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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