NAR Settlement - What is going on with commission as a result of the settlement?

Hello, this is Renee Han, your Naples real estate expert, and as a part of this month's Tide Talk, I wanted to hit a topic that may or may not be on people's minds, but it's certainly making a lot of headway, and that is the recent National Association of Realtors settlement for the commission arena. So let's talk a little bit about that. I'm going to approach this as a Q&A, but I want to say a few disclaimers up front to make sure that you know exactly where this is coming from. Number one, I'm not an attorney. I am not legally allowed to give any legal advice whatsoever. I'm not an attorney. Number 2, my thoughts that I'm sharing are simply my own. I do not represent them as anybody else's, including National Association of Realtors, the local neighbor— neighbor— Naples Area Board of Realtors, or even my brokerage. This is just Renee. Number 3, I'm going to be transparent with you. Number 4, there are some answers we just don't have yet because this lawsuit and the settlement haven't even made it all the way through the process yet. But I think it's an important enough topic, and I know enough people have questions that I wanted to hit it while I was getting ready to send out this, uh, publication to you. So with that, I will jump right in. And as always, if you've got questions or you want to chat about any of this, don't hesitate. I'm a realtor. The phone rings. Don't hesitate to reach out directly. I think I'll turn my ringer off now. Um, don't, don't hesitate to reach out directly, and I'm happy to talk to you about anything, um, that you'd like to talk about. At least those things that we're going to be talking about today. There are boundaries, of course. Anyways, so the first question related to the settlement: one, is it finished? Nope. There is a settlement that was put on the table by National Association of Realtors. And by the way, for those of you that don't know, this originates, stems back to two lawsuits, um, one in the state of Missouri, one in Illinois, that involved commissions and how commissions are paid to buyer's agents. It has not been all the way through the process. So NAR, uh, National Association of Realtors, has laid out a potential settlement. It needs to be reviewed and accepted by the courts. The settlement currently has an effective date of July if it goes through as it is. So that's first question. Next question, is it true that commission was fixed at 6%? This has absolutely drove me crazy because it's all over the airways. I kind of liken it to what happens down here in Southwest Florida when there's a storm and my phone starts ringing and my friends and my family are all wondering, are you safe? And I'm like, what are you talking about? Why do you ask, well, we saw on the news and it's horrible down there. I said, oh my gosh, that commentator found the windiest corner in the wettest area to have that and make you all panic. I'm at the beach. It's sort of the same thing. So you're— I'm out there reading things that are getting said, and it's just maddening. There has never been fixed commission, period, across the board. Does it mean that every practice that every agent or broker has done is always a long The lines of what's allowed, I can't answer that. I'm one agent in a sea of millions. I'm, I'm one among 8,000 just here in the Naples area. But as a profession, there has never been fixed commission setting, period, period, period. More specifically, if you look at how we do business in Southwest Florida with the NABOR contracts, when I enter in a listing agreement with a client We, we go and look at two areas that get negotiated. One, what is my commission going to be? And two, what is that seller willing to pay on the buyer agent side when a deal is accepted and successfully closes? So it is set at the point of listing, but it is never a fixed amount. The seller decides what they're willing to pay, the agent decides what they're willing to accept. If the two align, they have a deal and you sign an agreement. There are times when I have walked away from listings because what that seller is willing to pay is not in alignment with the value that I bring and the amount of money that I know I invest in listings. The same thing is true across the board. Some agents charge more, some charge less. Hopefully you get what you're paying for in both directions, but it has never been fixed. Secondly, if you look at the agreements I've entered into, I actually have examples even recently where the seller wished to pay me 3% and they might have wished to pay the buyer's agent 2.5%, as an example. That's entirely as part of the negotiation process. So it has never been fixed at 6%. 6% is where many of them certainly may come in, but again, that's negotiated on a deal-by-deal basis. Next question: agents don't add any value since Zillow makes properties available for people. Without question. Let me actually say this: there are always truths to everything, right? So very rarely is everything a full board misrepresentation. There are truths. And by the way, I think— I hope you all know this— there can be opposing truths. It doesn't mean one's true and one's not. It just means there are different ways to look at things, and not everything is black and white. So agents don't add value because Zillow now makes properties available? Without question, the way people find and view properties has changed. Wouldn't even begin to debate that. And by the way, it's going to continue to change. So agents need to constantly be thinking about how they add value. So yes, how you spend your time as an agent may be shifting, may have already shifted. No argument there. And yes, properties are more readily available for online viewing, but nobody forces buyers or sellers to work with agents. There are for sale by owners that happen all the time. There are buyers that choose to do their own shopping and go directly to sellers. But let's not miss the point that there is a reason why many, in fact the majority of buyers and sellers, choose to work with real estate agents, and it's because there is still value there. It would take me a whole segment to go into what that value is, but I can tell you I spend a tremendous amount of time on my listings and with my buyer clients. Everything from talking about, you know, how real estate happens and what the process looks like, what are the different areas of, of the market in terms of where would you live, making matches to understand what buyers are looking for versus what is available. Thinking through the trade-offs, talking about all the different styles of homes and the different setups in Florida, because there are some that are condo associations, some that are homeowner associations, some that are attached villas, some that are condos. What does all of that mean? What's the true cost of ownership? There is a reason— again, the list goes on and on, and I'm not going to go into that much detail here, but agents bring value. Good agents bring value. I would not for a minute argue that there are not probably a fair number of agents who maybe aren't worth the value that they're getting paid. In a sea of 8,000, when the entry point is so unbelievably easy to get into real estate— anybody could decide they want to get into real estate today and have their license in a matter of weeks. It is easy to get in, but it doesn't mean that value is not added by agents. You've just got to, as a consumer, make sure you're picking somebody that's aligned with the value that you need. So I'd like to dispel that one. And again, buyers and sellers have always had choices. Um, I will tell you, I'm certainly confident with the amount of time that I work, and not just time I work, but the value that I add, is worth what I get paid. In fact, I would argue there are times when I feel like I've been underpaid. If you were to break down my hourly rate, sometimes you might be shocked And then there are other times where it's an easy transaction and how I earned that money might be easier. But on the whole, I can tell you I invest a crapload of time into the work that I do to make sure that I'm bringing you the expertise, guidance, and service that you deserve. And if you want that service, there's a cost to that. Last I heard, none of you are doing your jobs for free. If you were, we would call you volunteers. But anyways, we're not going to go there. I digress. The next one, agents get paid too much for commission. Again, I think that is on a case-by-case basis. It all depends what you need from your agent and what they are delivering. I would tell you that there are a lot of things you don't understand about commission, possibly, if you make that statement. There are costs involved even on the buyer side. If I'm a buyer's agent, I'm paying for gas, I'm paying for materials, I'm paying for resources to be able to provide those services to you. So an agent, when you look at the commission structure, you need to understand there are a lot of things that come out of that before it ever hits the wallet of an agent. That agent is paying for errors and omissions insurance, which is there to protect you and them. They are paying for brokerage fees, and all of them have to pay that. It might vary. There are a lot of agents out there you probably don't know are paying very little to their brokerage, so they're pocketing even more money than I do. But that's neither here nor there either. I'm not going down that path. You've got, um, marketing costs when you're listing things. You have gas costs. You've got to pay to belong to some of these, um, groups that allow you to practice real estate. Again, there's a lot of cost involved, and what actually goes into your agent's pocket at the end of the day may surprise you how much smaller it is than what you think anyways. But it's all a matter of whether you see value in it or not, and I can't convince you of that. You've got to decide what's important to you. I can only share that I know the amount of work and effort and time and energy and resources I put into those I serve, um, and I, I don't ever feel like I have been overpaid or that I'm giving too much away. Um, sellers no longer have to pay buyer's agent commission. This is also a falsity. So what has changed? I'm going to come back to this a little bit more on some of the subsequent questions. What has changed is that sellers can no longer advertise in MLS systems how much commission they are going to pay a buyer's agent. That goes away. I'm going to come back to that, so table that comment. It does not mean that sellers can no longer pay commission, just means they can't advertise on MLS what they're willing to pay. So sellers are going to have to decide based on their market and what's going on, what, what value a buyer's agent will add in bringing prospective buyers. There are markets, and in fact I'd argue in many cases in Naples today, um, that the, the scales are, are, are tipped. It's much more favorable for buyers these days. And so if tomorrow a seller stops offering commission to a buyer's agent, they've really got to think through what are the implications of that decision. So again, you can't advertise it, but nowhere in the settlement does it prohibit you, prohibit you from paying it. Again, we'll come back to that one, so hold any thoughts on that. Um, the settlement will make housing more affordable. Will it? The real estate market is governed by supply and demand. So even if these fees are slightly lowered, and let's just assume they are lowered because there's no assumption, that's going to all of the sellers and saying, okay, when you start to list your home now, we expect to see that price come down. It may, it may not. Without this, it may or may not have. We're seeing some price adjustments in the market today without a single implication tied back to commission. It is a function of supply and demand. That drives price. So the market's complexity goes way, way beyond commission rates. Um, let me ask you this: when prices go up in the marketplace for other products, they always come right back down. They might lower a little bit, but I don't think you're going to see a reset that suddenly puts more money in the pockets of buyers. Um, the settlement is huge and will pay off big time for consumers. Without question, $418 million is a heck of a lot of money. That's money that is going to have to be paid out to consumers. But if you start doing some peeling back the onions and looking, I think some of the published news I've seen is that at an individual consumer level, it pays about $10. I don't know, that might be a lot of money, maybe not. Um, so the question is, who really benefits from this? I have a lot of friends who are lawyers. This is in no way intended to be a poke against them, but let's not mix the— miss the fact that the attorneys who have submitted a request to the court are earning over $80 million in fees. I don't know who's going to make the money. Um, settlement makes commission more transparent. Hmm, this is simply an opinion. If today The buyers and the buyer's agents can see what amount the seller is paying for commission. It's published, it's in the listing agreement, and it's published on MLS. That's pretty transparent. Tomorrow, a seller could still pay buyer's commission, or perhaps not, but you wouldn't know either way because it's not published on MLS. Is that making it more transparent? Hmm. I'd beg to question that. Anyways, we'll come back. This settlement simplifies commission. Hmm, I think it's added a lot of complexity, candidly, because now there are so many complexities, right? You're a buyer post-July, assuming that everything goes through as we expect it will. You now decide you need the services of an agent Now you've got to go individually negotiate that. That's number one. Not so transparent, right? Then you've got to decide, am I going to get any of this offset by sellers through the negotiation once I found a house? Another negotiation. So now we're two negotiate— negotiations in. You don't know when you're shopping for a house because it's no longer on MLS whether that seller is ultimately willing to pay any type of commission to the agent. So you may be stuck with a price tag and there's no transparency until you get to the 11th hour, and now you're trying to work it out while you've been consuming all of these services from someone. And oh, by the way, let's not miss out that from now on, one of the things the settlement does require is every buyer and buyer's agents must, must have a signed agreement. In the past, it was up to agents whether they wanted to use buyer agreements or not. That goes away, folks. So when you go to meet Susie and Bob and Bill and Brian to go talk about real estate services, you guys now need to have a signed agreement as a part of this. And in that signed agreement is likely to include what the cost of their services are to you. That part's transparent. But think about what this did in shopping around. It used to be that you only had to worry about negotiating with the seller for what you were going to purchase the house for. Now we've added a bunch of different complexity in the form of multiple negotiations throughout the process. Um, the settlement negatively affects veterans. That actually is true, at least as it is written right now. Because what it says is sellers may no longer offer published commission to buyer's agents. So that, in a sense, is going to push out the cost of those buyer services to consumers. And guess what kind of loan does not allow the, the person purchasing to pay buyer agent services? VHA, the veterans— sorry, not VHA, VA. I'm— I did a hybrid between FHA and VA, but that's the kind of thing that still needs to be sorted out that's going to have a short-term impact and perhaps a long-term impact on veterans. It was already tough in so many cases, particularly in Southwest Florida, for veterans to get their offers accepted because it came with all Kinds of additional requirements that may not be present in other types of loans, or in particular in a very heavy cash market like we are now. We've also put the burden of potentially paying for buyer's commission on top of that veteran. I don't know, sounds to me like it has a negative effect. Um, compensation for agents will remain the same. Nope, that's also false because now with that extra complexity we just talked about Buyers agents are really going to have to think through how they get paid for their services. You're going to probably see a lot of different models come out of this, right? Because I will tell you, as someone who shares about half of my time with buyers as I do sellers, I'm thinking about it because I know well enough that a lot of my value is on the very front end of working with someone. Let me explain what I mean. I've got these two sisters— I'll use them as an example— that I've worked with recently. And I've spent a considerable amount of time in early phone calls talking about the market and where their money would be best invested and what kind of homes they could buy and what kind of value and all of that stuff. We've had multiple phone calls where I talk about the difference between a villa and a condo and a single-family home and what that does to their responsibilities under the ownership umbrella as well as their cost. We've talked about all of this. We haven't even found a house yet, but I've invested considerable time. If tomorrow there isn't a universal system that allows that agent to get compensated and know they're going to get compensated through the buying process, through what was agreed upon in a listing agreement, now all of a sudden I have somebody that I may be working with for multiple years, because that's not unusual. I might start working with somebody today and they may not buy for 3 5 years. If I'm going to invest so much time up front, don't you think I might think about my model of pay a little differently? Because what if I, buyer's agent, invest all that time up front and then that buyer comes back a year later? They've already gotten all the value out of me, they've sucked it out of me, they've taken advantage of all of the knowledge and experience that I can give, and they decide a year later because if you have an agreement, there's got to be a start and an end, right? So a year passes, 2 years pass, they've gotten all the value out of me, but now they're going to go direct to the, the seller to try to have a better deal on their property. Is that a model I necessarily want to work in? So what's going to happen is you're going to have different models come out of this. They may require upfront pay. Now all of a sudden you got to start to pay for the services as you're using them. I don't know, that'll be different. It will also mean that you might not have access to the really good agents because the really good agents may say, "I'm not gonna donate all my time." I don't know, just, you know, just thinking out loud, it may or may not go down that path, we'll have to see. But it's certainly something that buyer's agents are having to think about. What are they going to do to structure a model when working with buyers if the commission no longer is going to come from the sellers? Or if it gets so highly convoluted that you don't know whether it's coming from the seller or not, but you've got work to do on behalf of that buyer much earlier than the point of a particular property. So it will certainly drive some things out. It may certainly clear some of the space out. There may be agents that choose to not work and can support buyers anymore, or you may be stuck with— it's a little bit like sometimes I see in the rental space, no offense No offense to rental agents, but rental space has been known to have some agents that may not be as good and didn't survive in the real estate space, so they went to doing rentals. Not the case in every case, please don't read into that. But the same may be true in buyer's agents. So you may start to stratify and having the really good talented agents focus on the listing side where it's a more collaborative and predictable and transparent marketplace. Place and controlled within a time frame. So, you know, I'm sure there are going to be some implications there on how the compensation is paid. So still a lot to come from all of this. You know, what I've said to the clients that I'm already working with is, you know, let's not panic, let's see where this goes. I'm doing it business as usual for right now. I haven't— you know, none of my sellers have gone off and started to do anything different. Everybody's kind of waiting. The messy part, candidly, is going to be in the middle. It's going to be messy in the middle because things get implemented long before people figure out how you actually mobilize around them. It's what happens. So it's messy. It's messy while everybody's figuring out what they're going to do— buyers, sellers, agents, brokers alike. So if I can be of assistance to you, don't hesitate to reach out. I certainly have my own thinking to do on how I will structure my model going forward to make sure that my time is compensated. And that I can continue to add value. But for now, business as usual. Let's make sure we stay in touch and talk, and I'm always here for any questions you have, but I would encourage you to really think through the implications of this, both as a buyer and a seller, because if there are services you need, they come at a cost, and how that is going to be handled is changing. And it's not changing because I asked it to. It's not changing because you asked it to, but unfortunately, it's changing. So let's stay in contact, let's stay connected, and let's make sure we can continue to support your needs and get the service that you deserve, because it's not all the same. Thanks and have a great day.