Friday, May 24, 2024

Big Changes Coming For Real Estate Sales

The dawn of a new day for real estate will be upon us very shortly. Most of the details of the changes in response to the NAR lawsuit settlement appear to have been worked out and will go into effect this August. Among the major changes, buyer's broker compensation will no longer be advertised in the MLS and agents will be required to have a signed brokerage agreement with every prospective buyer prior to showing them a property. That agreement must detail how much the buyer's agent will be paid, whether from the buyer or the seller or both. Sellers will not be prohibited from offering buyer's broker compensation as they customarily have in the past, they just can't advertise it in the MLS. Buyer's agents will have to contact listing agents prior to showing to find out if and how much is being offered so their clients can craft their offers accordingly. A buyer with an agreement to pay their agent X% will need to know before they write an offer whether that's being paid by the seller or whether they'll be required to cut a check for X% to their agent's broker at closing.

As it stands right now, the agreement can't specify a range of commission only a fixed amount or rate. As I understand it this means that if a buyer has a buyer's brokerage agreement with their agent stating 2.5% commission to the agent's brokerage, the agent can't accept a higher amount if offered by the seller. The seller will just keep the overage beyond the buyer agreement's rate. This means that buyers who sign a brokerage agreement agreeing to 3% will be at a disadvantage to buyers who sign for 2.5% or lower (if the seller is offering the higher percentage) as the seller will have less expenses if selling to the buyer sporting a lower rate agreement. 

I suspect in the beginning most sellers will continue to offer a co-broke as not doing so might eliminate buyers with minimal cash to put down. Having to pay their agent out of pocket in addition to the down payment will be more than some buyers can handle. The big question right now is what rate will buyer's agents be going for. Do they dare ask for a high percentage when that might weaken their clients' negotiating power with sellers who stand to retain the difference between what they're offering buyer's brokers and what that client's brokerage agreement states? Will there be a price war among buyer's agents? Will buyers go to Zillow and sign a "touring agreement" thinking it won't commit them to an agent only to be presented with a buyer's brokerage agreement when they meet the "tour guide"? Will they just go directly to the listing agent and forego representation in order to avoid buyer's agent fees? This is going to take months to play out and it's going to be confusing in the short term. Long term I expect commissions across the board to come down and a lot of agents to leave the business. The coming condo reckoning this year will contribute to both.

One positive of this is that those agents who charge nasty "mandatory" transaction fees will have to address this shady practice on the buyer's brokerage agreement right at the beginning when buyers can simply refuse to accept them. Some of these details may change before taking effect in August but the overall theme of making buyer's broker compensation transparent to all parties will persist and the process of looking for and buying or selling a house will be quite different than it is now. There is a good chance that crafty listing agents will figure out a way to make this more lucrative for them. Buyers' agents have much less rosy prospects. Their pay will almost certainly come down in the mid to long term. There will be some unintended consequences and unplanned victims but it should be rather interesting as it plays out. 

"The tree isn't shaking but the leaves are falling." _Ian Rafalko