If you have been following this blog at all, or if you're familiar with R+K Real Estate and our business model, then you have probably already heard news of coming changes in real estate commissions. If not, a quick refresher in one of my latest blog entries is a great place to start: How to Avoid Over-Paying in Commissions. In that post I do not mince words and it should be crystal clear how I feel about real estate commissions.
And yet, even for me, the news that broke last Friday was nothing short of shocking. You can read more about that here: Real estate lawsuit settlement upends decades long policies that helped set agent commissions. In short: The National Association of Realtors and several large franchisers were sued (and continue to be sued) over the "blanket offer of compensation in the MLS" rule which required sellers to offer a commission to buyer agents in order to list a property in the MLS. After a jury ruled for the plaintiffs last fall NAR has agreed to settle the case and also to prohibit offers of compensation for buyer agents, among other things, starting later this year. The federal court has yet to rule on this proposed settlement.
There's a lot to unpack here! Let me start by saying that this settlement proposed by NAR will do no less than revolutionize this industry. It will change nearly every aspect of how Realtors conduct business with both buyers and sellers. But, it will be some time before the dust truly settles, so in the meantime I have some initial thoughts I'd like to get out.
- First, there has been plenty of opportunity for the real estate industry to get ahead of this. The heat has been turning up for years and even the US Department of Justice has been involved. NAR and the industry failed. And so here we are. I've known this was coming for years. In fact, anticipation of it was the entire reason we started R+K Real Estate. Instead of leading with change, NAR is being forced to react to change. Unfortunate.
- Second, I'm glad NAR decided to settle this now. Previously, they had pledged to appeal the ruling in the Sitzer/Burnett trial litigated last year. Appealing the ruling would have been a lost cause. I, unlike many in my industry, was sure NAR was going to lose that case, and equally sure they would lose any appeal. Continuing the fight would have been a waste of member resources. Maybe NAR could save some money on legal expenses next time and just call me instead!
- There's an awful lot of hand-wringing and outright whining on social media from Realtors over this announcement. My advice to them: get over it.
- Among the reactions, I've seen many Realtors saying that buyer agency is doomed. Please. This shows they don't understand their job and lends proof to the claim that buyer agent commissions have NOT been negotiable all along. Buyer agency will remain, but how buyer agents are paid will change.
- Some experts are claiming home values might fall after these changes take effect. Absolutely not. Let's not get carried away. Lack of supply will continue to increase upward pressure on home values. "Inflation" of home values due to real estate commissions will fall, but the values themselves will continue to rise.
- Costs associated with a home transaction will fall. Competition will force downward pressure on commissions. As consumer awareness on commissions increases, even listing-side fees may decline more.
- The lending world will need to wrap its head around this quickly. Legislation and changes in lending regulation are likely. Some of those changes will likely be proposed and supported by NAR. The most likely change coming would be lenders financing buyer agent fees into the mortgage. Lenders will have a short list of buyer agents able and willing to negotiate commission. They will refer their new clients only to agents on that list.
- The days of the "traditional" 6% listing are OVER.
- Negotiation skills will be more essential than ever. Real estate agents who do not excel at this will end up leaving the industry. I predict at least a 20% drop in membership within 12 months of these rules taking effect. Good Realtors will survive, and thrive. Bad agents will fail and go away. Fewer agents means more business for the industry's true professionals. Better agents benefits consumers.
- Realtor organizations and MLS survival continues to be at risk. Implementation of changes quickly will ensure against extinction.
We built our company anticipating this change, and now it's a great opportunity for an increase in transparency and competition across the industry as a whole. While I can see why some may not like that, I applaud it. We've been negotiating commissions from the very start of R+K. The future of real estate is now. I'm excited to continue to lead in bringing this change to our community, and I look forward to working with our clients who will benefit by it!
