Advice: Between the lines: understanding the nuances of the NAR settlement

With all the recent media attention, almost everyone is now aware of the big changes coming to the real estate industry this month. The commentary ranges from the demise of the sector to the real estate services that will now be mainly pro bono in the future. Apologies if my words convey a hint of sarcasm, but after more than forty years of helping buyers and sellers and running two of the largest brokerage firms in the world, I am forced to read posts from misinformed people as they pop the corks at celebration.

Let’s quickly review the two major changes required in the National Association of REALTORS settlement. The outcome stems from a blatant underestimation of the class action attorneys’ ability to persuade a jury to pay a huge award, resulting in well over $40 million in attorneys’ fees paid with less than $15 per person in the participant pool, which almost all had paid. no complaints to begin with.

First, the compensation a seller offers to an agent who helps a buyer purchase a home will no longer be reflected in the Multiple Listing Service. This means that buyer agents must now contact brokers individually to inquire about compensation amounts or find an alternative method. Additionally, the previously guaranteed compensation is now merely a representation, requiring a separate agreement between brokers before most buyer offers would be submitted.

Second, all agents must now have a buyer-agent representation agreement requesting compensation for real estate services before showing buyers a home. This compensation can be settled in whole or in part by the seller. These agreements may contain flexible terms on the scope of properties covered and the associated time frame. It is likely that some real estate agents who experience the all-too-common situation of working with a buyer for months without any compensation only to see the buyer use another buyer when purchasing, may look favorably on this.

The new rules were justified as consumer-friendly, with class action attorneys portrayed as champions of real estate buyers and sellers. I have a contrarian perspective. In over 40 years I have not had a single buyer who would rather pay the commission than have it included in the purchase price. Buyers also appreciated the freedom to view properties without obligation and the ability to select their preferred representative when ready. The commissions paid by the seller to the buyer’s agent were effectively optional before the settlement.

An overarching goal of the lawsuit was a total split of sales and buyer commissions, but the previous structure did not restrict either party from paying compensation to the other party’s agent, nor will it now. In addition, if a seller no longer wishes to provide compensation to a buyer’s agent, that outcome may still occur with a request to the seller’s agent or a request from the buyer in a contract offer. Even more complications and uncertainty.

Real estate transactions are emotional, but the efficiency and customer satisfaction of the way real estate is transacted in this country is the envy of the world. The basis of real estate sales did not arise from a conspiracy, as I have never had a conversation with a competitor about commissions since the first license in 1981. Also not from a decree, because sellers were not forced to offer buyer compensation and buyers could have chosen to pay immediately at any time, but rather from practical considerations and success.

What used to be a process described in 10 seconds now requires a decision tree flowchart more complex than a chemical periodic table. Furthermore, these changes lead to fewer choices for real estate customers and infringe on the rights of property owners to sell or buy homes as they see fit. I can’t help seeing this as a Brexit moment where most believed it was a good idea but quickly realized it wasn’t. And you didn’t even get a vote!

Regarding comments about rates, real estate is not a public utility. It is a business like others, where owners determine costs in a free market, where public choice and competition determine price elasticity. Fortunately, brokers still set their own fees just like any other professional service, and maintain a wide range of offerings from discount to premium services with fees to match.

The good news is that we have prepared extensively for these changes and have implemented standards and processes to ensure that buyers and sellers remain well represented and achieve their real estate goals. We are ready. This month, the class action attorneys may be heading out to select their next hunt, but our team will show up for the job, focused on the needs and interests of their clients, just as before.

Budge Huskey is CEO of Premier Sotheby’s International Realty.

This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners.

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