April 2024 Newsletter - NAR Update

Happy Spring!!

More than a few of you have asked me to say a little something regarding the National Association of Realtors recent lawsuit settlement and how it might affect the market moving forward. 

I should start off by saying that I don’t think a whole lot will change. This does have the potential to hurt a lot of buyers and make the dream of home ownership an even more distant reality for some. With that said, if sellers want to attract the highest number of buyers (increasing their buyer pool to attain the highest price) it will be smart to offer compensation to the buyer’s representation because they understand after the down payment, loan origination fees, and closing costs that buyers have to pay, most of them have spent all their savings. 

Now let’s dig into the meat and potatoes of the settlement. There are quite a few moving parts here so I think the best way to give you the bland settlement lingo and then follow each of those up with my thoughts. I hope this clears it up a little for everyone! 

What was this even about?

• This was a class-action lawsuit filed in Missouri federal court by a group of home sellers.
• The sellers claimed real estate commissions are too high and buyers’ representatives are paid too much.
• They claimed the NAR Code of Ethics, and MLS Handbook along with corporate defendants’ practices have led to inflated commission rates.

My thoughts:

• It’s become brutally apparent the vast majority of buyers & sellers don’t know how we get paid. I’m all for making this industry more transparent. I’m actually excited that realtors, as a whole, will need to show and prove their value to consumers. Because of the spotlight that’s been placed directly on our industry by this, I’m hopeful buyers will really start shopping around for the absolute best representation.
• To be clear, our commission has always been negotiable. I understand the frustration from sellers thinking they HAVE to pay the buyers’ representative, but in reality, if their listing agent was truly worth their salt, they would have explained this while filling out the paperwork. A few bad apples.
• The median income for a realtor in 2022 was $56,400… The majority of us are not buying private jets anytime soon.

Settlement Terms

Buyer’s Representation Agreements

The settlement provides that MLS participants working with buyers must enter into written agreements with those buyers.

This change will go into effect mid-July 2024.

My thoughts:

Again, I’m excited to clarify to buyers how we make a living.

This can be a little scary for buyers. If you find my info on Zillow and give me a call to see a home that’s for sale, we will need to sign a contract before even walking into the house.

Open houses are about to get weird. Right now, buyers are hesitant to even write their email address down before entering an open house. Now they’ll have to read and sign a 2 page legally binding document in the foyer.

Offers of compensation prohibited from the MLS

• There will continue to be many ways in which buyer brokers could be compensated, including through offers of compensation communicated off MLS — as we have long believed that it is in the interests of the sellers, buyers, and their brokers to make offers of compensation — but using the MLS to communicate offers of compensation would no longer be an option.
• My thoughts:
• Finding and hiring an agent that can negotiate is going to be key for buyers.
• Zillow has already added a field in home profiles they are calling “Buyer’s Agency fee” that shows what the sellers are offering as compensation to the buy side… what do we need the MLS for at this point?
• Buyer’s agents might think about sending along their resume with an offer showing the seller that they are in fact good at closing deals. They’ll have to sell themselves and their skills to the seller as well if they are asking for compensation.
• What else to watch out for:
• This has the potential to skew appraised values for homes. Appraisers will need to take into account all concessions offered on each of the comparable homes they are running to find the value of a house. If a seller is trying to get $500,000 for his house and isn’t offering to put money toward a buyer’s agent, will his house be appraised lower than his neighbor who sold for $500,000 but gave $15,000 in concessions to his home’s buyer’s agent? I have no idea how this will play out. 
• Right now, you cannot finance a buyer’s agent commission. Will Fannie and Freddy make some changes that allow buyers to lump their representative’s commission into the home loan? I have no idea.
• Realtors are a creative and flexible bunch. I foresee a few different compensation structures for buyer’s representation. I bet we’ll see everything from an hourly rate to tiered flat fees. It’ll be exciting to watch.

With all that said, I don’t think we are going to see any massive changes to the market overnight and most of the good realtors I’ve had the opportunity to talk with about this aren’t changing their business models much if at all. Here at The Lewis Group, we see this as a massive opportunity. We know that if you care about your clients and pride yourself on a job well done, this will only help show the public that you are worth it. 

If you’d like to get more information, the association has put together a website that has some great info at https://www.nar.realtor/the-facts.