NAR Settlement - HOT TAKES

[Alan Asriants]

I have a few HOT TAKES on this recent NAR Settlement News

1. Buyer's agents won't wait long to get into written agreement with a Buyer. Right now, many agents don't sign any agreements until they sign an offer. With this new system, I won't wait long to sign an agreement and spell out what commissions are owed. Many Buyers will refuse to sign, but will quickly see that no one will want to work with them for free without an agreement in place. This is actually not a bad thing for Buyer's agents, as we will encounter less tire kickers. 

2. Prices of listings will adjust. The MLS market always included both sides of the commission. So if the Seller is not offering that commission, then the price of the home offered should be less, since the buyer is now assuming this responsibility

3. Many agents will leave the business. Again, this is a good thing. For many agents it can be a sigh of relief, as we no longer have to compete with incompetent family members for business 

4. The market will drive commissions. In a sellers market, anyone can sell a home. This is why I believe this issue started in the first place. Sellers got greedy and wanted more money in their pocket because they felt they could sell their home on their own just by putting it on the market. While some of this is true, this won't hold true when the market shifts. In a Buyer's market, sellers offer LARGER commissions to Buyers agents in hopes of getting an offer. To the sellers thinking they are going to make more money, maybe not. 

5. Buyers who don't have representation will get screwed. If a buyer doesnt want to pay an agent and goes directly to the seller, their interests are not protected. In the short term we might not see any issues, but overtime, cases will arise when Buyers start getting screwed in shaky deals. Its like going to court without a lawyer. The lawyer could've likely gotten you a shorter sentence.

What are your thoughts?

[Shane H.]

Who here believes that home prices do not include associated fees?

So as an investor when I run the numbers closing costs are included. The appraisal can come back with anything. We all know it’s easily manipulated. Let’s say the property is appraised and listed at 100k and I need to bring 110 to the table. If it doesn’t produce at 110 I may have to offer 90 to bring us back to 100 at the closing table. (Crude numbers just to give the idea.)

There seems to be an idea here that people aren’t doing that math before the offer. A good agent is showing this to their client while placing the offer. I just don’t see how buyers will just start paying more at closing. personal home buyers are often buying the very maximum they can afford.  Those buyers are willing to pay the same exact amount no matter who the silly piece of paper says paid the fees…

[Jay Hinrichs]

Quote from @Shane H.:

Who here believes that home prices do not include associated fees?

So as an investor when I run the numbers closing costs are included. The appraisal can come back with anything. We all know it’s easily manipulated. Let’s say the property is appraised and listed at 100k and I need to bring 110 to the table. If it doesn’t produce at 110 I may have to offer 90 to bring us back to 100 at the closing table. (Crude numbers just to give the idea.)

There seems to be an idea here that people aren’t doing that math before the offer. A good agent is showing this to their client while placing the offer. I just don’t see how buyers will just start paying more at closing. personal home buyers are often buying the very maximum they can afford.  Those buyers are willing to pay the same exact amount no matter who the silly piece of paper says paid the fees…

we will see wont we.. right now today its bizz as usual.. BAC s are still offered although starting to see brokers requiring their agents to get a buyers broker contract in place before they can show them property. The process will find its equilibrium over time.. If you take a bunch of buyers agents out of the game it is going to bog down sales to a certain extent no doubt.

[Christopher Wilken]

Quote from @Brie Schmidt:

We will see what plays out but as an investor agent for 10+ years I have some thoughts

* Agents will be required to sign a brokerage agreement before doing any showings.  My brokerage agreement states my commission is 2.5% and if the seller offers any less the buyer has to cover the difference.  That will not change.

* Some buyers will decide to skip a showing if they know the seller is unwilling to consider a buyers agent commission

* Sellers will be presented offers as "net to seller" which will still include buyers agent commissions.  What do they care if the offer has a $20k buyer's agent commission if it is $25k higher than the next highest offer.  Seller's agents will just need to do a little extra math.

* Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling

* We will see discount agents / brokerages like we have seen for the last few decades and they still will never gain any significant market share

* I am not sure if we will see agents move to a hourly rate of pay, if so I think we won't see that for a few years. That being said I can't imaging seller's will take that risk. If this were to happen today I would tell clients based on a hourly rate I would charge anywhere for $3k to $40k for my services and I can't tell you where in that range it will be till we are in the middle of it. Some deals I close after 20 hours of work and some deals I close after 200 hours of work. I have two sellers right now that would owe me over $30k each at this point if I was paid hourly and we aren't even close to the deal closing. My job as an agent is not to post your house on the MLS and greet people at a open house. My job is to close the deal and that can be extremely labor intensive.

* We will see a lot more unrepresented buyers, and my contract with the seller will include a 1% surcharge for having to deal with those transactions.  

* The herd will thin and we will lose a lot of agents, which will be a good thing

 Regarding your 4th point "Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling" 
Why is this the case? The buyer would see the offer through an online platform and present it to their buyer's agent. One concern with eliminating the custom of having the seller pay the commission is that it would reduce the incentive of the buyer's agent to present the buyer with the property. This may have been the case prior to online real estate platforms, but today buyer's see properties as soon as they hit the market and do not rely upon agents to make the buyer aware of a property that fits their requirements. Is this right? 

After the buyer discusses the property they have seen online with their agent, the buyer's agent would learn that the seller is not offering to pay the buyer's commission, and needs to be paid by the buyer. This is not a problem because a buyer and the buyer's agent already have an agreement in place to address this eventuality, correct?  

[Alan Asriants]

Quote from @Christopher Wilken:

Quote from @Brie Schmidt:

We will see what plays out but as an investor agent for 10+ years I have some thoughts

* Agents will be required to sign a brokerage agreement before doing any showings.  My brokerage agreement states my commission is 2.5% and if the seller offers any less the buyer has to cover the difference.  That will not change.

* Some buyers will decide to skip a showing if they know the seller is unwilling to consider a buyers agent commission

* Sellers will be presented offers as "net to seller" which will still include buyers agent commissions.  What do they care if the offer has a $20k buyer's agent commission if it is $25k higher than the next highest offer.  Seller's agents will just need to do a little extra math.

* Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling

* We will see discount agents / brokerages like we have seen for the last few decades and they still will never gain any significant market share

* I am not sure if we will see agents move to a hourly rate of pay, if so I think we won't see that for a few years. That being said I can't imaging seller's will take that risk. If this were to happen today I would tell clients based on a hourly rate I would charge anywhere for $3k to $40k for my services and I can't tell you where in that range it will be till we are in the middle of it. Some deals I close after 20 hours of work and some deals I close after 200 hours of work. I have two sellers right now that would owe me over $30k each at this point if I was paid hourly and we aren't even close to the deal closing. My job as an agent is not to post your house on the MLS and greet people at a open house. My job is to close the deal and that can be extremely labor intensive.

* We will see a lot more unrepresented buyers, and my contract with the seller will include a 1% surcharge for having to deal with those transactions.  

* The herd will thin and we will lose a lot of agents, which will be a good thing

 Regarding your 4th point "Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling" 
Why is this the case? The buyer would see the offer through an online platform and present it to their buyer's agent. One concern with eliminating the custom of having the seller pay the commission is that it would reduce the incentive of the buyer's agent to present the buyer with the property. This may have been the case prior to online real estate platforms, but today buyer's see properties as soon as they hit the market and do not rely upon agents to make the buyer aware of a property that fits their requirements. Is this right? 

After the buyer discusses the property they have seen online with their agent, the buyer's agent would learn that the seller is not offering to pay the buyer's commission, and needs to be paid by the buyer. This is not a problem because a buyer and the buyer's agent already have an agreement in place to address this eventuality, correct?  

 In the Longterm you are likely correct. But a change overnight for something that has been in place for decades will be hard to grow accustomed too. 

In a sellers market this might not be the case, but look at anywhere it is a buyers market. Sellers are offering 4%+ to the buyers agent. 

The market drives the commission. Until it becomes a standard practice that ONLY the Buyer pays BUYERS AGENT, then it will stabilize. But for now there is a lot of confusion. 

[Guy Gimenez]

There is considerable fear-mongering in your Hot Takes. 

1.  True. Since it's now required, most, but not all, agents will abide by the rules. 

2.  False. Prices always adjust but not because of commissions. Commissions don't dictate the intrinsic value of real property. 

3.  Partially True.  I suspect many full-time agents will simply become part-time agents and they'll find steady income elsewhere. 

4.  False.  Sellers are not greedy because they want to maximize their net. I suggest Buyers (well, more like buyer's agents) are greedy because they want the seller to pay for a service the seller doesn't receive. Paying someone to negotiate against me is indicative of a broken system. If I want a broker, agent, etc. to represent me, I shouldn't ask someone else to pay for him/her. This is indicative of a broken system. I sell about 40% of my investments directly to the end buyer who does not have representation. Twice this year, the buyers called to tell me they want my house and agree to my terms but their "representative" won't listen to them and they feel they'll lose the house. 

5.  Partially True.  Some sellers will get "screwed", many will not. Again, fear-mongering is the word of the day. I have yet to have a single complaint, in 24 years, from a buyer who worked directly with me with purchasing one of my homes. In fact, many call me back years later to list their home because they know I was fair and detailed. As stated above, not all buyer agents truly represent their buyers because they don't understand the buyer makes decisions, not the buyer's agent.  

[Christopher Wilken]

Quote from @Alan Asriants:

Quote from @Christopher Wilken:

Quote from @Brie Schmidt:

We will see what plays out but as an investor agent for 10+ years I have some thoughts

* Agents will be required to sign a brokerage agreement before doing any showings.  My brokerage agreement states my commission is 2.5% and if the seller offers any less the buyer has to cover the difference.  That will not change.

* Some buyers will decide to skip a showing if they know the seller is unwilling to consider a buyers agent commission

* Sellers will be presented offers as "net to seller" which will still include buyers agent commissions.  What do they care if the offer has a $20k buyer's agent commission if it is $25k higher than the next highest offer.  Seller's agents will just need to do a little extra math.

* Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling

* We will see discount agents / brokerages like we have seen for the last few decades and they still will never gain any significant market share

* I am not sure if we will see agents move to a hourly rate of pay, if so I think we won't see that for a few years. That being said I can't imaging seller's will take that risk. If this were to happen today I would tell clients based on a hourly rate I would charge anywhere for $3k to $40k for my services and I can't tell you where in that range it will be till we are in the middle of it. Some deals I close after 20 hours of work and some deals I close after 200 hours of work. I have two sellers right now that would owe me over $30k each at this point if I was paid hourly and we aren't even close to the deal closing. My job as an agent is not to post your house on the MLS and greet people at a open house. My job is to close the deal and that can be extremely labor intensive.

* We will see a lot more unrepresented buyers, and my contract with the seller will include a 1% surcharge for having to deal with those transactions.  

* The herd will thin and we will lose a lot of agents, which will be a good thing

 Regarding your 4th point "Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling" 
Why is this the case? The buyer would see the offer through an online platform and present it to their buyer's agent. One concern with eliminating the custom of having the seller pay the commission is that it would reduce the incentive of the buyer's agent to present the buyer with the property. This may have been the case prior to online real estate platforms, but today buyer's see properties as soon as they hit the market and do not rely upon agents to make the buyer aware of a property that fits their requirements. Is this right? 

After the buyer discusses the property they have seen online with their agent, the buyer's agent would learn that the seller is not offering to pay the buyer's commission, and needs to be paid by the buyer. This is not a problem because a buyer and the buyer's agent already have an agreement in place to address this eventuality, correct?  

 In the Longterm you are likely correct. But a change overnight for something that has been in place for decades will be hard to grow accustomed too. 

In a sellers market this might not be the case, but look at anywhere it is a buyers market. Sellers are offering 4%+ to the buyers agent. 

The market drives the commission. Until it becomes a standard practice that ONLY the Buyer pays BUYERS AGENT, then it will stabilize. But for now there is a lot of confusion. 

 Interesting. I am now listing a property and will not set the buyer's broker's commission. The buyer and the buyer's broker can determine their commission themselves. 

You'd mentioned "in the longterm." With respect to my listing the longterm is beginning today. 

Chris

[Alan Asriants]

Quote from @Christopher Wilken:

Quote from @Alan Asriants:

Quote from @Christopher Wilken:

Quote from @Brie Schmidt:

We will see what plays out but as an investor agent for 10+ years I have some thoughts

* Agents will be required to sign a brokerage agreement before doing any showings.  My brokerage agreement states my commission is 2.5% and if the seller offers any less the buyer has to cover the difference.  That will not change.

* Some buyers will decide to skip a showing if they know the seller is unwilling to consider a buyers agent commission

* Sellers will be presented offers as "net to seller" which will still include buyers agent commissions.  What do they care if the offer has a $20k buyer's agent commission if it is $25k higher than the next highest offer.  Seller's agents will just need to do a little extra math.

* Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling

* We will see discount agents / brokerages like we have seen for the last few decades and they still will never gain any significant market share

* I am not sure if we will see agents move to a hourly rate of pay, if so I think we won't see that for a few years. That being said I can't imaging seller's will take that risk. If this were to happen today I would tell clients based on a hourly rate I would charge anywhere for $3k to $40k for my services and I can't tell you where in that range it will be till we are in the middle of it. Some deals I close after 20 hours of work and some deals I close after 200 hours of work. I have two sellers right now that would owe me over $30k each at this point if I was paid hourly and we aren't even close to the deal closing. My job as an agent is not to post your house on the MLS and greet people at a open house. My job is to close the deal and that can be extremely labor intensive.

* We will see a lot more unrepresented buyers, and my contract with the seller will include a 1% surcharge for having to deal with those transactions.  

* The herd will thin and we will lose a lot of agents, which will be a good thing

 Regarding your 4th point "Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling" 
Why is this the case? The buyer would see the offer through an online platform and present it to their buyer's agent. One concern with eliminating the custom of having the seller pay the commission is that it would reduce the incentive of the buyer's agent to present the buyer with the property. This may have been the case prior to online real estate platforms, but today buyer's see properties as soon as they hit the market and do not rely upon agents to make the buyer aware of a property that fits their requirements. Is this right? 

After the buyer discusses the property they have seen online with their agent, the buyer's agent would learn that the seller is not offering to pay the buyer's commission, and needs to be paid by the buyer. This is not a problem because a buyer and the buyer's agent already have an agreement in place to address this eventuality, correct?  

 In the Longterm you are likely correct. But a change overnight for something that has been in place for decades will be hard to grow accustomed too. 

In a sellers market this might not be the case, but look at anywhere it is a buyers market. Sellers are offering 4%+ to the buyers agent. 

The market drives the commission. Until it becomes a standard practice that ONLY the Buyer pays BUYERS AGENT, then it will stabilize. But for now there is a lot of confusion. 

 Interesting. I am now listing a property and will not set the buyer's broker's commission. The buyer and the buyer's broker can determine their commission themselves. 

You'd mentioned "in the longterm." With respect to my listing the longterm is beginning today. 

Chris

 let us know how it goes!

[Brie Schmidt]

@Christopher Wilken - I think it will be hard to sell because buyers can't afford to pay their agent plus the down payment.  It is a matter of cash on hand.

Previously buyers did not have to sign a contract agreeing to a set amount, the buyers agent always took whatever the seller offered and didn't charge the buyer the difference.  Now buyers are required to sign a brokerage agreement and agree to pay a commission before the agent can do any showings.  So say that agreement is 2.5% and they want to tour 10 homes this weekend.  8 of them the seller has agreed to pay 2.5% and 1 at 2% and 1 at 1% - so the buyer is on the hook to pay out of pocket for the difference.  I know the majority of my buyers will likely want to cancel that showing and only see the ones where they have to pay nothing/very little.  

In my area of Chicago house hacking is a big part of our business and a common strategy is to move into a 2-4 unit property and use 5% down financing, live there for the 1 year requirements and move to another with 5% down.  I have had clients do this 3-5 times moving every year.  So if it takes a year to save for the 5% down payment and now they have to pay an additional 2.5% it is going to take 18 months to save and their 5 properties inn 5 years just turned into 8 years and they may not think it is worth even seeing that property when the majority of others cover the fee.

I don't think we will see the true impact for a few years, it's not like a light switch will flip next week.  Seller were never required to pay the buyers commission in the first place, though the way our contracts were written it made it seem like it was assumed.  I have had in depth conversations with every one of my sellers this year about the changes and explained they don't have to pay a buyer's agent fee regardless if they list now or wait till August and every one of them agreed to include the fee upfront.  

You will have to really love something to pay an additional $20k out of pocket.  This will continue to be a problem for sellers as long as the majority continue to cover the buyers agent fees.  

[Christopher Davis]

I remember in 2010 when I tried being a realtor, they taught us to try and get the buyer to sign an agency agreement, but don't hold your breath. Ask but don't insist. I had one client who flat out refused. Mostly it was in the event that I show the buyer ten houses, then on the eleventh house some other realtors show them, and they decide to buy that one. I would still get the commission because we have agreement in place, and I've already invested work in helping them.

But this is indeed an interesting paradigm shift I think is needed. I understand buyers don't have a down payment plus thousands to pay a realtor. But I don't believe a seller should have to pay the buyer's agent. Some other system needs to be explored. Somebody smarter than I will figure that out. As a potential future seller, I will do everything I can to avoid shelling out an extra 3% to some other agent.

Several years ago I thought about selling and worked with an "e-Buyer." At that time pre-covid they offered top dollar. But they also took 5% commission. But I do like the concept. I wonder if that model will continue to evolve.