Why the new NAR settlement means investors actually need a stronger buyer broker

[AJ Wong]

What a week! Big news in the real estate game. Lots of big changes and challenges to be navigated but I'll keep this short and sweet to focus on the real world effects of the NAR Commission Lawsuit Settlement for investors scheduled to begin in July 2024.

- Buyers will have more (and less) options. Buyers will be required to sign a buyer agreement prior to showings, many states operate this way already, and it can be specific to a period of time, specific property or range of shopping options the broker is to assist with. 

- Buyer broker commissions will be more transparent and in all likelihood begin to trend downwards. There will be a rise of flat fee brokerages (offering limited services) and creative compensation arrangements, such as RE consultants for time or a specific transaction. In all likelihood many brokers will offer a blend or tiered transactional compensation. For example above $1M-2M might be capped or vice versa, luxury properties could come with a premium compensation plan since they are more difficult to market and transact. 

- In competitive markets for hot properties, how the buyer's broker is compensated will have a major impact on the option the seller chooses. Instead of it being more of a level playing field, where commissions were essentially standard, a lower asking price with a buyer paid broker or a higher asking price with a seller paid buyer broker will be something for investors to consider before presentation. Looking deeper..this will also have an impact on appraisals and lending practices as closed sales (similar to those with seller concessions) might not accurately reflect in a properties sales price. 

- Cash buyers could be big 'winner's' as generally there are fewer contingencies and theoretically could obtain a lower sales price and pay their representative directly. 

- First time home buyers (presumedly those that most intended to bring down 'affordability' could find less housing options)..why? As noted above, investors or cash buyer will have a considerable advantage if sellers can 'save' 2-3% or any percentage. 

We've touched on this prior to the 'settlement' that today lenders essentially allow the real estate commissions to be rolled into the buyer's transaction by appraising for a price sufficient to cover the RE fees. Sellers will still be allowed to pay a buyers broker although not advertised o the MLS. Concessions could be utilized in a greater percentage of transactions as buyers look to reduce out of pocket expenses or offset costs to their representatives in instances where seller paid buyer commissions are not an option.

High level, in the immediate future I don't think too much changes (beyond mechanics) for spring transactions. Long term, buyers still want and need professional representation (in most cases) particularly for more complex transactions, investors from out of the area, or relocation buyers.  Sellers will still want to offer incentive to a buyer's professional (although the quantity/percentage is likely to be reduced) as alternative compensation structures become available. The proportion of buyers that 'go it alone' and approach the listing broker for dual representation is likely to increase, and in some (experienced) cases is justified. 

Personally, I would like more flexibility in compensation as it often could make up the difference in parties reaching amicable terms. I'm confident in my value as a broker considering the risks of purchasing the 'wrong' property being catastrophic. The way I look at it is that if I can't add equivalent value to a transaction, I really shouldn't be involved anyway. 

If we're being real (which is what we do) the lawsuit and the settlement have merit. Whether proven or not, the larger house brokerages have long maintained their stronghold by 'sharing' brokers commissions to the tune of 10-30%. Before the rise of virtual brokerages, those were the options for a broker to hang their license. If the overall quantity of commissions is projected to be reduced by 25%+, the most logical place for brokers to save is to renegotiate or locate a better house split. The work still has to get done, and for reasons cited, could become more complex, I'd imagine most individual brokers will want to keep more of the lion's share. 

If the argument for lower buyers broker compensation is that the information is more readily available to buyers, isn't the same true for individual brokers and brokerages? The value of the major brokerages are surely reduced as well. 

The smoke is still settling and settlements are still being negotiated, subject to approval and final resolution. However, there are ramifications to the market that have not been fully digested yet. Most of which, increase the need for a skilled broker that can comprehend and resolve new market factors. 

Such as: 

Do comps include seller paid commissions? If there are multiple offers, how competitive will a seller paid buyer broker commission be and at what rate? Are you better served on a highly competitive offering with dual agency and dealing with the seller's broker directly? Do you need a larger concession to offset the costs of closing? Can a buyer use a portion of the offered commission towards closing costs? In some ways there is less market transparency and greater factors for buyers to navigate.

Ultimately the market determines price. Anyone successful in Real Estate (on any level) recognizes that it is both investment and a business. There are considerable costs associated with performing profitably. There will be consolidation in the real estate industry, in both quantity of individuals and brokerages, as well as the availability of prime buyers brokers that can adapt and move the needle. Brokers with exceptional communication, negotiation and experience will be at a premium, especially those with finance or mortgage experience for creative structuring and/or established relationships with listing brokers. Or those that are adept at representing both parties to a transaction. 

Change creates opportunity. Apparently, the current system was antiquated. Investors can get ahead of the moving market conditions (particularly for Spring/Summer) by establishing stronger teams of real estate professionals with clear duties, roles and expectations.