New rule changes in the wake of the NAR anti-trust settlement: Part 1 of 2

As promised last time here is a two part breakdown of the pending and ongoing $418 million settlement by the National Association of Realtors following class action anti-trust lawsuits that goes into effect on this day, Aug 14th 2024 with some additional changes plus my take…

Essentially these changes include the requirement to use written buyer agreements for all buyers and the removal of commission fields in the MLS, the digital search and data tool that we realtors use to buy and sell properties on behalf of our clients. There are approximately 800 MLS’s throughout the country and while there is national oversight each state has its own contract and way of doing business. However, all realtors, no matter the state, are beholden to a code of ethics re standards of practice, the essence of which is tied to the acronym OLDCAR which outlines the duties and responsibilities we owe our clients: Obedience (within the law), loyalty, disclosure, confidentiality, accountability, and reasonable skill and care. 

HISTORY

The originating class action suit was brought to a federal court in Missouri by a group of home sellers in October of 2023, during a time when the real estate industry was grappling with the effects of high interest rates which continue to this day. Together with a team of opportunistic lawyers, the plaintiff’s made claims against NAR and other defendants (essentially the largest brokerages in the industry for obvious reasons) including Anywhere, Berkshire Hathaway HomeServices (the umbrella company for my brokerage), Keller Williams and RE/MAX.  In it they claimed that real estate commission rates are too high, buyers’ representatives are paid too much, and NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants’ practices, lead to inflated commission rates. I think it's important to note here that four members of the jury had neither bought nor sold property. 

MY TAKE 

For my part, I have been a licensed realtor (DC, Maryland and Virginia) in my region since 2017 and rarely if ever I have run into a situation that I felt that anyone got paid too much. Granted, there are some jobs that are easier/run more smoothly than others but on balance I’ve never had a client who didn’t think I earned my keep and or that they paid too much for my services, and the same goes for numerous colleagues I have worked with. Here is what NAR has to say on the subject. 

Real estate sales agents provide a bona fide service to home buyers and sellers and should expect to know what they’ll be paid. Cooperative compensation makes the process smooth and efficient while ensuring that buyers benefit from professional representation if they so choose. Cooperation benefits sellers by bringing more buyers to the market. And buyers, sellers and brokers benefit from the central source of accurate data on homes for sale. NAR continues and rightly maintains that buyer representation is a critical service for consumers in what is often the most significant financial transaction of their lifetime. Before the 1990s, cooperating agents typically acted as subagents of the listing agent. After the Federal Trade Commission released a study showing that most buyers thought they were being represented, states passed laws that required agents to disclose whom they represented. Buyer agency grew out of a legitimate need and demand by consumer advocates.

                                                                 

NEW MLS RULES 

1. Beginning today, August 14, 2024 compensation fields will be removed from the MLS (Multiple listing service) or its affiliates (Zillow etc) which means that both buyers and realtors will have to seek that information elsewhere, such as a company website, a real estate sign or on social media. Compensation is how realtors get paid and in order for a realtor to get paid we need to transact. For many of us it can take weeks or months to close a contract for a specific party, especially when operating in a competitive low inventory market like the one we are in now.

To be clear 'compensation' or our professional fee has always been negotiable, at least in the DMV, and I’ve never encountered a fellow real estate professional that hasn’t exceeded 6% for both sides of the transaction, meaning 3% goes to each side of the transaction. Since most of us don’t engage in dual representation due to conflict of interest, 3% is as much as we realtors can expect when representing a buyer or a seller, a percentage of which goes to our respective brokerages, depending on the plan one is subscribed and or how much one sells in a given year.  

For most of us in the industry this is a giant head scratcher since it requires more work on the part of the realtor and or buyer to get the same result. Apparently, the basis for their removal from the MLS is that there were sales agents out there who were targeting properties that paid the highest commissions instead of working in their client's best interests. Whether this basis for the argument is true or not, this is called ‘steering’ and it is strictly illegal.  

2. Beginning on August 17th, realtors across the nation will no longer be able to show property or have a substantive discussion about real estate with a buyer until an agreement is signed. While for my part I have always argued that it benefits would-be buyers to enter into a buyer agreement due to the extra protections and services they reflect, it's going to take some adjustment on the part of buyer agents and their buyers alike. 

The one positive to be gleaned from this is that many of us in the industry need to do a better job of demonstrating our value and or to properly qualify the need for our existence as a whole. While the seller has traditionally paid the commission to both sides that does not mean the buyer has not paid their portion, albeit indirectly. As far as the overall, the payment the seller makes rewards the buyers agent for bringing the buyer and all the work that entails, not forgetting the numerous properties that agent may have shown and discussed over the months while not getting paid.   

To put it all in to context the reasoning behind this particular change is that retail buyers are much more equipped/empowered than they used to be because on the face of it they can find homes on the internet. However, as noted they cannot tour or see these homes (with the exception of an open house) without representation and for that they will need to sign a buyer’s agreement. However, here is where it gets tricky: we cannot yet be sure that it will be business as usual in terms of how the compensation will be distributed and whether not the seller will continue to provide compensation in the way we are accustomed. In theory sellers can now opt to change their minds on the issue of compensation prior to settlement so there is no guarantee that compensation will paid even if the original intent to do so was there. 

Incidentally, as realtors we cannot ‘steer’ both the buyer and seller alike into paying compensation but we can advise or point out why it is in their interests to do so. Buying and evaluating a home is a complex process and it requires a lot of oversight both legal and professional, and the same goes for selling a home. 

MY FINAL TAKE

To the best of my knowledge, no one can predict the future, but coming from the perspective of a realtor who has worked in other businesses over the years, I am constantly humbled by the sheer resilience and dedication that many of my peers exhibit on a daily basis, and I strongly believe that we just need to keep doing what we have always been doing, providing great value to our clients. Similarly, we have to guard against the very real danger that if a war on compensation does erupt that first time homebuyers or lower income buyers will suffer the most, simply because no realtor I know or professional for that matter will willingly choose to work for free, or ideally, for less than they are worth. It's fair to say that we all need a little financial incentive in life, but inevitably, there are times that we realtors get no financial reward  to begin with. Show me a client that hasn't bailed for whatever reason and I'll show you a perfect house on a perfect street, on a perfect day in a perfect neighborhood for the perfect price. 

                                                           

As always thank you for reading and feel free to reach out to me if you have any questions. While I am a real estate professional always seek the advice of an attorney or a specialist when discussing matters outside my scope. Meanwhile, watch out for part 2/update at a later date.