What Realtors should be doing RIGHT NOW (NAR settlement)
As a real estate broker with experience representing both buyers and sellers, I want to share my thoughts on how the NAR settlement is changing the landscape for homebuyers, particularly buyer's agents. I'll provide a brief overview and then discuss how high-quality buyer's agents can adapt and thrive.
If you haven't been following real estate news, here's the gist: The National Association of Realtors (NAR) recently settled a massive $418 million lawsuit. The suit argued that the current commission structure, where sellers pay a commission that's split with buyer's agents, is illegal and disadvantages consumers.
There's ongoing debate about the legality of this structure, but the NAR settled to avoid further litigation. This resulted in a key change: buyer's agent compensation can no longer be disclosed on the Multiple Listing Service (MLS), the primary platform for listing properties. Importantly, buyer's agents can still be compensated, just not advertised on the MLS.
This creates uncertainty for buyer's agents. Starting mid-July, when the rules take effect, you won't be guaranteed to know where your commission comes from unless you have a written agreement with the buyer or seller beforehand. The process for establishing these agreements is still unclear.
There are two possible outcomes. In the first, an alternative commission structure emerges, with similar overall compensation levels. Platforms like Zillow or Redfin, or a new organization, might find a way to offer buyer's agent commissions outside the MLS. This would be the easiest option for agents, allowing them to continue business as usual.
However, I believe this is unlikely. Alternative marketplaces and new associations might be hesitant to risk lawsuits by adopting a similar structure. The lawsuits against the NAR highlight the potential legal risks.
Therefore, I believe the second outcome is more likely, and what agents should prepare for. Most brokerages and agents might shift to focus on acquiring listings, as that part of the transaction remains unaffected. However, they'll likely need to lower their listing fees since they won't be paying buyer's agents.
The challenge is that, in a seller's market like today, there are fewer listings than agents. A 2023 study by the CFA found over 1.5 million agents competing for 5-6 million annual sales. So, if you can't acquire listings, representing buyers becomes crucial.
Here's where high-quality buyer's agents can thrive. You need to demonstrate and market your value. Experienced agents offer immense value in the transaction. For example, you can provide expertise in comparable market values (comps), strong negotiation skills, knowledge of offer trends, and a network of reliable professionals like home inspectors, lenders, and contractors.
Another example is my specialization: advising investors on small multifamily purchases. This involves market screening for deals, underwriting deals for return, suggesting renovations, and project budgeting. Agents can specialize in areas like corporate relocations or first-time homebuyers.
These are all valuable services people will pay for. The key is to market them effectively. Offer separate, one-off services that clients can choose from. Some clients might only need help with offers, some might want a Comparative Market Analysis (CMA), and others might need full-service representation.
This approach could be an alternative to the current commission model. Savvy agents who adapt and market themselves effectively will benefit. It might also free up strong agents to focus on their best skills rather than routine tasks.
Personally, I believe this situation could be an excellent opportunity for quality agents. Agents can showcase their value and generate income creatively. Buyers can pay for specific services, sellers might pay lower listing fees, and the overall competency in the home buying process could increase. This is because inexperienced agents who can't adapt might leave the industry. Buyers, now paying agents themselves, will be more selective, leading to a rise in experienced agents and a higher overall standard of service.
It's important to remember that this is a fluid situation, and my perspective is based on experience, not necessarily superior intelligence. Don't hesitate to disagree if you have a different viewpoint. I'll be creating more content on this topic as it develops.
