Can someone explain, simply, the new realtor rules?

[Batt Boy]

From a buyer's perspective? In the past, when I'd use a buyer, they would extract their fees from some negotiation with the seller's agent. Has that changed? As a buyer, am I now on the hook to pay my buyers agent, or have I been all along?

 

[05C40]

From a buyer's perspective? In the past, when I'd use a buyer, they would extract their fees from some negotiation with the seller's agent. Has that changed? As a buyer, am I now on the hook to pay my buyers agent, or have I been all along?

Now you have done it. Your name will undoubtedly go into the realtors' "Malcontents" database. So, the next time you are in the market for property and the realtor asks for your name, have your wife ready to interrupt and say, "Oh, I'm the one who really buying, let me give you my name." And have her purchase the property in her maiden name.

 

[NCK9]

Before
Seller paid 6% to listing agent. Listing agent would split that (3% each) if a buyer was represented by a buyers agent. If buyer was unrepresented, then listing agent got the entire 6%.

Now
Seller pays 3% (or some negotiated amount) to listing agent. If a buyer uses a buyers agent they either pay them out of pocket or include in their offer contract that the seller will pay their buyers agent (lets say 3% for simplicity). If buyer doesn't use buyers agent then sellers agent gets 3%....BUT the listing agent might argue that they don't want to deal with unrepresented buyers and will have to do more work etc so they might have a clause that they need more money if the buyer is unrepresented. With the new rules all of it is now a bit more negotiable...

 

[Milk and Cookies]

Seems like its gonna be a mess.

One of the trickiest situations in my mind is if/when a buyer agrees up front to pay the buyer's agent a fee (say 2.5%) but the seller decides they don't want to contribute any of the sale proceeds to paying the buyer's agent. So then the buyer has to come up with that 2.5% which would likely kill the deal.

I think you'll have a lot of buyer's agents screening out properties that they don't even show to their clients based on whether the seller plans to pay anything to the buyers' agents. That info is now removed from MLS so the agents will have to ask each listing agent about that.

 

[NYCBlueBlood]

In NYC, seller gets to define the terms... though of course, everything is negotiable. Last time I sold, I paid the selling agent 4% and the buying agent 2%. Last time I bought, the seller had the same terms. From my perspective, the selling agent probably does 2/3 of the work in most cases. So it makes sense to me.

 

[NCK9]

Seems like its gonna be a mess.

One of the trickiest situations in my mind is if/when a buyer agrees up front to pay the buyer's agent a fee (say 2.5%) but the seller decides they don't want to contribute any of the sale proceeds to paying the buyer's agent. So then the buyer has to come up with that 2.5% which would likely kill the deal.

I think you'll have a lot of buyer's agents screening out properties that they don't even show to their clients based on whether the seller plans to pay anything to the buyers' agents. That info is now removed from MLS so the agents will have to ask each listing agent about that.

Any rational seller should entertain offers where they pay the buyer agent commission. Just do the math and subtract if from the proceeds. I’d be more wary of and unrepresented buyer. They might pull shenanigans after the inspection report comes out or at some other time before closing. With buyers agent there is at least someone coaching them towards the closing table (so they can be paid).

 

[zeuxis]

I've read that for a while there is going to be a kind of free-for-all, with a great deal of variance emerging in different parts of the country.

I've also read that in some places, selling agents intend to require a buyer to have representation before even scheduling a viewing. That sort of tactic won't work well in places where the market is hot and things go at an initial open house. Or they'll stop doing open houses.

 

[zeuxis]

In NYC, seller gets to define the terms... though of course, everything is negotiable. Last time I sold, I paid the selling agent 4% and the buying agent 2%. Last time I bought, the seller had the same terms. From my perspective, the selling agent probably does 2/3 of the work in most cases. So it makes sense to me.

There are new rules (or more accurately, an elimination of such rules) as of today. They were deemed to be a monopolistic practice.

 

[SnoopRob]

Now
With the new rules all of it is now a bit more negotiable...

That's the real takeaway.

Before everything was largely settled with the seller typically paying 6% to be divided equally between the listing agent and the buyer's agent.

Now the amounts paid to the listing agent and the buyer's agent are largely to be negotiated by each respective party for their own representative, but that leads to numerous potential permutations.

 

[NCK9]

I've read that for a while there is going to be a kind of free-for-all, with a great deal of variance emerging in different parts of the country.

I've also read that in some places, selling agents intend to require a buyer to have representation before even scheduling a viewing. That sort of tactic won't work well in places where the market is hot and things go at an initial open house. Or they'll stop doing open houses.

Under the previous rules you typically didn't sign a buyers agreement with an agent until you were making an offer....many speculate that you will now need to do so earlier in the process (eg. before seeing any properties)

 

[Milk and Cookies]

Under the previous rules you typically didn't sign a buyers agreement with an agent until you were making an offer....many speculate that you will now need to do so earlier in the process (eg. before seeing any properties)

And my understanding is that within the signed agreement the buyer has to state what they will pay their agent (likely at closing) -- even before knowing what the seller may contribute to the buyer's agent. That seems clumsy to me. I may be misunderstanding something though.

 

[SnoopRob]

And my understanding is that within the signed agreement the buyer has to state what they will pay their agent (likely at closing) -- even before knowing what the seller may contribute to the buyer's agent. That seems clumsy to me. I may be misunderstanding something though.

My hunch, and it is only a hunch, is that you'll see some sort of guaranteed minimum from the buyer that can be satisfied if the seller agrees to pay that amount or more to the buyer's agent. It would protect the buyer's agent at some sort of understood minimum while allowing the buyer to come out with no costs if the seller is willing to foot the bill.

But I also think that in this transition period it is going to suck for some folks as agents pursue their own income while rationalizing their actions to their clients.

 

[4thgenheel]

My hunch, and it is only a hunch, is that you'll see some sort of guaranteed minimum from the buyer that can be satisfied if the seller agrees to pay that amount or more to the buyer's agent. It would protect the buyer's agent at some sort of understood minimum while allowing the buyer to come out with no costs if the seller is willing to foot the bill.

But I also think that in this transition period it is going to suck for some folks as agents pursue their own income while rationalizing their actions to their clients.

yeah, i anticipate a lot more negotiating/fighting and messiness.

great outcome!

 

[Purple Nurple]

Seems like its gonna be a mess.

One of the trickiest situations in my mind is if/when a buyer agrees up front to pay the buyer's agent a fee (say 2.5%) but the seller decides they don't want to contribute any of the sale proceeds to paying the buyer's agent. So then the buyer has to come up with that 2.5% which would likely kill the deal.

I think you'll have a lot of buyer's agents screening out properties that they don't even show to their clients based on whether the seller plans to pay anything to the buyers' agents. That info is now removed from MLS so the agents will have to ask each listing agent about that.

Correct. So, aren’t the powers that be actually implementing a system that will make steering worse?

 

[SnoopRob]

Correct. So, aren’t the powers that be actually implementing a system that will make steering worse?

Yes.

But, remember, this was done to settle lawsuits against the National Association of Realtors...this wasn't done by choice.

 

[Milk and Cookies]

My hunch, and it is only a hunch, is that you'll see some sort of guaranteed minimum from the buyer that can be satisfied if the seller agrees to pay that amount or more to the buyer's agent. It would protect the buyer's agent at some sort of understood minimum while allowing the buyer to come out with no costs if the seller is willing to foot the bill.

But I also think that in this transition period it is going to suck for some folks as agents pursue their own income while rationalizing their actions to their clients.

I've read that the buyer-broker agreement has to state a discrete amount of compensation either in the form of a set $ amount or %. It can't be an open-ended variable compensation clause. Adding to the fog of war.

 

[farce©]

I've read that the buyer-broker agreement has to state a discrete amount of compensation either in the form of a set $ amount or %. It can't be an open-ended variable compensation clause. Adding to the fog of war.

I would imagine that varies state by state.

 

[SnoopRob]

I've read that the buyer-broker agreement has to state a discrete amount of compensation either in the form of a set $ amount or %. It can't be an open-ended variable compensation clause. Adding to the fog of war.

I'll be honest that I don't know this issue in enough detail to have that specific knowledge or an educated opinion.

I'm guessing there will be wiggle room for varying service levels and/or performance incentives, but perhaps that won't be legal or legal in all states.

 

[wmheel1287]

So a bit of background and color is probably necessary to understand. First and foremost, people with a real estate license are not all REALTORS. The REALTORS are a voluntary trade organization. For reference, there are 60,000 REALTORS in NC and 35,000 who are licensed who are not REALTORS. These lawsuits largely began in 2017 and were directed at the largest brokerage companies in the nation as well as NAR. The changes you see in the industry now do not affect all licensees. They only impact REALTORS directly because the settlement was between the named brokerages, the plaintiffs, and NAR.

That being said, the vast and overwhelming number of residential sales transactions in the US are handled by REALTORS. This is because the original Multiple Listing Systems were all owned and operated by NAR...and then eventually by various state and local REALTOR associations. In order to have access to the MLS (which came along in the mid 1990's), one had to be a REALTOR. That has largely remained the same though some MLS systems are now their own entity and allow both REALTOR and non REALTOR members. The MLS is important here because the MLS is one of the huge keys to the complaint and the settlement.

Though always portrayed as a way to gain more exposure for listings, the MLS was primarily a tool for sharing offered compensation. Listing offices figured out long ago that their listings could be sold much more rapidly by offering other brokerage offices a "share" of the overall compensation being paid by the seller. This process began in the 1960's. Over time, consumers became more and more confused about who the agents were representing when taking buyers to property. Imagine you're a buyer who is working with HPW and you end up purchasing a property listed by Keller Williams. Most of those buyers assumed that the agent working with them was their agent. It was a very logical assumption. EXCEPT, there was no legal path to buyer agency. It simply didn't exist. Many lawsuits ensued (notably the Edina case in Minnesota). North Carolina was one of the first states that adopted buyer agency in 1992. Now buyers could hire an agent to represent their best interests. HOWEVER, the existing compensation system stayed in place. This left most sellers paying a commission to the office representing them which was then shared with an office working against them.

As time wore on, agents became exceptionally lazy about portraying compensation to both sellers and buyers. Listing agents often said "well you have to pay a buyer's agent or nobody will look at your home". Whether that is true or not, it's a real problem statement in the antitrust world. Buyer agents often said "you should have an agent because it doesn't cost you anything...the seller pays for it". This is also super problematic and a misrepresentation of the situation. Hence the lawsuits.

So, in an effort to end a litany of lawsuits that they had already lost or were destined to lose, NAR cooperated with the plaintiffs and the Department of Justice to reach an agreement on money and on "practice changes". The practice changes are largely summarized as follows....

1. REALTORS will no longer be able to advertise buyer agent/cooperative compensation in the MLS or in any affiliated services. There are lots of sites that enable showings, feedback, etc. Basically any repository of listings that combines the listings of more than one brokerage office cannot have any mention of offered compensation for buyer agents.

2. REALTORS will agree to have a written buyer agency agreement in place with any buyers whom they take to tour property as an agent of that buyer. Can't open a door for a buyer client without a written buyer agency agreement in place

3. REALTORS will specify an exact amount of expected compensation from the buyer, the seller, the listing firm, or any other source on the written buyer agency agreement. Furthermore, REALTORS will not be able to accept any fee that exceeds the stated fee on the buyer agency agreement without a written amendment of the agreement.

Now, my commentary on the practice changes but first I'll give my overall opinion. These changes largely needed to happen. Some of it is ham-fisted, but REALTORS writ large are most definitely guilty of price fixing. It hasn't been some coordinated scheme built out of malice or even greed in my opinion. It's just lazy and dumb. Monkey see, monkey do. It isn't terribly different than one gas station raising the price of fuel because the one on the corner did the same. The industry wasn't professional enough to be able to share that data without using it inappropriately. Those of us who teach antitrust in real estate have known this was coming for a LONG time.

Change #1 is the one that has created the biggest upheaval and all of the headlines. The prohibition against sharing compensation on the MLS will make conveying that information much more difficult but it will largely solve an issue I agree with about the lawsuits. The publishing of all offered compensation on all listings in a central marketplace has a definite "peer pressure" price fixing effect. Sellers have largely viewed paying a buyer's agent as something they didn't have a choice in because everyone could see that and easily ignore the listings if they were an unscrupulous agent (of which there are a lot). This change does not, however, eliminate any sort of standard commission. It doesn't even eliminate sellers paying buyer agents. Most sellers will continue to do so in the near term and likely in the long term. Now the compensation simply has to be conveyed directly from listing broker to buyer's agent. This could be done through the listing office's website, email, or any number of other non-MLS avenues. Sellers will decide when listing whether to offer this compensation or not. This is not new in NC. Different states vary tremendously, but NC already required the seller to separately dictate compensation for their agent versus that being paid to a buyer's agent. If a seller doesn't offer compensation up front, that does not mean they will not pay it. Buyers will still be free to work the compensation request into their offer. As an example, a buyer in NC has agreed to pay their buyer agent $6000. That buyer can ask for $6000 in seller paid closing costs as part of their offer to purchase.

Change #2 is honestly not that big of a change in NC but will be a huge change in other states that were further behind on the regulatory curve. North Carolina has always required written buyer agency agreements that specify an exact fee since buyer agency was new. Many/most other states do not. North Carolina's license law dictates that a written buyer agency agreement must be in place prior to presentation of an offer on behalf of that buyer client. That rule will not change. However, for the 60,000 who are REALTORS, they risk losing their membership and being fined by NAR if they do not put the written buyer agency agreement in place prior to showing property to that buyer client. This is one area where the settlement terms for REALTORS will be more strict than license law in NC. Non-REALTORS will still operate only under NC License Law.

Change #3 is again not a big change in NC...just moves the timeline up earlier for REALTORS

All that being said, they are about to drive me to drinking with stupid ways to try to circumvent the practice changes. I'm at the end of my patience with the bullshit from whiners who don't want to accept that they will have to change.

Oh and if you read this far and are curious, REALTORS is in all caps because that's the way the arrogant fuckwads trademarked it. I'm just accustomed to having to do it.

 

[CHAMTRAIN]

Seems like this is an industry that is ripe to be impacted by technological advances, have to think that realtors (as we know them) won't exist in 20 years.