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NAR Settlement Proposal and Its Impact on Real Estate

NAR Settlement Proposal

The National Association of Realtors (NAR) and several large brokerages (including Keller Williams) were named in a $1.758 Billion lawsuit and accused of Antitrust violations. Sellers in the NAR lawsuit claim that they were forced to pay a fixed fee and pay for the commission on an agent that would represent a buyer. They no longer want to be obligated to pay for a buyer’s agent’s commission. Since NAR lost, a new NAR settlement agreement still needs to be approved before it can be implemented.

NAR's Purpose for the Realtor Community

NAR is a national membership organization for Realtors that provides education and real estate statistics and champions homeowner protections to advance the right to real property for all. We are also given access to all real estate forms and the MLS through the state and local associations, like Idaho Realtors and NAR.

How Commissions Work Now

The current system allows a listing agent to negotiate a commission for himself and the Buyer’s Agent, who will bring a Buyer who will close on the home.

Suppose the agent succeeds in getting that representation agreement signed with the seller. In that case, that property is then listed in the Multiple Listing Service for a Buyer’s Agent and a Buyer to see, along with pictures, the compensation offered, and other details. That information from the MLS is then pushed out to hundreds of third-party sites like Zillow, Realtor.com, Redfin, Trulia, and so forth.

What the NAR Settlement Proposes

Suppose the Department of Justice and the Consumer Federation approve the NAR settlement proposal. In that case, there will no longer be any reference to a Buyer’s Agent commission starting in mid-July, if offered, listed anywhere in MLS. If compensation is offered by the listing agent, it will only be found on the broker’s own website.

How Will It Affect Real Estate Agents?

Although a seller can still offer a higher commission to the listing agent that will be shared with a Buyer’s Agent, I don’t believe the advocacy for the Buyer’s Agent will continue for long. That’s especially true since many sellers will no longer offer that side of the commission as they try to net the most money for their home.

Listing agents will need to compete for that listing. If their net sheet shows a lower amount to the seller than any other agent also interviewed, they will most likely lose the listing. Full-service agents — even in Nampa, Idaho — are losing listings to discount agencies like Redfin or Opendoor, who charge a lower percentage for their services.

So, the seller’s unwillingness to pay the Buyer’s Agent will result in Buyers having to pay for their own representation.

How will that happen? We have heard of several possible options.

  1. Hire a licensed Consultant who will offer advice, show a home, and handle the paperwork. They would charge for their time up front on a set fee schedule. I imagine that there will be tiered packages that offer more or less services depending on the buyer’s needs.
  2. Hire real estate attorneys would most likely handle the contractual work and would not get involved until the property is found and the buyer is ready to write up an offer. Whether they would handle the property showing aspect or offer any meaningful advice depends on how well they are informed. Attorneys typically work on retainer and charge by the hour, anywhere from $150-$350.
  3. The third option is to get a Buyer’s Agent. Theyare the only person who can offer advice, open the doors, and handle all the paperwork. They are also the only one motivated to help buyers get into the house because they don’t get paid until the transaction closes and the buyer receives his keys. The same goes for a listing agent’s pay — not until the seller closes.

Who Gets Affected Most?

So, the buyer’s agent will be affected by this new way of doing things and must ensure the buyer is willing to pay them. Buyers who either don’t have the money or the knowledge to go at it themselves without representation.

We ask ourselves, “Who needs help understanding water rights, irrigation, flood zones, shared well or road agreements, city zoning, and regulations?” We also need to know what’s important on an inspection, city permit processes, property line disputes, easements, neighborhoods to look into because they had issues in the past, and so forth. In many cases, our first-time home buyers and new investors will need help understanding these things.

Unfortunately, these are also the buyers who only have a little money to start. A new Buyer needs anywhere from 3.5% to 5% for a down payment. On a $350k home, that is $12,250 to $17,500. Buyers also need money for closing costs. That can run another 2-3%, which translates to another $7,000 to $10,500 on the high side. Now, if they are hiring their representation, we are adding another $7,000 to $10,500 for a minimum of $26,250 — to get into that starter home.

Unfortunately, saving their money or getting help from family is one of their only options. Due to current lending policies, commissions cannot be financed into a loan, as some believe.

Other Effects I Forsee

With fewer buyers able to pay for their own representation, many agents will have to focus on representing sellers instead of buyers. However, there may still be agents who will work for a reduced commission.

I also don’t see sales prices coming down enough to make a difference, as some think. Sales comparables are all found in the MLS. With the consistency of whether or not commissions are offered but invisible to other agents and appraisers, those comparables will be different from apples to apples. A home sold for one price with an added Buyer’s Agent commission of 3% will not be the same as one with no compensation. Considering the vast difference in sales price, that commission could be a significant amount of money.

Finally, affordable housing is already a significant issue. As millennials and Gen Z enter the housing market, housing demand will continue to rise, but these buyers probably need more funds to pay their agents.

Rates are not projected to come down anytime soon. Combine that with our super-low inventory, and prices will continue to increase. Unfortunately, this will lead to more renters. And if your home is your biggest wealth-building tool, wealth in this country will continue to decline for the average American.

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