Written by Stuart Collier, Principal Broker at Collier and Associates
For starters, we want to clarify and simplify the practical points of the settlement agreement by NAR, as there has been much misinformation in the national media. We will tell you the down and dirty of the settlement agreement from the lawsuit filed against NAR concerning advertising buyer agent fees offered by the seller in lieu of bringing a bona fide offer from their buyer. The Multiple Listing Services (MLS) through the National Association of Realtors will no longer be able to publicly advertise that a seller is willing to pay a buyer’s agent for presenting an offer and closing on an agent’s listing beginning in mid-July. Expect to see platforms, websites, and Facebook groups to organize which sellers’ properties are offering buyer agent fees to attract more buyer agents to their properties.
Over the past several decades, the industry standard has been to state the commission amount through the MLS as an agreement between principal brokers to honor the split between the listing agent’s firm and the buyers agent’s firm. This amount and fee split has always been authorized by the seller and contained within a listing agreement.
The second most impactful change to agents’ business within the settlement is that agents must sign an exclusive buyer-agent representation agreement before the showing to help spell out the expectations from both parties during the fiduciary period of closing on the property of buyers’ wishes. Most prudent agents have operated from exclusive representation agreements prior to the lawsuit, but those who haven’t are now required per the settlement. Federal approval of the settlement terms is expected before the scheduled implementation date in mid-July. These are very basic and simple changes that, in and of themselves, are not a huge deal, but we expect to see broad implications in the market as the consumer psyche has already changed from the media attention, whether accurate or not.
Now, let’s discuss the implications. Many feel there will be a significant decrease in NAR membership by up to 40%, and real estate professionals will decline by 30% in the next few years. We believe NWA will not see more than a 15% dip in real estate professionals, but we expect to see a dip. Here is why: while agent compensation will most likely be compressed on the seller side, many buyer real estate agents will create more income for themselves and gain market share. In the future, the value-based agents and brokerages that are able to articulate and enact their value clearly will elevate, while those who become distracted and unable to offer value without adjustment will fall away.
What does value from a buyer’s agent look like?
Sure, it’s understanding and communicating buyers’ intentions through real estate contracts or instruments, but this isn’t differentiating value. Let’s consider just one example of value-based practice. Real estate brokerages that leverage 150+ agents’ sphere of influence to create off-market, coming-soon, and “make me move” opportunities to match with their cohorts within the brokerage, connecting these opportunities with a repository of firm crowdsourced buyer parameters is one way to offer real value. This will be leveraged as a supplement to the MLS. What better way to justify your services than to offer otherwise unavailable or unexposed opportunities? Again, brokerages with 150+ agents are then able to leverage each individual’s sphere of influence to offer opportunities to one another will win. Agents who offer a very high-touch service that extends beyond the sale will also gain market share.
Consider creating the opportunity for your buyer to get under contract on an off-market opportunity, then close, move into your new house, and have the moving company scheduled and delivered. Repairs were negotiated, bids gained and fixed, and utilities transferred via the utility concierge. Dinner awaits you on the night of closing, just to be enrolled in a valuation program that gives you consistent value updates on your home, as well as notifies you of new restaurants, amenities, and community additions that affect the value of your home. We have to turn our previous buyers into sellers when the time comes. What better way to do this than a lifelong client journey full of value?
This is practical value and an opportunity for agents to be the entrepreneurs they know they can be. Agents who provide this high-level value with a high-level experience will do more business in the future. Those unable to articulate and deliver real value to a buyer will do less.
This lawsuit isn’t all bad. It will allow forward-thinking, innovative brokerages and agents to adjust their focus on value and separate themselves from those who want to do the bare minimum. Our profession will become more entrepreneurial and creatively driven to be better in the long run. We believe sellers who offer a buyer agent fee will increase viewings and create more competition, driving up the price and increasing the seller’s financial position upon closing. Listing agents are far more likely to perform on the sale of a home when a buyer fee is offered; therefore, it is imperative to articulate to their seller the benefits and implications of offering the buyer’s agent a fee.
Most buyers need representation. Considering the notion that a home is the biggest purchase for many buyers, the probability of litigation is even higher than in most purchases and, therefore, ripe for liability on buyers’ behalf. Another prediction is that residential brokerages will look more and more like commercial brokerages in the future. Commercial agents have customarily negotiated their buyer agent fee based on the deal itself, as well as the buyer they are representing, with residential agents honing their entrepreneurial skills. Expect more high-level, previously purely residential agents to broker more and more commercial deals for individual investors, as well as groups of local investors. The commercial agent, representing the buyer, purely negotiates their buyer fee based on a number of factors within that specific deal. We expect residential agents to do the same with respect to the buyer agent fee.
Buyers that go unrepresented will risk higher liability and the potential financial pitfalls of the transaction. This will be a community effort, and we will need to work together with honesty and integrity to continue to protect the public as well as honor real estate agents who act in earned creative expert-level ways and value-based efforts to earn a living for themselves and their families.
