The conversation around real estate commissions has dominated real estate news this past week.
I wanted to address a few things here and hopefully spark further conversation with anybody interested in chatting more about this topic…
What happened? The National Association of REALTORS® (NAR) announced a settlement, which is subject to court approval, that would resolve claims against NAR, its members, and affiliated organizations & brokerages. One key outcome of this settlement would be fundamental changes to how real estate commissions are advertised and paid by undoing much of the changes brought in the 1990’s which focused on providing separate representation for buyers during real estate transactions.
What is the NAR? The National Association of REALTORS is a trade association. In fact it is a really, really big trade association that has focused its considerable resources on lobbying for causes it believes will promote home-ownership in the US. The NAR is also notable for establishing the Code of Ethics for our industry (which is a lovely piece of writing that begins with the poetic, "Under all is the land" and outlines important duties for those in our industry when dealing with our clients, dealing with the public, and when dealing with one another as professionals. It has also been amended and improved over the years to include much-needed language against discrimination when it comes to housing. It is actually a pretty important guiding document in terms of housing in our country. Here's a link if you feel like checking it out: CODE OF ETHICS
What is the news? Here is a decent summary from a recent NY Times article: “Under the settlement, once it is approved by a federal court, there will be a commission “decoupling.” That means buyers and sellers would each be responsible for paying their own agents rather than expect the seller of a home to pay a single commission … to the listing agent who then splits it with the buyer’s agent.”
One point that I want to make very clear is that commissions on both sides of every transaction have ALWAYS been negotiable. I agree that additional transparency about this aspect of real estate will benefit buyers and sellers, however there has never been a “standard” for fees just as there are no standards for fees that you pay to any other professional service providers in your life. [Note that in the NY Times article I quote above and link to later in this blog post, the writer refers to a standard commission percentage, which I disagree with. There is not currently and never has been a standard fee structure in real estate.]
So where do we go from here? “Based on NAR’s settlement, agents working with buyers will need a signed buyer representation agreement starting in mid-July, pending final court approval of the settlement.” [Housing Wire - March 22nd] This is nothing new for many buyers and their agents, including those in Washington (where I am also licensed) as it has been spelled out in agency law since Jan 1st 2024 to require a service contract in order for agents to work with buyers. This will feel the same as when a seller hires an agent to help them sell a property. A contract is signed by all parties stipulating the scope of the service provided, timelines, and compensation. I welcome the clarity of this new evolution as it will pave the way for a more well-defined relationship for me and the buyers with whom I am working.
What else? The biggest impact for home buyers will be that the fees for representation will be front and center in their purchase, much as lender fees and title fees always have been. The cost of professional representation during a home purchase has always been negotiable, however it will now be a more clear line item as a Closing Cost. Buyers may still negotiate with sellers to credit toward this cost (just like other buyer Closing Costs), however there will be market conditions in which sellers are reluctant to make concessions (for example during a multiple offer situation in a seller’s market) and additionally, there are lender limits on allowable seller credits to buyer closing costs that could stand in the way of unburdening this cost from buyers. I will address some of the potential unforeseen consequences of this change for buyers with limited resources in the section below. Bottom Line: The cost of good professional representation during a major financial decision will now be a more prominently negotiable item. I believe that the nuances of navigating these contract negotiations, lender guidelines, market conditions, and more will make it all the more clear why people need professional representation and what that value is. If you have questions about what this will look like… talk to me!
And another thing...
Perhaps most importantly in this conversation, I am concerned that the people who are going to be most negatively impacted by this are going to be the people who are most economically vulnerable: Home buyers who cannot afford good representation.
Here is a LINK to a march 25th NY Times article that discusses this concern: “Buyers did not have a seat at the negotiating table when N.A.R., the powerful trade group, agreed on March 15 to pay $418 million in damages and to abandon its longstanding rules about how commissions are set, advertised and paid.”
My clients who have the financial means will pay me for my expertise, and receive great representation the same way as people with financial resources can hire great lawyers, great medical professionals, and great financial advisors to provide them with excellent care.
Because this change is going to put the cost of representation onto buyers, there will be a large number of buyers who choose to go without representation, go with cheap and potentially inadequate representation as there is a “race to the bottom” and commoditization of real estate services, or choose to allow the seller’s broker to represent them (Dual Agency in states where it is allowed). Ultimately that means that home buyers with the least financial means will be the ones to be put in the most financial jeopardy by this change.
Those who will be put at risk are going to be the demographics in our country who already struggle to reach home ownership and long term real estate investment. Sadly, it will be the precise demographics for whom organizations like NAR and many others have worked hard for many years to assist in removing obstacles who may be impacted.
I feel more hyper-clear than ever on my value proposition to those who I serve in my business. As the industry adjusts, I will be working to build on a sliding scale service model to ensure that I can provide excellent professional representation that is inclusive of all people in our community.
As always, please reach out to me with any questions about this recent news, about Real Estate in general, about music, mischief, the best dim sum in Portland, or anything else on your mind.
-Josh