Thyra DeCicco
When I first heard the initial outcome of the settlement regarding NAR I was a bit surprised. I hadn’t realized consumers didn’t realize the 5-6 percent commission had always been a negotiable aspect of selling a home. This commission rate has been in place since the 1940’s and the transparency that now surrounds what agents are paid, I believe, is a positive. With the advent of technology, the sales process has become far more efficient. So, the cost-savings to sellers will be beneficial and agents will be required to speak more directly to the value they add to the process. Those are all positives.
But there are impending challenges as we move through this transition as well. The underlying assumption that surfaced during the recent NAR lawsuit, however, is the mandate that sellers must offer "blanket unilateral offers of compensation" to buyer's agents and the buyer agents then influence which homes the buyers should purchase based upon the compensation being offered.
So the resolution, according to the settlement, is to now make the buyers essentially responsible for compensating the work their agents do. This can come in the form of hourly pay, commission or another type of compensation. Buyer representation agreements will be a requirement moving forward if those representing buyers in real estate transactions would like to be compensated for their time. The agreements outline the terms by which the buyer’s agent will be compensated for their time and expertise. These agreements will be agreed upon by the buyer client.
Beginning in August, sellers are prohibited from communicating any type of buyer agent compensation on the Multiple Listing Service. So even if a seller would like to offer compensation to buyer agents, they’re banned from communicating this on the MLS.
While I understand the issue at hand, I don’t understand the murky way this transition is being handled. August is a few short months away and buyers will be assume the responsibility for paying their agent. Many buyers are completely unaware of this. And if a seller would like to contribute to that compensation, there isn’t a way for them to communicate this in the short-term.
In all likelihood, compensation will now become another part of the negotiation process between the buyer and seller; not unlike what it is today. The most viable option at this time seems to be seller credits issued as part of the sales process. The seller credits can be communicated and can be used however the buyer would like. But none of this has been addressed or finalized.
So, as we move forward into late summer this year, we will encounter a new way of conducting real estate sales with no clear road map in place for what’s equitable and legal. And with many sellers and buyers not fully understanding what’s to come.
One thing is very possible, however. And that is the role of the buyer’s agent being less involved in the process. The likelihood their commission will be reduced is high and with the reduction in compensation will come the reduction in service. You may see fewer in-person showings, fewer tours, less time spent in pulling comps to analyze purchase price/value, less time negotiating and addressing inspection issues, etc. Time will tell.
What we do know is that buyers will be assuming more direct responsibility for compensating their agents. And if that requires cash on hand, many won’t be able to afford that additional expense.
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Thyra DeCicco is the managing broker – owner of Love Where You Live Realty in Chattanooga. She has been a real estate broker for 22 years and has a background in marketing, advertising and journalism. Thyra has a Masters in Business Administration from DePaul University in Chicago Illinois.