In the wake of the National Association of REALTORS®’ (NAR) March 15 agreement to settle its legal fight against a flood of lawsuits that have roiled the industry over the last five years, paying $418 million in damages and agreeing to eliminate its guidance around commissions, real estate professionals across the board are sharing their thoughts as to what has happened and what happens next regarding buyer agent commissions and how other aspects of the profession will play out over time.
Following up on part 1 of “Real Estate Reacts! NAR Settlement Views From Agents, Brokers and CEOs,” we’ve gathered additional insight from agents, brokerage leaders and CEOs—who are preparing to adapt to the shifts coming out of the settlement in the months to come.
JASON MITCHELL
CEO
Jason Mitchell Group
Scottsdale, Arizona
What is your reaction to NAR settling?
NAR went back on their word, which was the whole reason they got into the lawsuit in the first place. They used to take the stance that you must charge if you’re listing a property in MLS. The problem the DOJ (Department of Justice) had was not liking the idea of universal compensation, and now all these lawsuits come out. NAR settled for over four years, around $400 million, and just said they’ll eliminate the ability to list compensation in the MLS, which is the worst thing ever.
It’s the worst thing ever. First-time homebuyers, especially VA buyers, are going to get crushed. No one’s going to have money to pay out of pocket. And the problem is not knowing if a property has cooperative compensation because the experience is going to go something like this. A client calls me to go see this home. I then call the agent and say, “Hey, is this available?” Yes. “Can we show it tomorrow?” Yes. “By the way, you’re offering cooperative compensation?” No. I then call my client back and say, “Hey, if you want to see this home, you would have to come out of pocket for my services. They’re not offering cooperative compensation.”
And the client’s going to go, “Well, that sucks because I really like that house.” Now what are they going to do? They don’t have a choice. They have to pass on the home or they’ll call the listing agent. But the listing agent is not going to want to represent that client because they’re getting paid 3% as a listing agent, but there’s zero on the buy side. There’s no way they’re going to take on the risk of dual agency if there’s no financial gain for them to do so by representing an unrepresented buyer. The new world, if there’s no cooperative compensation, no one is going to take the risk of dual agency.
What will be the ramifications for you and the industry in representing buyers going forward?
The ramifications are horrible for buyers. They did not make it easier for buyers. Everyone’s saying that it’s going to cut the cost of homeownership, but it’s not. It’s making it exceptionally difficult for buyers to buy homes. Consumer behavior will play out to where sellers know you’ve got to offer cooperative compensation, otherwise no buyer. It’s not about the agents. The buyers aren’t going to want to go to see your home because they don’t want to pay out of pocket for services.
Do you think there will be many agents leaving the industry due to this?
Not really, because the majority of homes still have cooperative compensation. Do I think our industry may see a slight reduction in some commissions? Probably. And will that lead to people leaving? Probably. But I believe the slimming of margins will happen, and this is where agents leave the industry or their broker. These companies—Compass, eXp, RE/MAX—they don’t make money. Now you go from averaging 2.6% per transaction side, whatever your split is, and now it might go to 2%. The only way they can survive is to raise fees on their agents. So whether that’s monthly dues or taking more on their commission splits, they’re going to have to do that. Agents are going to try to find places that aren’t raising fees. Agents are going to have to be more transactional, and so they’re going to need to find brokerages that can help them be more transactional.
What is the conversation with the prospective homebuyer now?
We’re going to be totally transparent with our clients and let them know that you have to sign a buyer/broker agreement. I always got a buyer/broker agreement signed when I was in the field to protect myself. And every agent should have done that. Now that it’s commonplace, I think it’s a great thing. The conversation we’re going to have with a consumer is, if you choose to look at properties that don’t offer cooperative compensation because you don’t want to have to pay a fee out of pocket, that’s your decision. I’m going to give them a checkbox to say they only choose to look at properties where they don’t have to pay out of pocket. It’s going to shift consumer behavior by only looking at homes of cooperative compensation to where sellers understand they have to offer it.
What if the commission a buyer is expected to pay is still not clear to them?
It’s just education upfront that there is going to be a change. If we can create the perfect buyer/broker agreement, it would look something like this. There’s a minimum threshold, so for my services, it’s a minimum of 2%. In most cases, the co-broker will pay me 2%-plus, so a buyer doesn’t have to pay out of pocket. But in the cases where they’re only offering 1%, the buyer would have to make up the 1% difference. In the case of zero, no co-broker, they would have to make up to 2% difference, but you can also elect not to see those homes.
MARLA ZANELLI
Associate Broker
Pacific Sotheby’s International Realty
Del Mar, California
What is your reaction to NAR settling?
I think they panicked and settled it, although I see they are trying to protect us as a whole. I disagree we did anything wrong in representing buyers. We earn our money with all the educating we do for our buyers.
What will be the ramifications for you and the industry in representing buyers going forward?
I have to come up with my conversation with them. It’s uncomfortable for me because I’ve been in the industry for 34 years. Sometimes I wish I got paid by the hour because I would make more money!
Do you think there will be many agents leaving the industry due to this?
Yes. Many don’t want to deal with it. It’s already difficult to make a living. Those at the top are getting bigger and more successful while the rest of us struggle.
How has the saga influenced your business in regard to conversations with prospective clients?
I have not had those conversations yet. I’m busy educating myself right now.
What if the commission they are expected to pay is still not clear to them?
We need to educate them.
How deep will the initial conversation be regarding fees?
Very deep. People think they can do things on their own, that they don’t need anyone to help.
JEFFREY DECATUR
Broker Associate
RE/MAX Capital
Latham, New York
What is your reaction to NAR settling?
Although I am disappointed by NAR’s settlement, I understand it was tactical and an effort to minimize the cost of litigation. The thing that I find most distressing about the whole situation is the lack of understanding of my industry and sensationalized news media headlines. In the 30 years I have been in the real estate business, I have never once heard or seen NAR, a state or local association of REALTORS® come out and tell me what to charge. If anybody, including a jury or judge, were to look at the MLS, they would see that these fees have always been negotiable and different.
The news media sensationalizes the headlines and soundbits with “end of,” ‘‘reduced prices” and “loss of agents.” Prices are set by the market, and just like any other market, it is fueled by supply and demand. I am also displeased with the media and their portrayal of an agent’s job as an interchangeable, glorified door opener. That is the farthest thing from the truth. I know the value I bring.
Ultimately, I think this will be a benefit to all involved. It will lead to more transparent and in-depth conversations with the public, and will help agents be more informative. There is always opportunity in change.
What will be the ramifications for you and the industry in representing buyers going forward?
I am not sure. I am not sure the people who made these decisions know the ramifications. I know my clients still want to be represented and understand I don’t work for free and are willing to pay me for my expertise. My concern is this creating more challenges with closing costs and mortgaging.
There are always agents leaving this industry. It has an almost 90% failure rate, because it is not easy and far more difficult than TV makes it look. Nationally, the average agent makes less than $50,000 in gross commission. Out of that there are splits with their principal brokers, dues, insurance, advertising, office, desk fees, internet, equipment, taxes, self employment tax…the list goes on. An average agent may not even clear $25,000. When the market shifts, agents get out. It is the nature of the beast. This lawsuit may knock out some part-time folks, but the market shifting will cause more to let their license go.
Is the industry potentially going the way of the travel agency business?
I don’t see the real estate industry going anywhere. The settlement is changing the way we have to talk about the way we are paid to our clients. As real estate, technology and the transaction have gotten more complicated, buyers and sellers are letting it be known that they prefer the services of a trusted REALTOR®.
How deep will the initial conversation be regarding fees?
My conversations with my buyers will be a little more involved and detailed in the way I explain how I am paid. I may be a little more adamant. Legally, the exclusive right to sell agreement spells out my fees, causing the discussion of how I am paid.
What if the commission they are expected to pay is still not clear to them?
I try to go over all the paperwork a buyer is going to see in our initial consultation. Many years ago I decided to start doing a buyer presentation like you do for a listing. It explains my value and helps educate and manage the client’s expectations. Where I see this being more of an issue is for the folks that don’t do a consultation, or the folks who get a call from a prospect from an advertising website and just run out and show a house. I see this as potentially creating an unintended consequence.
