How the Real Estate Industry Could Change Mid-Year
March 19, 2024
Big changes are happening in the real estate industry… what does it all mean?
On March 15, 2024, the National Association of Realtors (NAR) agreed to change how business is conducted as part of the settlement reached following the Sitzer- Burnett verdict last fall. NAR and several large national brokerages were found guilty of conspiring to keep real estate commissions artificially high. While the proposed settlement needs to be accepted by the judge, there is already anticipation of how this will change the real estate industry.
Background:
Real estate commissions have always been negotiable between brokers and clients. Realtors are prohibited from discussing amongst ourselves what we charge our clients. Different brokerages might have policies and practices but NAR doesn’t have a standard commission they expect us to charge our seller clients. Home sellers contract with a listing broker to market and sell their home and one element of that marketing package has commonly been to offer a co-broke, or cooperating broker fee, to the buyer’s agent. While this has never been required, it has certainly been an almost universal practice. As a result, buyers have had their own representation at no additional charge.
Keep in mind, while buyers weren’t paying an additional fee to their agent, that fee was already baked into the list price of the home so it would be more accurate to say that the fee was “included” in the price of the home, not that they were getting their buyer’s agent services for free.
The lawsuit alleged that this practice forced sellers to pay overly high commission fees and sought a de-coupling of listing agent and buyer agent commissions. That goal has been achieved.
As part of the settlement, NAR has agreed to the following changes (expected to go into effect mid-2024):
1. Compensation offers will be removed from the Multiple Listing Service (MLS): There will be a new rule prohibiting offers of cooperation (co-brokes) from being listed. Offers of compensation can still be pursued during the negotiation phase and sellers can offer buyer concessions. A buyer concession would effectively allow the buyer to finance the expense of utilizing their own representation in the transaction.
2. NAR will require all buyer’s agents to utilize a written representation agreement with all buyer clients. While it’s been an encouraged practice, real estate professionals and their buyer clients will now have to sign a contract that explicates their responsibilities to each other.
What now?
This is a big deal for the real estate industry, no matter what anyone might say, and how these changes play out will take a while to fully understand. Undoubtedly, we are facing a period of uncertainty and recalibration, both for real estate professionals and consumers. Sellers will likely negotiate lower commissions than in the past. Buyers who want the representation and guidance of a real estate professional will need to budget for those services. Real estate agents will need to articulate their value and clearly explain why their services are worth what they are charging.
Buyers who most need the services of a professional (younger buyers, people with a lower budget, veterans who want to utilize VA financing that currently prohibits them from paying a real estate commission) might be left to fend for themselves. Buying a home can be a challenging experience and having someone on your team who can educate, advocate and negotiate on your behalf is an integral part of the process.
Sellers have grown accustomed to having the leverage as the lack of housing inventory over the past several years has resulted in multiple offer situations being the norm so it will be curious to see how these changes play out should we find ourselves in a buyer’s market or even a more balanced one.
Who succeeds in real estate will be affected too. Gone are the days when being nice and friendly is enough to be successful in real estate. Expect an elevated level of professionalism as Realtors are compelled to provide the highest quality services to their clients.
On March 15, 2024, the National Association of Realtors (NAR) agreed to change how business is conducted as part of the settlement reached following the Sitzer- Burnett verdict last fall. NAR and several large national brokerages were found guilty of conspiring to keep real estate commissions artificially high. While the proposed settlement needs to be accepted by the judge, there is already anticipation of how this will change the real estate industry.
Background:
Real estate commissions have always been negotiable between brokers and clients. Realtors are prohibited from discussing amongst ourselves what we charge our clients. Different brokerages might have policies and practices but NAR doesn’t have a standard commission they expect us to charge our seller clients. Home sellers contract with a listing broker to market and sell their home and one element of that marketing package has commonly been to offer a co-broke, or cooperating broker fee, to the buyer’s agent. While this has never been required, it has certainly been an almost universal practice. As a result, buyers have had their own representation at no additional charge.
Keep in mind, while buyers weren’t paying an additional fee to their agent, that fee was already baked into the list price of the home so it would be more accurate to say that the fee was “included” in the price of the home, not that they were getting their buyer’s agent services for free.
The lawsuit alleged that this practice forced sellers to pay overly high commission fees and sought a de-coupling of listing agent and buyer agent commissions. That goal has been achieved.
As part of the settlement, NAR has agreed to the following changes (expected to go into effect mid-2024):
1. Compensation offers will be removed from the Multiple Listing Service (MLS): There will be a new rule prohibiting offers of cooperation (co-brokes) from being listed. Offers of compensation can still be pursued during the negotiation phase and sellers can offer buyer concessions. A buyer concession would effectively allow the buyer to finance the expense of utilizing their own representation in the transaction.
2. NAR will require all buyer’s agents to utilize a written representation agreement with all buyer clients. While it’s been an encouraged practice, real estate professionals and their buyer clients will now have to sign a contract that explicates their responsibilities to each other.
What now?
This is a big deal for the real estate industry, no matter what anyone might say, and how these changes play out will take a while to fully understand. Undoubtedly, we are facing a period of uncertainty and recalibration, both for real estate professionals and consumers. Sellers will likely negotiate lower commissions than in the past. Buyers who want the representation and guidance of a real estate professional will need to budget for those services. Real estate agents will need to articulate their value and clearly explain why their services are worth what they are charging.
Buyers who most need the services of a professional (younger buyers, people with a lower budget, veterans who want to utilize VA financing that currently prohibits them from paying a real estate commission) might be left to fend for themselves. Buying a home can be a challenging experience and having someone on your team who can educate, advocate and negotiate on your behalf is an integral part of the process.
Sellers have grown accustomed to having the leverage as the lack of housing inventory over the past several years has resulted in multiple offer situations being the norm so it will be curious to see how these changes play out should we find ourselves in a buyer’s market or even a more balanced one.
Who succeeds in real estate will be affected too. Gone are the days when being nice and friendly is enough to be successful in real estate. Expect an elevated level of professionalism as Realtors are compelled to provide the highest quality services to their clients.
