Having ben a Realtor ® for 16+ years, I'm used to being asked about the most recent real estate related headlines and happenings. Fluctuations in interest rates, new construction neighborhoods, changes in zoning, etc all appear in the local or national news daily.
What I'm not accustomed to is actually BEING the news as Realtors have become since the federal court ruling in Missouri in late October, finding the National Association of Realtors (NAR) guilty of conspiring to "inflate" commissions by forcing Sellers to offer compensation to a Buyer's agent.
Real estate agents are used to the constant change of new business models in the industry...from the Zillows to the flat fee agents to the OfferPads, etc. This law suit is different though, with the power to completely change the current representation that Buyers & Sellers now receive from their real estate agents.
First, any Seller who has ever worked with me knows that most everything is negotiable in a real estate transaction, including the amount of commission that I charge. I'm hard pressed to understand how any Seller has been "forced" to agree to pay a certain amount in commission, when options are plentiful for lower priced business models. A Seller only wants to pay a total of 1% in commission? There are brokers in any market who will take that deal.
Where the situation gets muddy is in regards to how a Buyer's agent will be paid. In the past, the Seller's broker agrees to share a portion of the total commission with the cooperating Buyer's broker. This lawsuit says that a Seller no longer has to do this...but the Seller NEVER had to do this anyway.
So what happens now? Let's say Sellers choose to offer a lower commission and the Seller's broker is directed not to share any of this total commission with a Buyer's agent. Will the Buyer's agent agree to work for free? Well, no one works for free...at least no one who wants to stay in business. This means the Buyer's agent now needs to get payment directly from their client, the Buyer. Problem is, if you have an FHA loan or VA loan, underwriting criteria prohibit the Buyer from paying their agent's commission or fees. That means Buyers using an FHA loan or VA loan will no longer have Buyer's representation in a real estate transaction. Think on that for a moment....many FHA or VA Buyers are first time home buyers, not at all familiar with a real estate contract, let alone negotiating with a savvy listing agent.
Does this model truly serve the Seller better? You may say, well, of course it does...the Seller is saving money by paying a lower commission! Let's play this out further than the closing table and look at what happens when an issue arising post closing. Say the Seller didn't disclose a material defect in the property but the Buyer didn't know they could request repairs or have a more thorough inspection? How favorably will a court look upon a represented Seller against unrepresented Buyer when those lawsuits start rolling in?
If I had to guess, both Buyers and Sellers will eventually find it in both their best interest for the Buyer to also be represented, only if a Buyer's agent no longer being paid, their role will be transferred to real estate attorneys. I can only image the cost of a $300+ an hour attorney billing for a transaction that took 100-200 from contract to close, regardless of the sales price of the home. Chances are, the Sellers will concede to an additional credit towards a Buyer's closing costs to offset the attorney's fees.
So in the end, what will have changed? Commissions will still be negotiable and real estate attorneys will pick up a new revenue stream.
Stay tuned though...the lawsuits will most likely be held up in appellate courts for years.
Feel free to reach out to me to discuss further...I'm always happy to talk about all things real estate related!