The National Association of Realtors just made real estate harder—for buyers and for agents
Buying a house is already one of the most complicated things you're ever likely to do. On August 17th, 2024, the National Association of Realtors (NAR) made it more complicated, for no reason other than to pass its burden on to everyone else. That's when it initiated its new rules for compensation for Realtors. Those rules are going to make more problems than they solve.
The rules change how agents get paid; they're a result of settling a series of class-action lawsuits against the National Association of Realtors. The suits alleged that NAR's compensation rules amounted to antitrust, reducing competition and artificially inflating the standard three-percent-per-side commission price.
So instead of sellers typically paying a five to six percent commission, with half going toward their agent's brokerage and the other half going to the buyer's side, the sellers now can choose to pay just their agent's commission. They can still do business the "old way" of 3%/3%, but they must "step outside" and work out such an agreement between themselves.
Doesn't sound too bad, right? Why, after all, should the sellers pony up for both sides' agents?
True enough. However, simple as the new arrangement is, it is full of asterisks that make transactions messy. First of all, each deal now requires, well, more deals.
“In the old world, most times sellers would pay fees on both the buy side and listing side. In the post-August 17 world, each deal would be different." says Ying He, a real estate agent in San Francisco. “Any combination is a possibility."
To compensate for the new overhead, some buyers will simply make a lower bid, building into their offer the cost of the new rules. After all, you can't get blood from a stone, and I'm betting most buyers feel pretty stoned today. They may also demand other concessions or improvements to compensate for the extra expense and hassle.
There seems to be some sort of rumor of a mafia-like control on Realtor pricing, but this has never been the case. As Reddit user Quiet_AD_5802 says, "There are flat fee brokers out there, some agents charging 5% some charging 4% there are sellers selling by owner offering 2% to buyers agent. Commissions are all over the place, how is that collusion or price fixing?"
That's true. Fees have always been negotiable. (As Contract Law professors like to point out to their classes, everything in an agreement is negotiable.) And the settlement doesn't establish a standard on Realtor fees or services. Quite the opposite. There are more opportunities for confusion, misunderstandings and lawsuits. (Just what lawyers love!)
Now a potential buyer has to sign a contract before they begin any sort of relationship with a Realtor The agreement could be as small as an obligation to show a single house. This only ads more complications to an already complicated process.
Some may opt to skip buyer rep and "do it themselves." Then they'll find out how hard it all is and why realtors get paid what they get paid. Others may use the same agent as the seller. This is called dual agency and it's fraught with perils. Personally I have never done dual agency and don't recommend it. Too many conflicts of interest. Another way the NAR settlement made things worse.
The settlement will also hurt new agents. People "outside the biz" don't realize how hard it is for new agents in their salad days. No reason that they should. But it reminds me of the time a nurse was complaining to me how doctors made "ten times" what she did and how unfair it was. I said, "Then why not become a doctor?" Long pause. "But that takes so long. You have to know all kinds of things about everything." Yeah, exactly.
The new rules will make it harder for agents who are at the early stages of their careers. The average home buyer may say "Big deal. There's too many already [possibly true] and they get paid too much for what they do [not true]." Most people don't realize—nor is there any reason they should—what their agents are doing behind the scenes. They're arranging for lots of inspections, reviewing complex legalities, staging the house, giving up their nights and weekends for showings, and often dealing with their clients—driving here, meeting there—for months or sometimes even years before they see a commission check. It's not easy money; to those who say it is, my reply is what's stopping you then?
The average income for a Realtor in the United States in 2023 was $46,000. I'm not asking you to pity us, but we're clearly not all raking in the bucks. And agents are independent contractors (many people don't realize this), so everything, from the bottle of water we proffer when you first sit down to the office itself that you are sitting in, we pay for out of our own pockets. The stereotypical image of a real estate agent might be someone with a sharp haircut driving a sleek BMW, but it's not reality.
Now buyers may feel they can pay meagerly to those with a "thin" resume. What they probably don't understand is we all have access to the same human capital, and we're all a team. So if I don't know something I can ask the 25-year-veteran. And someone with less experience can ask me.
In summary, the settlement does not do what it was intended to do—lower agent compensation and break the alleged monopoly, since there was no monopoly to break in the first place. Instead it makes the fee structure more complicated and open to misunderstanding and lawsuits—just what we need more of in the biz.
NAR, rather than going to bat for the people who made it what it is—rich—just rolled over and threw the people who feed it under the bus. NAR betrayed everyone—except itself. In the days of the guillotine, you actually were expected to tip the executioner so that he would do a clean job with your head. This feels something like that.
Comments