Last month, the National Association of Realtors announced a settlement that would resolve nationwide litigation over claims from home sellers related to broker commissions.
Specifically, the settlement will prohibit offers of compensation from being shared on multiple listing services (MLSs), the databases that show real estate brokers the properties for sale, and it will require MLS participants to enter into written agreements with their buyers.
These changes will go into effect in mid-late July 2024.
The media has gone wild sensationalizing this settlement. There seems to be no end to the conjecture and speculation surrounding this settlement. Reports of “50% of agents will be out of a job” or “Prices of homes will be coming down and expectations of a market correction” are running rampant in articles written by authors that do not have much to support these statements.
These articles are doing exactly what they are written for, they are getting readers attention. The exaggerated headlines are great for the media as they are profiting from enhanced readership. The problem is that the reporting tends to offer opinions about future events that may or may not occur.
A great example of this is when the interest rates began their rise from the 3% rates to the now upper 6% we are now experiencing. There was no shortage of media reporting that claimed this would be the downfall of our real estate market and that buyers could expect a major market correction with falling prices. They also reported that these rate hikes would impact the real estate industry so severely that a large percentage of real estate agents would not survive. Somehow these colorful predictions didn’t seem to pan put.
This questionable reporting is leading to a lot of confusion and misinformation. Let’s look at a few facts that may help a buyer or seller to better understand what is really happening.
- Commissions HAVE ALWAYS been negotiable and nothing from this proposed settlement would change that.
- The “cooperative compensation” rule that has been subject to litigation says that selling brokers have to specify on each listing an offer of compensation to buyers’ brokers. That offer could be any amount, even zero.
- Consumers continue to have options when it comes to compensating the brokers they work with. Some consumers may opt to pay a fixed fee for their broker’s services. In other cases, a seller may offer a concession on the sales price, which could be used by the buyer to help compensate their broker. And in other cases, listing agents may offer a portion of their compensation to buyers’ agents as long as the offer of compensation does not occur on an MLS.
- It is important to understand that most of the media reporting is at a national level and is not speaking specifically to what is happening in our Bay Area Marketplace.
- Buyers are beginning to accept the higher interest rates and realize that even if the rates do come down it is unlikely we will ever see them drop to pandemic levels again.
- The Bay Area has a severe lack of inventory. This coupled with high demand is keeping our markets stable. If anything, prices are slowly rising. Multiple offers and overbids are a daily occurrence.
- If rates drop this summer as expected it will make it more affordable for a buyer to purchase a home. This should bring more buyers to the market and add to the competition, thus fueling even higher home prices.
Considering the above information and my active experience in the real estate market I am not seeing any sort of shift in buyer or seller mentality.
Agents and brokers demystify local markets and neighborhoods and provide access to extensive information about available homes. We help prospective buyers determine realistic budgets and research varied financing options, including programs that may be able to help buyers with a down payment.
Seasoned agents and brokers also offer insights into property values, taxes, regulations, and zoning laws while overseeing thorough due diligence processes. And we connect buyers and sellers with other reputable real estate-related professionals such as lawyers, lenders, contractors, and inspectors–any of which can make or break a transaction.
When it comes time to make or evaluate offers, real estate professionals have a decades-long track record as skilled negotiators, ensuring that their clients submit the most competitive bids for their dream home–or hold out for what their home is really worth. And at the settlement table, we help our clients confidently close on what is likely the most significant financial transaction of their lives.
Even post-sale, real estate agents and brokers are crucial advisors for their clients, providing ongoing support, answering queries, and offering guidance as people confront the challenges and delights of homeownership.
Many of the sellers I work with understand that the buyers are weighted with heavy closing costs. Not offering compensation to an outside broker and forcing a buyer to pay that fee could make their home look less affordable and potentially sell for less. We have always taken the strategy of building cooperating brokers fees into the list price.
The buyers I work with rely heavily upon my knowledge of the market, industry relationships I have created, my ability to negotiate on their behalf and my always honest assessment of their situation. My clients understand the value I bring to the table. They understand that I should not be expected to work for free. While some would be willing to pay my fee if a listing broker did not provide compensation they would likely want to negotiate harder on those properties to compensate for the fee being imposed on them.
In short I do not expect to see much of a change in the way real estate is transacted in the greater Bay area. We will just have a few more forms and disclosures to sign!
