A Phil Hall Op-Ed: As the proverbial dust is settling on the National Association of Realtors’ (NAR) $418 million settlement, a growing number of voices are starting to complain loudly that the changes being enacted on the home selling structure will not bode well for homebuyers.
Under the terms of the settlement – which has yet to receive court approval – the listing agents can no longer advertise agent compensation on the multiple listing service. Also, realtors will be required to put forth a written agreement stipulating their services and the cost of those services with their buyers. While some observers believe this creates a new era of “transparency” – you see that word a lot in the mainstream media’s coverage of this story – those who know better are not convinced this is a great idea.
“I don’t see how the listing agent not disclosing what the seller is willing to pay to the agent working with the buyer creates a more competitive market,” said Dr. Ken H. Johnson, a real estate economist with Florida Atlantic University’s College of Business. “This settlement creates confusion, increases deal complexity, and possibly violates current state laws involving the interaction of real estate agents, buyers and sellers in the marketplace.”
Johnson added, “No longer advertising buyer agent commissions will only create a more confused and drawn-out transaction process as buyers, sellers and agents will have to negotiate the fee, who will pay for it, and how much will be paid by each party. Due to this added level of complexity, buyers will almost certainly have to negotiate with more sellers before they find the deal they are satisfied with. Thus, the house hunting period will extend for the average buyer.”
The new playing field is already looking uneven to certain buyer demographics. Last week, NAR asked the U.S. Department of Veterans Affairs to revisit its policies on the VA home loan program. Under the current policies, military personnel using the VA home loan benefit cannot compensate their realtor directly. This puts both the VA home loan program and the veterans who rely on it to gain access to homeownership at a big disadvantage.
The Consolidated Board of Realtists, which represents Black real estate agents in Southern California, argued that Black buyers will not benefit because the average net wealth of Black households is $27,000, compared to $250,000 for White households – that disparity contributes to the imbalance where the White homeownership rate at almost 74% while the Black homeownership rate is 45%.
“The biggest impediment to Black homeownership is down payment and closing cost funds,” said Mark Alston, the organization’s legislative committee chairman. “This settlement serves to shift the buyer’s agent commission payment directly to the homebuyer when industry tradition and practice is that the listing agent shares the selling commission with the agent who is helping the homeowner sell the home. This change is devastating to Black homebuyers.”
The mainstream media is only adding to the confusion. CNN reported: “Many experts believe commission costs have been baked into home listings prices. Lower commissions could mean lower home prices.”
But that scenario seems ridiculous – why would sellers voluntarily lower their home prices because of the NAR settlement? What is the incentive for the sellers to seek lower profits? (Of course, CNN neglected to cite any of the “many experts.”)
Equally bizarre is the input from Deborah Kamin of the New York Times, who opined: “There’s no question that it will be easier for many consumers to negotiate an agent’s commission.”
Uh, says who? Negotiation is a two-way street, and buyers – especially those new to the market – have no leverage to force agents into commissions they would consider to be too low.
FAU’s Johnson – who, unlike Kamin, was a broker – warned that many buyers will be going into unfamiliar territory.
“It’s a Venus Flytrap situation,” he said. “It may seem like a pretty good idea to buyers to go straight to the listing agent, but buyers are entering into situations where they may not be equipped to get the best deal possible. Going directly to a listing agent who represents a seller in a legal sense puts the buyer at an extreme disadvantage in terms of bargaining power and market knowledge.”
And lest we forget, there are more buyers than sellers on the market, and the new environment will give sellers more power over the surplus number of buyers seeking homes to buy.
“The changes brought on by the NAR settlement put power in the hands of the homeowner,” said Barbara Corcoran, real estate investor and “Shark Tank” star, in an Instagram posting. “Agent commissions are sure to become more competitive and the cost of selling a home will go down. But it’s hogwash to expect the cost of buying a home to come down. The real driver in today’s market is the shortage of homes and the too many buyers who want them. And if interest rates come down a point by year end, we’ll see home prices up another 10% as the buyers rush into the market.”
Phil Hall is editor of Weekly Real Estate News. He can be reached at [email protected].
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Finally and article that makes sense! Thank you! I work with many first time home buyers and low to moderate income buyers who will not be able to absorb an out of pocket expsense of paying a buyer agent fee on top of down payment and traditional closing costs. Plus remember many sellers where buyers first who did not pay and then they will buy again. It all comes out in the wash with the current system. Why is it so hard to understand.
Excellent article! I’ve been a Realtor for 38 years and I’m ready to retire because of this mess. The powers that be don’t realize that the reason we are compensated in the current structure is because it makes it easier for the buyer to save for the transaction. Coming up with the money for a down payment and closing costs is already a challenge for many. Under this settlement, the buyer now has to figure out how to pay their agent, or be forced to use the listing agent, which creates a Limited Representation situation where the buyer will likely not benefit as they would have with an agent fully in their corner. Limited Representation isn’t even allowed in many states so this creates a huge mess for the industry and will be a real obstacle for home buyers. Real estate brokerages have to be competitive like any other industry so I’m confused as to why they think brokerage fees must be negotiable. Do you negotiate with your plumber, or at the grocery store, or your Doctor’s office? This was a stupid lawsuit that doesn’t help buyer clients and merely pads the pockets of the attorneys involved. Sad time for homeownership in America.
I almost agree 100% – especially to: “This was a stupid lawsuit that doesn’t help buyer clients and merely pads the pockets of the attorneys involved. Sad time for home-ownership in America.”
Real estate is local and in my market (in fact, in my office) commissions have always been negotiable. There are no set fees. The market decides.
They are destroying the American Dream and destroying the middle class – and I fear it’s intentional.
Great article, great reply. I have been California licensed since 1988 and a ten-year banker before that. This is the stupidest settlement I have seen over those years.
Most buyers, especially first-time buyers, don’t have the wherewithal to come up with an additional $10,000 plus to close. Our court system is forcing buyers to work with an agent who has already pledged their allegiance to the Seller. Many states have outlawed this dual agency, recognizing that only one side can get adequate representation.
What will this do to our vets? Instead of arguing that VA loans, which offer no-down, no-cost financing, should be exempt, NAR is asking the VA to change lending policies and disallow VA No Nos.
We all should have a choice. It is we the membership of NAR, who should be allowed to vote on acceptance or rejection of the proposed settlement. Legal chicanery can find a way around that but it would require the complicity of NAR. If the class is certified and individual notices are sent to all of us, OPT OUT. We shouldn’t have to take this BS.
In Wisconsin, Seller agrees to pay the listing firm/ agent x%. The contract then reads the listing firm will offer a co-operating firm x%. This comes out of the listing firms %. That Seller agrees to pay.
Seller may have input to what the listing firm agrees to share but what the listing firm decides to share if a co-op firm brings a buyer is also negotiable with Selker. To NOT disclose this upfront is definately a problem with greedy listing agents that strive to work both sides and not necessarily in Seller or the Buyers best interest.
It says the same in Missouri where this all originated. It also says if they don’t understand to consult a lawyer. If you read the background of one of the litigants, she was using a agent friend and that agent wasn’t even a defendant in the case. It really comes across as lawyers padding their pockets and not really in it for the best interest of their parties or the ones affected by this ruling.
Best article I have seen, while most on the news are totally misleading and confussing. Maybe I am totally off, but I thought the settlement was simply “the seller would no longer be REQUIRED to offer compensation in order to be listed on the MLS.” Not to say they can not offer it, as they use to with closing cost and buying points down.
However, I don’t see the reason to bring race into it, this will make it difficult buyers period, especially 1st time and medium to lower income.
I sure hope the DOJ is more intelligent than the 8 jurors that decided this case.
Seriously? You hope the DOJ will do something? Imaginary thinking. They are part of this. Their goal is to destroy the middle class.
Why can’t a listing agent still ask for the same commission as before? Then help the seller negotiate the amount of commission by covering closing costs To said amount. It’s the same thing with a different spin. We are going to have to get creative so buyers will still have the help they need. Listing agents will just have to help sellers see hire they can make it all work.
Great article. In some pricey markets, the buy side has the income and cash to pay their own buyer agent commission. In every state and market where the entry level buyer lives, this is going to be a nightmare. Too confusing and too many what ifs, property to property. Is the seller paying buy side commission? Without public disclosure in the MLS can the sell side agent or seller play games and have a moving scale with their commission offering one buyer to the next, opening the door to greater discrimination? Can the buyer absorb the commission directly after down payment and closing cost? Writing it into the offer and hoping is not a great strategy to get the bid accepted or the agent paid? The government pushes home ownership for the less fortunate and first time buyer as a means of leveling the playing field, this change, this way, will put a MAJOR hurdle in their way.
When the President comes out and ask Realtors to lower their commissions so home prices will come down you know we are in a world of hurt. Why would lowering commission lower prices? It wouldn’t and we all know it. I personally believe low income, FHA, VA will be the next lawsuit and this time against the government for acting without thinking.
My real concern is this country seems to be going towards socialism by controlling ones dependance on the government.
Agreed. They are destroying the American Dream and destroying the middle class – and I fear it’s intentional.
Seems to be transparency would be leaving the buyer broker commission field in the MLS, and making it visible to the buyer.
It actually is. If you look in Zillow, it is shown.
One of two things are going to happen 90% of the time. (The other 10% the buyer will pay their agent a commission.)
1. The buyer, inexperienced in the nuances of real estate negotiations to get the best deal possible, will attempt to purchase a property on their own, leaving them vulnerable and taken advantage of; or,
2. Use the seller’s agent, who does not have the buyer’s best interest in mind, again, leaving the buyer vulnerable and taken advantage of.
One solution could be for the buyer’s agent, agreed to by the buyer, to request the seller to pay the buyer’s commission.
But then again, the seller can counter buy removing that condition. So then the quandary develops – the buyer can’t afford the commission and looks to their agent to sacrifice their commission?
What a can of worms have been opened up.
Not good.
One last observation. Listing Agents are protected by the listing contract. They must get paid or escrow doesn’t close. The listing agreement allows the listing agent to lien a property if not paid.
That same protection is not provided to the Buyer’s Agent. Presuming a Buyer’s Agent can get their client to sign a Buyer/Broker contract, which has always been a challenge, the Buyer’s Agent has no claim against the Listing Agent or Seller. Neither of them signed a contract with the Buyer’s Agent.
The only leverage a Buyer’s Agent has is a contract, which requires court action, and many small claims courts have refused to enforce them citing buyer freedom of choice.