Next 3 months are crucial for homebuyers
One of my favorite “Modern Family” episodes depicts the hilarity and nonsense of a real estate agent’s daily life as Phil Dunphy rattles off deed restrictions and the proper pronunciation of the word “Realtor” (real-TOR).
A registered trademark of its originator, Realtor is a title only real estate agents who pay membership to the National Association of Realtors (NAR) are allowed to boast.
Today, after more than 10 years as one myself, the “Realtor” prestige has lost its allure. Just when it felt like NAR was bouncing back after a sexual harassment scandal in 2023, we real estate agents and brokers now find ourselves in the aftermath of this month’s multimillion dollar NAR settlement.
While I am nervous about what these NAR settlement changes mean for my residential real estate business and community, I am pleased that we’re all turning our eyes and ears to a company whose pockets have gotten too big and too dark for too long.
But enough about NAR.
Why Realtors like me are scrambling
Brokers, their agents and our local associations are scrambling to decide how to restructure serving residential buyers fairly without undervaluing our work. We have only until mid-July to figure it out.
Here’s what we know now: Buyer broker compensation is no longer allowed to be included on the Multiple Listing Service (MLS). And buyers are now required to sign a Buyer Representation Agreement, which includes the buyer broker’s compensation.
Buyer services are harder and more unpredictable, I think, than seller services (even in a buyer’s market!). Some buyer clients take years to find a property, while others take only a few weeks.
The stories we agents could tell would make anyone roll with laughter or cry – probably both. Being a real estate agent is like a reality TV show. How will we divide our whole job into billable hours? Billable tasks?
As an agent, I’m not only giving advice about market data and negotiating terms for sale. I’m also an on-call therapist, a babysitter, an interior designer, a cleaner, an exterminator. Agents do an endless list of tasks for our clients. Just ask your favorite agent what she keeps in her car for emergencies!
One thing I can predict with much certainty: Buyers will have to do more work to buy a property in the future.
Private tours will be less common and replaced by 3D tours, video tours and open houses.
Buyers might also have to meet with their inspectors, contractors and others without their agent.
Maybe buyers really will do it all themselves without losing money.
How will this impact buyers, sellers and home prices?
If you’re hoping to buy in the next three months, my recommendation would be to close by July 1. Most firsttime homebuyers have no idea what has happened or how it will affect their ability to negotiate.
In the past week, I’ve had to explain the NAR settlement to every friend, neighbor and client outside the industry. I can only tell you that we’re all racing to get it figured out by the time it does affect everyone.
Seller-paid buyer broker commissions were created with equitable rights to good representation in mind. Specifically, so that first-time buyers could afford to have a fair negotiation – instead of being swept under the rug by a seller’s agent signed to protect the seller (a law in most states).
My heart breaks for those sellers who were swindled into commissions. As much as I’d like to blame NAR, this error is also on agents, brokers and local boards who violated our ethical code.
It’s maddening to watch agents and brokers feed right into the stereotype that real estate agents are lazy and just in it for the biggest paychecks.
So, who will pay the homebuyer’s agent now, and how will this affect real
estate prices?
It’s commonly acknowledged that the 5-6% sales commission was “baked into” the sales price. Investor agents and builders have been using low-to-zero percent buyer broker commissions as leverage for years.
While I do think that 5-6% sales commissions will be a thing of the past, there is a chance that sellers will find a way to simply advertise buyer broker commissions through a different medium. This compromise walks a fine line with the new restriction.
Seller-paid “buyer credits” is my favorite idea bumping around. Buyer credits would be offered on the listing, and could be distributed as the buyer sees fit at the closing table. The buyer could use the funds for themselves, their broker or both.
If buyers are responsible for the buyer broker commission on top of other purchasing costs, the sales prices will have to come down.
Lower sales prices should not affect the sellers’ net proceeds in this instance, because the sales price deficit should roughly mirror the now absent buyer broker’s commission.
In short, though most sellers think they should be celebrating now, these new rules probably won’t affect sellers much, if at all, once the dust settles.
For everybody else, gone are the “Let’s go tour this house for fun!” days.
A signed Buyer Representation Agreement is now required before a property showing.
This has always been best practice. For some states this will be a big change.
For example, I usually complete a buyer consultation and one or two property tours before requiring a buyer’s agreement. I do this to be sure we’re a good match for each other. A successful client-agent squad requires a lot of trust and a common communication style.
Take the tours off the table, and I think things will get awkward. Now I spend one hour with a potential buyer and then prompt, “So do you trust me to guide you through your biggest life purchase? Sign here.”
I’m sure thankful many of my clients are referrals.
What work-life balance?
The part-time agents and small brokerages will likely diminish over time, which will either be great or horrible for the industry. Agents will have to do more with less, and our 60- to 70-hour work week will feel impossible without high sales volume.
Once in escrow, the brunt of the work usually lands on the buyer’s agent, too. If there are more transactions without buyer’s agents, then the seller’s agent will have to pick up the slack.
I often joke that as a 1099 real estate agent, I’m either overpaid or underpaid on each property. Still, my annual income mashes up into a worthwhile sum despite the work-life balance.
Without that 2-3% buyer’s commission propping up half my income, I am not sure the 11:30 p.m. phone calls, 6 a.m. texts, missing my daughter’s basketball game for an impromptu showing, and never having paid time off or maternity leave will be worth it. Maybe I ought to go back to copywriting.
It feels like most brokers and Realtor associations are strategizing how to make the buyer agent obsolete with new technologies. I think they’re focusing on the wrong solution, but that’s a story for another day.