed and closed. It seems that the NAR response to the litigation has made the process less transparent not more.
Thank you Bryan. Great commentary. I hope this will be seen as an overreaction as time unfolds, and hopefully we can get this field back. I suspect it won’t help if compensation is being lumped into the concessions pile though. But even if that is happening with language, I still feel we can have a concessions field in MLS that divides compensation from traditional concessions. Fingers crossed.