We are all adjusting to the differences in paying Buyer Agent commissions post National Association of Realtors legal settlement in August 2024 (“NAR Settlement”). NAR, in this settlement, implemented a couple of changes in order to bring transparency and flexibility to the commission payment structure for both buyers and sellers. See our previous blog post on the NAR Settlement details here.

In the past, when the seller signed a listing agreement with their agent (the “Listing Agent”) they agreed to pay a total compensation, usually 5% or 6%, through escrow thus reducing the seller’s net proceeds. The total fees were payable to the Listing Agent who offered a portion of that amount via the Multiple Listing Service (the “MLS”) to the Buyer Agent. The agents were bound by the MLS rules to abide by that offer of compensation.

The NAR Settlement created these two new rules:

  1. Buyer Agents are now required to execute a Buyer Representation Agreement with their client before touring properties with them. Part of this Agreement includes the amount of Buyer Agent compensation to be paid. These agreements always existed but they were not required until an offer was submitted on behalf of the buyer.
  2. Listings on the MLS will no longer include or offer any Buyer Agent compensation. It may offer concessions to the buyer to cover their agent fees but any such concessions are not binding.

It’s too soon to know how these changes will impact the real estate transactions in the long run but for now the options available for the buyers and sellers to consider are more up for discussion than in the past. Most importantly, whereas buyers may not have known how their agent was compensated, they are now responsible for this payment unless other arrangements are made.

Some expect these changes to actually shift the Buyer Agent compensation payment from the Seller to the Buyer in the long term. However, that is not quite what we are seeing in the short term.

Keep in mind, Sellers have never been “required” to pay the Buyer Agent commission. Payments to any agent has always been fully negotiable. Yet, payments were traditionally made by the seller for several reasons. As such, we anticipate that many sellers will continue to pay the Buyer Agent commissions.

DON’T BE FOOLED BY THE NARRATIVE

To announce the NAR Settlement, many in the media celebrated the end of the traditional commission structure claiming that agents had artificially inflated costs in the past and had purposefully obscured the true cost of services to buyers.

While it may be true that these changes have increased transparency, the claim that agent fees and home values were previously inflated causing the housing crisis is really a reach. First off, structuring payments of commissions from the seller does not, in itself, mean that commissions were held artificially high. And, changing this payment structure will not even come close to solving the housing crisis along with its affordability issues.

  • They claim that home prices will come down. But, has the intrinsic value of the home been impacted by these changes? Or, is it actually housing supply and demand that drives housing prices just as they always have regardless of how the Buyer Agent gets paid? Many economists believe that housing prices will not shift due to these changes. See article here.
  • They claim that the cost of Buyer Agents will decrease. To some extent this may prove to be somewhat true; however, you still get what you pay for. Some agents may be worth more than other agents. We expect to experience concierge services popping up to capitalize on the market confusion by offering discount services to fill in the perceived gaps created. In fact, one of the original plaintiffs of these class action lawsuits is doing just that (click here to read). However, buying and selling a home is usually one of the biggest transactions experienced by so many. They likely don’t do it every day, month, or year. We believe that a homebuyer and seller will continue to want to hire someone who can limit their risk and make their wealth stretch further.
  • They claim that homebuyers will now move forward unrepresented and pocket the cost of a Buyer Agent commission. Even for the experienced homebuyer, this is just not advisable. Would you show up to court to represent yourself when the other side is stacked with qualified and experienced representation? Even attorneys are advised to hire representation when arguing for their own legal rights. Saving on Buyer Agent fees may cost you much more than those savings when things go wrong.
  • They claim that this will solve our housing affordability crisis. This crisis is far more complex and involved than this restructuring of payments could ever hope to solve. To mend our housing crisis, we need more housing inventory to meet the demand for housing.
  • They claim that real estate agents are coming from a place of greed and are overpaid. However, most real estate agents come from a place of doing service. They are there to advise their clients in a way that protects their wealth and limits their legal risk; a true value-added proposition. While there is no need to feel sorry for agents, you should know that it is not the low effort sexy career portrayed on reality television. Agents are only paid after the sale closes and not every deal makes it to the finish line. It is a challenging career that is delightful when everything comes together but when it doesn’t work out, the process will need to start all over again!

UNDERSTANDING THE BUYER’S CHALLENGE

There are reasons that homebuyers expected the sellers to pay the Buyer Agent compensation. We delved into this topic in our previous post (click here to read). It is important to understand that buyers can not finance a commission paid for their purchase. As many homebuyers struggle to come up with their downpayment for their home purchase, the added burden on them to also pay their Buyer Agent commission at closing may just push them out of the market. However, by structuring the deal so that the Buyer Agent payment is wrapped into the acquisition price of the home, the homebuyer is able to finance the total cost making their home purchase more attainable. See more on this and other related issues from the homebuyer’s perspective here.

Why would the seller care about the homebuyer’s perspective? The seller will maximize their sales profit when the widest buyer pool for their home is reached. Making the sale easier on the buyers creates a wider group of buyers for their home.

WHAT VALUE DOES THE BUYER AGENT BRING TO THE TABLE

A qualified and experienced Buyer Agent not only serves their homebuyer client; they also provide value to the seller as well.

Sellers may read the click-bait headlines and decide that there is no value to them whether or not the buyer is represented by an experienced and knowledgable agent. However, this is decidedly untrue. The biggest risk to the seller when they go under contract with a buyer is that the buyer will tie up the property, keeping it off market, without ever closing on the purchase.

Time is of the essence in real estate and this time off the market can not only financially damage the seller, it can really delay the seller’s plans. While a buyer has contingencies when entering the contract, the seller typically does not. This keeps the seller at risk until all contingencies are removed. Dealing with an unrepresented buyer brings delays and uncertainty to the contract timelines. The seller and their agent may be challenged in successfully prompting the homebuyer to perform their contractual duties timely; or at all.

RISK OF LAWSUITS

The Seller’s biggest responsibility under the sales contract, apart from transferring the home upon the close of escrow, is to disclose what they know about the property to the homebuyer. It is important that the homebuyer understands the disclosure details delivered to them once under contract. A qualified and experienced agent can guide the homebuyer through the process of reviewing and understanding these direct seller disclosures as well as other required Natural Hazard Disclosures, Preliminary Title disclosures, and more. A homebuyer that understands what they are actually buying is less likely to feel disillusioned after the sale closes. This reduces the risk of post transaction litigation.

DUAL AGENCY

A note for sellers that want their agent to represent both themselves and the unrepresented homebuyer as a dual agent. Dual Agency is difficult to navigate. Once a difficult impasse arises, one agent must walk the thin edge of loyalty due to both sides. If the agent tips to the seller side, the seller may win the negotiation during escrow but, they may be opening themselves up to litigation later on down the line. Who wants to deal with expensive and stressful legal battles after the deal is closed? If the agent tips to the buyer side, it may end up costing you more than you saved by bypassing payment to a separate Buyer Agent on behalf of the homebuyer. Even when the agent is able to walk that difficult line, you may always wonder if they truly did so of if your needs were sacrificed.

THE WINNERS AND LOSERS

Who really won these class action suits? And who is the DOJ trying to protect in their bid to reopen an already settled anti-trust suit against NAR (on October 10, 2024, NAR petitioned the Supreme Court for a review of this renewed investigation – click here to read)? It does not appear that the consumer wins here. Buyers may have gained transparency on the real estate deal by making sure that they understand that the Buyer Agent does not work for free. And, some agents may lose if they do not adapt and prove their value. But, our belief is that qualified and experienced agents like us will continue to provide outstanding service and be rewarded with repeat and referral business.

The clear winners are, as is usually the case in class action suits, the attorneys . . . to the tune of $225,000,000 (amount requested by these class action attorneys).

CONCLUSION

With every change comes challenge and opportunity. But, the need for knowledgable and experienced real estate agents on both sides has not changed. It remains to be seen what changes will take hold in the long term.

As a homeowner looking to sell your home, take the time to understand the value that a qualified and experienced Buyer Agent brings to the table before disregarding this tool to protect your successful sale. Discuss your options with your listing agent and consider the value, not only to the homebuyer, but to you as seller of your home.

Need to know more or have feedback to share? Contact Team Plunkett today and put our knowledge to work for you!