⚖️ What I Think About the NAR Settlement
Happy Wednesday!
Here is an Idea, an Action, and a Question to consider this week.
Idea
If you’re wondering what the National Association of Realtors (NAR) proposed lawsuit settlement means for you as an agent, here it is:
FIRST - Don’t worry, there will still be plenty of opportunities to serve your community and earn a solid income going forward.
Yes—it’s a change, and with change comes new challenges and opportunities. But your job as an agent basically remains the same. With that said, here are my big takeaways from lawsuit:
Traditionally, listing and buyer's agents have shared commissions, which have been advertised on the MLS, guiding agents on potential earnings from property sales. However, the court has ruled this practice has potentially inflated costs and forced sellers into paying commissions they didn’t intend on paying (even if it’s clear in the listing agreement that they sign). In response to the court's findings, NAR proposed a shift away from openly advertising unilateral commissions on the MLS. If the courts agree with this proposal, then this change will take place in July. This means a buyer’s agent won't be guaranteed a commission anymore…but don’t freak out yet. For agents, this ruling and the proposed changes signal a paradigm shift. The age-old practice of guaranteeing a seller-paid commission for the buyer’s agent will be obsolete, urging these agents to adapt to a new norm where the quality of service and client needs reign supreme.
Buyers will now have to sign an employment contract with a broker before they start working with them, which may be commonplace in some states, but hasn’t been the norm in Florida. I’ve been preaching the benefits and need for agents to leverage these buyer-broker agreements for years now, and this will effectively make that mandatory.
However, this doesn’t mean sellers cannot pay a buyer’s agent commission! This just means that the buyer’s agent commission is no longer guaranteed through the MLS agreement but rather must be negotiated as part of the transaction.
Let’s take a step back for a second and look at it from a high level. The buyer and broker will first sign an agreement to pay the buyer’s broker either a flat fee or a certain percentage as a commission for their work. This must occur prior to seeing any properties. That commission may be paid by the seller if negotiated as part of the contract. Either way, the buyer’s agent commission is understood and agreed upon up front. Make sense?
Expect changes on the things we take for granted as agents, things like open houses. Agents will have to alter how they run their open houses. Buyers may be restricted from viewing the open house property without an employment contract with the agent (or proof of employment with another buyer’s agent). I’m sure we’ll find ways to make this streamlined, even if it’s 1-day employment contracts signed electronically as you enter. Regardless, it’s important to take a step back and look at how this could holistically affect the way you run your business.
I want to highlight one more aspect that I found interesting: A buyer’s agent cannot be paid more than the agreed commission between the buyer and broker. Why do I say this? Let’s say you’re working with a friend and agree to work for a 1% fee as a buyer’s agent, hoping you can earn more through negotiations with the seller. Technically, if you have an employment contract to show you’ll work for just 1% for your friend, you will not be permitted any compensation from the seller above 1%, even if the seller is willing to offer you 3+%. You’ve shot yourself in the foot.
Regardless of our compensation as agents, my main concern centers on VA buyers, who, under current VA loan rules, cannot pay any buyer's agent commissions. This limitation could significantly disadvantage them starting in July if no changes are made. I anticipate this restriction to change, but as of now, this will hurt VA buyers, as they’ll be forced to either use the listing agent (who represents the seller) or go unrepresented altogether.
Along those same lines, this could negatively affect lower-income buyers who simply don’t have the extra cash to cover both their closing costs as well as the buyer’s agent commission if the seller refuses to offer compensation in negotiations.
One final note – This will not affect the commercial agents, who are generally not part of the national association of realtors and operate outside of this realm.
On the bright side for buyer’s agents, you and your clients will now have a clear understanding of how much you’ll be compensated for your work. You won’t hesitate to show your clients FSBO’s or off market deals because everyone understands the value you bring and your role in the process. Bring the value and earn your position as a real estate professional!
What’s my take away as an investor-agent? If you find yourself completely shaken by these changes, there are kinks in your armor. To me, it means that you’re too reliant on the active-income of sales and need to build a more robust investment portfolio..
In short, if you’re not investing, you’re not fortified. Now, more than ever, you need to consider the shift from agent to investor-agent. And then eventually, maybe you make the leap to becoming a full-fledged investor.
Action
Study up on buyer-broker agreements. I’m sure there will be plenty of updates coming from your local associations and brokerages. Learn what they are, how they work, and how to write them.
Question
What are you doing to prepare for these expected changes to our industry?
See you next week,
Matt “Roar” Gardner
Real estate investor-agent, Author of Supersonic Real Estate: Light Your Afterburner to Accelerate Your Investor-Agent Career (Coming Soon!), and keynote speaker.
