As you may have seen or heard, there is a proposed settlement by the National Association of Realtors. There have been plenty of headlines in the media causing confusion. Preliminary approval of NAR’s proposed settlement agreement, which would end litigation of home seller claims related to broker commissions, was just granted. We have some broad strokes on what will likely be the new reality, for home buyers and sellers, and their agents. So let’s get into it.
The agreement was based on least two premises:
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That publishing the buyer agents’ commission will create a “steering” dynamic whereby agents steer clients toward properties where commission is higher
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That many sellers were not aware that commission was negotiable.
The agreement will change two practices in real estate.
Brokerages have committed to clarifying further the negotiable nature of commissions.
Commissions have always been negotiable, and agents continue to be able to set their commissions. I do not see a big change here, for me as your listing agent, I continue to charge the same commission I always have, and to deliver the same high level of service. As an outcome of the agreement and the media around it, some sellers may choose to reduce or eliminate the cooperating commission paid to the buyer’s agent.
Transparency with my clients has always been key for me. I am happy to discuss why I think it is most adventitious for sellers to pay the buy-side commission, but ultimately every seller will make their own choice. Some agents may choose not to work with listing agreements that do not compensate buyers’ agents. I suspect this will be a minority.
The biggest change will likely
be that in working with buyers, agents must enter into written agreements with their buyers before even touring a home. In fact, we will not be able to show houses or substantively begin working with a buyer in the absence of a buyer-broker representation agreement.
That agreement will define the commission a buyer’s agent charges. If a listing also covers the buyer’s commission, the buyer will not need to pay. Same as it has been.
If the listing has no commission, or the commission offered is less than the agreed commission between buyers and buyer’s agent, then that deficit will need to be covered as part of the buyer’s closing costs. In such situation, my first recommendation would be to include the commission in the offer, bouncing it back to the seller.
The logic is simple. The buyer already has extensive closing costs, especially if there is a loan involved, as there is in most transactions. The seller is likely to be receiving proceeds that will make it much easier for them to pay for the services received. The work done by both agents after all benefits the sales transaction as whole.
If the seller does not agree to pay the commission for the buyer’s agent, buyers will need to calculate their offer price with the cost of the commission rolled in.
Since the publication of the commission was deemed to be “steering”, encouraging clients to buy homes with higher commissions, the publication of the commission will no longer be permitted, in the MLS or any aggregate where licensed agents are involved. This could result in lack of transparency.
Agents will have to communicate with each other to find out what commission is being offered on each property to help their buyers best position themselves to both get the property in a competitive market and to pay the lowest most advantageous price.
No one knows yet what hurdles will come up, and how those will be addressed. The California Association of Realtors is already making changes in some of its forms so when the decision is finalized the industry is ready to respond to any new requirements. There may be some changes before the ink is dry on everything.
Some of the yet unknown issues relate to lending. Will lenders allow buyers to roll commission into the loan for instance? In appraising properties, how will appraisers collect verifiable data about who paid the commission? Home values can be 3% more or less depending on who paid commission. In fact, running comparables for clients, something I do daily, will be impacted if the data related to commissions is hidden.
If you have any questions about the changes coming in how commissions are paid by the parties to a real estate contract, give me a call. Happy to discuss commissions and how it will affect you in buying or selling a home.
The goal for me remains the same; to provide you with the highest level of service, provide information that empowers you to fulfill your real estate goals, while reducing the stress that can be part of buying or selling real estate. Sure real estate can be stressful, but it can also be fun. I am here to help you buy a home, build wealth, and create more housing stability.