Impact Of NAR Settlement

[Adam Bartomeo]

Here is the letter that I just sent to all of the owners that we work with. BTW These are my interpretations of the information that I have gathered.

By this time we all have heard the big news in real estate with the proposed settlement with NAR. There is a lot of false information and uneasy buyers right now. I wanted to give you some information from an inside perspective. I have gathered information from the association, classes I've attended over the past couple of weeks, the media, Youtube videos, and a host of other sources. I am going to give you my opinion of what it means, what it doesn't mean, and my opinion about the potential outcomes.

What It Means

According to the factual information that I have acquired, there is only one large impact to the way we do business today. Put this may have a very large impact in the future. The way we conduct business today is that the listing agent and the seller determine the buyer commission. That buyer agent commission is advertised on the MLS. It has always been known that an agent can look at their potential commission and decide if it is worth showing the property. Normally, as a listing agent, we would advertise the compensation for the buyers agent as a way to entice them to show and help sell the property. The settlement will no longer allow commissions to be advertised on the MLS whatsoever. Meaning, not in the listing, not in the supplements, not a suggested amount, nothing. Those of you who have purchased commercial properties know that buyer agent commission isn't readily advertised and is part of the negotiation on the sales contract. So, there shouldn't be much of a change there. The residential side will likely follow suit.

What It Does Not Mean

This does not mean that the seller will no longer compensate the buyers agents. This does not mean that commissions will be reduced. This does not mean that sales will slow down or stop. This does not mean that commissions will change. This does not mean that agents can not discuss compensation verbally or in writing. This does not mean that sellers win and buyers lose.

What It Means For Property Managers

There really should be many ramifications to Property management. I am expecting almost zero impact for that side of the business. We will no longer be able to advertise commission to agents on the MLS. Because the commissions in property management are so low agents only help us fill about 0% - 5% of our units, we fill the other 95% - 100%.

My Opinion

The settlement will probably be the largest change to the entire industry in our lifetime and there will be some ramifications. The ramification could be huge but the likelihood is that they will be very small. This is not a small industry and it isn’t an industry that has had little legislation. Real estate is one of the most litigious investments you can make. But, it is really hard to tell how this is going to play out but I feel it will take 12 to 24 months to really understand how this will affect the industry. There are many scenarios that can wind up playing out but only time will tell what will happen. Below are my opinions on the most likely scenarios.

• More buyers will go to the listing agents. The position of “Buyer Agent” is normally a beginner position. This is how most agents get started. If a buyer thinks that they now have to pay for their agent’s commission they will likely be more selective in who they choose and thus go to the listing agent.
• Lenders will find a way to roll the buyers commission into the loan.
• Sellers will still offer compensation. I have been a listing agent from the day I became licensed. I have always protected my buyers, sellers, and owners. I will still suggest offering compensation but advise that we do not speak about compensation until we get an offer expressing all of the terms.
• Buyers agents will begin using “Buyer Broker Agreements” that would entitle the agent a set commission from the buyer. The buyer’s agent would then negotiate the commission with the seller and the buyer would pay the difference. For example, Buyers agent has a BBA for 3%, they negotiate with the seller and the seller is willing to pay 2%. The buyer will now have to pay 1% of the buyer’s agent commission. This is not a new concept, and my brokerage has used them many times in the past. These WILL become the norm.
• Several changes to the paperwork
• Cull the herd. We should see a reduction in licensed agents.

Of course, none of have a crystal ball but what I do know is that With Big Change Comes Big Opportunities.

As always please feel free to reach out if you would like to discuss this further.