DEEDED INTEREST
NAR decision bad for brokers; worse for buyers and sellers
My 18-year career in real estate has come to a sudden and unceremonious end, at least according to the national media. The breaking news: the National Association of Realtors (NAR) agreed to a settlement regarding broker commissions, prompting texts from clients, and even a call from my worried mother.
Headlines gleefully touted the end of 6% payouts to greedy brokers who never worked all that hard or provided any value. The shared consensus: justice served for this bunch of money-grabbing shysters.
We brokers have known for years what the public thinks of what we do for a living. We’ve always had to work a bit harder to prove our value despite our persistent “PR problem.” As one of the largest and wealthiest trade organizations in the US, we realtors trusted the NAR to defend our profession and livelihoods. They clearly failed. Again, “boo hoo,” says the peanut gallery.
But regrettably, I fear this decision will create new problems and have lasting repercussions. If you’ll indulge me, I’ll take a stab in this limited forum to lay out the facts as I know and interpret them:
As Mark Twain famously wrote when a newspaper published his obituary prematurely, “Rumors of my demise have been greatly exaggerated,” broker commissions are not dead. Rather they have been “de-coupled.”
The settlement stipulated three major changes:
Realtors are now required to disclose to sellers, they are not obligated to provide a broker “co-op” or a percentage of the total commission earmarked for the buyer’s broker (which is usually half of the total).
Brokers who work with buyers must now have a written agreement regarding commissions (a portion of which they may now have to pay).
Multiple listing services (MLS) are no longer allowed to show the amount or even the existence of any co-op that may be offered by the seller.
Not surprisingly, the changes have spawned lots of questions. Allow me to attempt to dispel some of the misinformation and confusion:
Paying 6% broker commissions is a thing of the past. True and false.
Sellers no longer need to offer a co-op or pay the buyers broker (saving them as much as 3%). But that means buyers could be on the hook for a similar percentage to compensate the broker representing their own interests.
Sellers no longer need to offer a co-op or pay the buyer’s broker. True.
Yes, that is and always has been the case. However, it’s a strategy rarely employed as it’s been proven sellers not offering a co-op see fewer showings, remain on the market longer and see less competition and lower offers.
I don’t need to hire a broker when I buy. True.
Like negotiable commissions, this has always been the case but not a strategy often used and highly inadvisable unless utilizing the services of an attorney at similar or, in some cases, higher cost.
Broker commissions are now negotiable. True.
Yes, commissions are negotiable but that’s not new! In fact, they can be adjusted up to closing. Several times in my career I have given up a portion of my commission to bridge a price gap along with the other broker to get the deal done. And I have agreed to a discount for repeat clients when asked.
The price of real estate will go down. False.
Experts and studies say this is doubtful as closing costs for buyers are likely to be higher not lower and Sellers typically don’t set prices based on commissions but rather what they think the market will bear.
Not using a broker on the “buying side” will make the process easier. Maybe.
If you’re comfortable negotiating with a seasoned professional on the selling side, are familiar with contracts and the law, understand the escrow and title process, have relationships with licensed and experienced inspectors and contractors, know the local code and zoning requirements, and have access or knowledge of “off-market” listings not listed in the MLS, then you bet!
Clearly it will take some time to adjust, but candidly, I see a colossal goat rodeo ahead. I predict a host of unintended consequences; some of which don’t bode well for the most deserving.
Take first-time homebuyers and veterans. Most banks require 20% down. If buyers are paying their own commissions or an attorney, they’ll have to come up with more money up front. And if you honored us with your service and need a VA loan, you’re prohibited by law from paying fees, forcing our heroes to use an attorney or go it alone.
Further, I would argue these changes could also disrupt the broader economy. The housing sector affects jobs, consumer spending and the construction industry. Banks, lenders, title companies, appraisers, inspectors, and surveyors are all tied to transactions.
Lastly, I expect many new or part-time brokers will leave the business or stop repping buyers all together. That will undoubtedly lead to more competition; a good thing; so is more transparency. But I worry the lack of agency, proper disclosure, and compliance are likely to lead to delays, lawsuits, and more cost to consumers.
No matter what you may think of realtors, the American dream of home ownership has become increasingly and tragically out of reach. I hope this ruling doesn’t compound that.
But if I’m wrong, it might mean my return to bartending. I’d like to think I have more to offer than a hand-crafted cocktail. Then again, I do make a damn fine Manhattan.