Considering the consequences: The March 15 NAR settlement

As we all know, NAR has been in litigation for several years. This was regarding a claim that offering buyer-agent compensation on MLS listings led to inflated sales commissions and less compensation for home sellers. NAR agreed to a settlement priced at $418 million. What else?

What is the outcome of those years of litigation?

In the settlement, NAR agreed to two things in addition to the $418 million.

• NAR will institute a new rule prohibiting offers of buyer agent compensation on the MLS.
• MLS participants working with buyers will be required to enter into written agreements with buyers before touring a home. These agreements will outline what services will be provided, how much the buyers agent will be compensated, and who will be providing that compensation.

Will changes due to the NAR settlement make life easier for buyers?

These new regulations are supposed to make it easier for buyers to negotiate fees with their own agents or to use no agents at all.

Looking back, how often has the buyer paid you directly? I was an agent for 19 years, and I believe it only happened to me once. That was when a gentleman hired me to help him obtain an unlisted property.

We’ve all heard of buyers who thought they could save money by using the seller’s agent – or by buying an unlisted house. But has a buyer ever asked you how much you would be paid by the seller – and then tried to negotiate with you to give some of that to them?

I think it was already about as easy as it gets for buyers. Yes, they were indirectly paying the buyer agent’s commission. But the seller had already negotiated that rate and it was part of the price of the house.

What I see for the future is confusion.

Here are the moving parts:

Each seller, as part of negotiating the commission rate with his or her agent, will decide whether or not to offer compensation to a buyer’s agent. And if so, how much.

Does that mean that the new listing agreements will now need two different lines for commissions? One for the listing agent and one for a buyer’s agent, if any? And how will that work in states where dual agency is legal? I know agents who reduce the commission if they secure the buyer. Maybe in those states they’ll need 3 lines?

Each buyer will also have to negotiate a commission rate with his or her agent.

That’s fine for affluent buyers.

But what if we’re talking about non-affluent buyers who have all they can do to come up with a down payment – and can’t possibly pay more?

We could just say that these people can’t buy a house, but nobody wants that.

Instead, it will mean that the buyer’s agent will need to contact each listing agent individually to ask whether the seller will or won’t pay his or her commission. I see this as the most onerous aspect, since some agents are notoriously difficult to contact.

And if the answer is no, then what? I’d say in that case, the agent simply would not show that house. Who does that help?

Don’t people who work deserve to be paid?

I read a comment on LinkedIn saying that it would be “wrong” for an agent to refuse to show a house if the seller refused to offer buyer agent compensation.

WHY would it be wrong, if the buyer couldn’t and the seller wouldn’t pay the agent?

Would it be wrong for anyone else in the world to choose not to take a job for which they would not to be paid?

If the seller agrees to pay a buyer’s agent, but the buyer’s agent doesn’t like the percentage, then what? Is he or she obligated to show the house anyway? Some agents do say yes.

It could become more complicated…

What if the seller is offering to pay the buyer’s agent? The buyer-broker agreement will need some kind of verbiage to deal with that. Will the agreements need even more words to deal with that eventuality?

We know that real estate documents grow year by year just to keep ahead of whatever situation led to a lawsuit or six the year before. Even though this settlement hasn’t been finalized, I envision people in every state working hard to create the verbiage needed on new listing and buyer representation forms.

Buyers may have the “opportunity” to choose which services they want…

Supposedly, the written agreements will outline exactly what services will be provided. I read somewhere that buyer agents will offer a “menu” from which buyers can choose just how much or how little assistance they want.

Do all of your buyers understand the extent of the services you provide? Do they know anything about the research you might do on their behalf? Do they value your advice regarding prices, contingencies, etc. Do they think they need you for inspections – or to negotiate repairs after inspections? Does it matter to them if you examine their closing documents ahead of time, just in case there’s an error?

In other words, do most buyers even know what they need from you?

What about the buyers who decide they don’t need an agent at all?

Who will show them homes? Who will answer questions about the house? Who will write their offers, convey the sellers’ responses, and write counter-offers?

I suppose that would be the listing agent. But then, shouldn’t the listing agent be compensated for the extra time? Seems like it to me.

Another wrinkle could deal with the selling prices.

For many decades now, the commission has been paid by the seller and it comes out of the seller’s proceeds at closing. It is thus included in the price of the house.

The amount that banks will lend for the purchase of a house is based on an appraisal.

The appraisal is based on the prices of recently sold, comparable properties – almost all of which had selling prices that included the real estate commission.

So if some sellers will now refuse to pay the buyer agent’s commission, it would stand to reason that the appraised price should be lower.

As a for instance, say the house down the street was sold for its appraised price of $300,000 and the seller paid a 6% commission. But now we have a comparable house selling with a commission rate of only 3% because the seller won’t pay the buyer’s agent. Should that house now appraise for $291,000?

Maybe banks will come to the rescue for low-income home buyers.

OK, so I’m being silly, but…

If houses have for a long time been “worth” what they’re worth with a commission included in the price, aren’t they still worth that much?

If so, why couldn’t the banks simply tack the buyer agent commission on to the selling price – assuming it would appraise, of course.

Just something else to think about.