NAR lawsuit impact on Residential property sales
As some of you may have read in the news, there was a lawsuit where Sellers in other states sued to not pay Buyers Agent commissions and accused NAR (National Association of Realtors) of price fixing commissions. Commissions are negotiated and low cost brokerage, fixed fee or limited service brokerages, and the likes of Redfin exist. In San Diego there are literally 10s of thousands of agents.
Real Estate is highly regulated, real estate is practiced differently in every single state and some states require attorneys to be apart of the transaction. However this ruling applies nationally. I am automatically a member of NAR and CAR (California Association of Realtors who provides our forms) a Realtor in CA by virtue of being a member of 1 of 3 local associations/ MLSs.
The way real estate Agents and Brokers get paid for helping clients Buy & Sell property is via commission only in the state of CA. We are not typically employees of our broker, but are independent and we do not early a salary of any sort. We do not get paid for every deal that never happens.
It has been common and more practical for the Seller to pay the commission of both the Seller’s and the Buyers’ Agents because the compensation comes out of the Seller’s net proceeds but Seller’s have always had the option to NOT offer compensation. The commission has been negotiated by the Listing Agent with the Seller for both Agents, and they are not always evenly split. The Listing Agent may negotiate higher compensation for themselves or lower it to get the listing. Conversely Buyers paying Agent comp can be challenging for cash constrained Buyers. They often have limited funds or a hard enough time just saving up for the down payment and closing costs the do not have additional funds to pay the Buyers Agent.
The model is broken and HAS been broken because Buyers and Sellers have been disintermediated from the real cost of leveraging Agents. Since we do not get paid until the deal closes, yes there’s loads of people who will happily or even purposefully waste our time or cut us out of a deal.
So if people want to argue about commissions being high, its because the cost is being paid for by the people who actually TRANSACT. If we were able to charge Buyers & Sellers fees for work we do, like attorneys in states that require them, regardless of whether the deal closes, then we would likely make more money but dispersed across more clients.
And because Buyers have not been paying for Agents directly, I would argue this is a huge part of why so many bad Agents exist because most pick Agents off vibes or go with someone they know regardless of whether they’re qualified.
What does this mean going forward for Sellers & Buyers?
The settlement is still playing out, but the implementation is currently now targeted for August and here are the key impacts:
Buyers must sign a Buyer Representation agreement going forward and agree to compensate the Buyer’s Agent if the Seller is not offering Compensation. This is not a new form and some of you have signed it when I represented you on a Buy. The difference is its required by law now. I will be implementing this starting now if you want to work with me.
Sellers do not have to offer to pay a Buyers Agent.
Will Buyers still view the home? Maybe, maybe not. Buyers may opt to pass on seeing homes that do not pay a fee because they will then become responsible for paying a Buyers Agent. If you are Selling your house, it is up to you, but to gain the most exposure to Buyers I would recommend you still offer one.
You care about NET proceeds, not how the money is split up. Focus on the big picture and bottom line.
I also recommend you WANT the Buyer to have their representation to mitigate your risk. You’re the one who usually gets sued.
The Buyers Agent comp was listed in the MLS. This will be prohibited going forward if the Seller opts to offer compensation. This means that prior to seeing any home, I will have to contact the Listing Agent to inquire if the Seller is offering any Buyers Agent comp. The compensation the Seller offers will then need to written into the contract/ offer if you move forward as a Buyer
Currently, the Veterans Administration (VA) prohibits VA Buyers from paying the Buyers Agent fee. If this does not change, then VA Buyers will have to decide if they opt to go unrepresented
I have and will continue to represent one side of the transaction ONLY. If I am the Listing Agent, I will not represent the Buyer as well. I cannot serve 2 masters. Typically, I have a fiduciary responsibility to EITHER the Seller or Buyer. When an Agent is allowed double end or rep both sides, then the fiduciary requirements are reduced, meaning I can’t possible fight for one side more than the other.
The 2 sides roles have diametrically opposing goals. The Seller has no obligation to go obtain new due diligence about the property unless required by law which in San Diego County there are limited requirements at this time. As a Listing Agent I do not generally recommend the Seller provides reports for a series of reasons. As the Buyers Agent, I am going to recommend a lot of due diligence- more than most- which will also be used a basis for negotiating concessions
The Seller side is the one that typically gets sued in a transaction. If I represent both sides, do you want as the Seller to be sued after the fact and any suggestion of impropriety or collusion to hide material facts from the Buyer? You WANT the Buyer to do their own investigation, but you can let THEIR independent Agent give them advice or recommend inspections. I am more through than 90+% of the Agents and will always recommend more inspections than less
I cannot out negotiate myself. Yes sometimes the other side overshares and provides me insights into how to negotiate a better outcome for my client
If an unrepresented Buyer calls, I will always be willing to show them the property but I will not represent them. They can opt to find a Buyers Agent or they can go unrepresented which is a challenge because they will not have anyone to ask about the forms, reports or process.
Buyers Agents haven’t always been a thing. Prior to the 1990s, the Listing Agent kept the full commission. Then a barrage of lawsuits occurred so Buyers could have independent representation
I have already had this conversation with some Buyers but I will be requiring all Buyers going forward to sign the Buyer Rep Agreement, even in advance of the implementation of the changes. As a Seller, we can discuss the impact of this new ruling further but in short, I recommend you offer a Buyers Agent commission to have the largest exposure to Buyers and to mitigate your risks. Remember, you can do your part to disclose, but a Buyer can sue in America after they close because they failed to do their own due diligence.
If you have any questions, please contact me to discuss as I know this can be confusing.