Clearing Up The Storm of Misinformation
The National Association of Realtors (NAR) recently came to a settlement over practices claimed to be anti-competitive.
You may have seen some alarming headlines suggesting this settlement will "upend" the real estate industry. Some articles say the settlement will be good for buyers, making homes more affordable. Others stoked seller’s fears that the settlement will end up devaluing their homes.
The problem is, that’s all crazymaking inaccurate. With the exception of the Wall Street Journal, every article I read got it wrong and had a lot of misleading information.
As a real estate professional, I want to explain the settlement and what it means for you as a home buyer or seller.
Background of the NAR Settlement
In 2019, a class-action lawsuit was filed against NAR (and others), alleging anti-competitive practices related to the way homes are listed on the Multiple Listing Service (MLS).
The lawsuit alleged that NAR rules made it harder for smaller brokerages to compete. It claimed certain practices limited options for buyers and sellers. Specifically, it took issue with rules around online listings and commissions.
Impact of the NAR Settlement
The settlement is not yet final
We won’t know the full extent of the settlement’s impacts until it is ratified. The ratification is scheduled for July, but it may very well be extended and/or amended by the DOJ. Changes to how we do business will not go into effect until the ratification.
What we know so far
The settlement requires NAR to repeal or modify certain rules. Ostensibly, this is to increase transparency and lower barriers for all brokerages. But the updates don’t change the fundamentals of how real estate transactions are done.
“Everything” has changed and nothing has changed at the same time
For all the hubbub, these changes are like turning a chessboard around and now black is white and white is black.
What will change when the ruling takes effect in July, 2024 is:
- Sellers will no longer be able to specify the commission to be paid to the buyer in their MLS listing.
- Instead, buyers and sellers will have to negotiate buyer commission as part of the purchase agreement.
In a very real sense, it has always been the buyer paying the commission for both the listing agent and the buyer’s agent, because the money for the purchase originates with the buyer. While the commission will no longer be listed in the MLS for the buyer’s agent, there will be a negotiation between the parties and their agents.
The settlement won’t impact home prices
Commissions aside, home prices are connected to supply and demand, while home sales are connected to interest rates.
Plain and simple: The NAR settlement will not have any effect on supply & demand or influence interest rates. Therefore it will not impact home prices for buyers or sellers.
What does impact home prices? The inventory problem still persists and there is no immediate plan to meet the demand. Interest rates are predicted to fall three times this year, which will heat up the real estate market once again by incentivizing sellers to list their homes, as there will be more buyers in the market going after too few properties to choose from.
What This All Means for Sellers
Given that the settlement won’t impact your home’s price, it’s looking like this year will be a good year for anyone wanting to sell their home.
The settlement will result in some changes in how you deal with buyers:
- Compensating buyer’s agents
- Compensation will have to be negotiated prior to the acceptance of an offer
- Buyers who are contractually obligated to their agents will now have to be taken into consideration in terms of how those agents are compensated
- Ways of providing access to your home for potential buyers might change
- Handling buyers that don’t have representation
Handling buyers that don’t have representation
There is speculation that some listing agents will be incentivized to dual-representation (a.k.a. double-ending). As a policy, I do not (and have not) ever double-ended deals. I do not believe I can effectively negotiate for a buyer while I am representing a seller and vice versa. In fact, I believe it to be impossible and have long been an advocate of eliminating dual representation in the state of California. I am also wary of lawsuits arising out of dual representation and exposing my clients (sellers or buyers) to this type of risk.
The Benefits for Sellers
As your listing agent, it is my goal to make the process for buyers as simple and streamlined as possible. Having a clear policy and system in place is what’s most important. The NAR settlement inadvertently requires that sellers put a fair amount of thought into how they want to handle buyers.
Note, many buyers will now arrive with agents with whom they are contractually obligated, which will require a clear understanding of how that agent will be compensated, both on the part of the buyer and you, the seller.
When you work with me as your listing agent, you receive:
- Navigating the changing requirements for how to deal with buyers.
- Providing the latest technology and contracts that address the changes due to the NAR settlement.
- My undivided attention and loyalty as your fiduciary.
- Skillful negotiations on your behalf with no conflicts of interest.
- eXp Luxury’s Full Suite of Marketing Services, including ads appearing in the top real estate publications.
- Confidence that I will guide you effectively through each step of the process, laying out your options and helping you get things done both the right way and in the way that’s right for you.
As a seller (or buyer), it’s important to choose a brokerage that is proactively dealing with the coming changes through technology and the implementation of updated policies. Here at eXp Realty, the company has been working diligently to ensure that its agents are ahead of the curve. Expect more than one update to this blog as new information and policy become available.
What This All Means for Buyers
One of the biggest impacts for buyers will be around how you work with an agent and compensating that agent. Under the new rules, many buyer's agents will likely require an exclusive buyer's broker agreement. This is my policy — all buyers I work with must agree upfront to work exclusively with me via a buyer's broker agreement.
An exclusive buyer's broker agreement lays out the compensation and terms for me to represent you solely as a buyer's agent with your best interests in mind. It prevents issues that could arise from dual agency, where an agent represents both the buyer and seller in the same transaction, which I never do.
I believe exclusive representation is crucial to ensure your interests as a buyer are fully protected throughout the process. With an exclusive agreement, you can be confident I am working only for you and will advise you objectively without any divided loyalties.
The Benefits for Buyers
When you work exclusively with me through a buyer's broker agreement, you receive:
- My undivided attention and loyalty as your fiduciary.
- Skillful negotiations on your behalf with no conflicts of interest.
- Full access to all home listings and my considerable buyer resources.
- Confidence that I will guide you effectively through each step of the process, laying out your options and helping you get things done both the right way and in the way that’s right for you.
As the real estate landscape shifts, I am committed to adapting to best serve my buyer clients. Oddly enough, I am finding that I have to change very little in this regard. I have always been a staunch advocate of individual representation and required potential buyers to sign a buyer’s broker agreement. My brokerage, eXp Realty, is proactively updating policies and leveraging technology to stay ahead of changes from the NAR settlement.
If you're looking to buy a home, I recommend that we meet in person to get the process started. When you sign an exclusive buyer's broker agreement, I can help you find the resources you need to get pre-approved for a mortgage (if needed). I'm here to be a trusted advisor and advocate for you. Let's discuss how I can make your home buying journey seamless and successful.
Some Key Takeaways
Things the NAR settlement WILL change:
- Agents / Brokers must negotiate and secure commissions before the offer is made.
Things the NAR settlement will NOT affect:
- Representation and Agency Remain the Same.
- The NAR Settlement will not have any effect on Supply & Demand or influence interest rates.
- The NAR Settlement will likely have little or zero impact on home prices.
- The fiduciary agency relationship remains intact.
- My commitments to my clients remain the same.
- The commitment that I and my brokerage eXp have to compensation transparency and disclosure remains unchanged.
- Agents, particularly buyer’s agents, are not going to start offering their service for free.