Dear Readers,
In October, a jury ruling against the nation’s largest trade organization, the NAR (National Association of Realtors) sent shockwaves through the real estate industry. For us in our role as quality service providers (agents) deeply committed to your successful and hasslefree real estate journey, we believe in keeping you informed about pivotal developments in our industry. The NAR class action lawsuit verdict has ignited discussions that hold significance for anyone looking to buy or sell a home. Let’s delve into the implications of this landmark ruling and its potential effects on you from a professional’s point of view.
What Was the NAR Lawsuit About?
The lawsuit accused the NAR of engaging in anti-competitive practices in sanctioning the business practice of Listing Agents obtaining commissions for their and the Buyer’s Agent commissions while negotiating the Listing Agreement. NAR maintains that commissions have always been negotiable, hence a local Bay Area Listing Agreement range of 5-6% for listings, typically split in half for each side, attesting to the variability of commissions on listing agreements. Also to this point is the local Redfin business practice of offering a 1% listing fee agreement (with additional stipulations) that would not be possible if commissions were set without client’s consent. Still, the lawsuit’s verdict has drawn attention to the traditional commission structure and the potential effects on future real estate practices and services to consumers like you.
What It Means for Buyers and Sellers
For Homebuyers:
As a homebuyer, this lawsuit could lead to increased transparency and potential changes in the way real estate transactions are conducted. There will be more transparency in the way a Buyer’s Agent preps and informs their clients in preparation for a purchase. There will be more time spent discussing and reviewing Buyer Agent services and their value proposition–how we assist, secure, and navigate both legal and consumer practices. The trusted advisor role will come into sharp focus because the net effect of this change in practice means that more buyers will find themselves securing their agent’s commission on their side of a purchase.
It is worth noting here that in our experience, often buyer’s would look puzzled when informed they were not the ones directly paying their Buyer’s Agent commission, that in fact this was negotiated by the listing agent before a buyer even knew the home was for sale. The resulting sigh often confirmed the relief buyers felt when learning that the cost of conducting their home buying needs was rolled into the transaction and they would not need to change their financial planning to procure a home. It all comes out in the wash, as it is said, and we are not being coy about the resulting Seller strategy around net proceeds, commissions, and offer amounts–it was really a timing issue, at least here in the Bay Area which has been a competitive market place for decades, where the party needing the most wind in the sail (the Buyer) got it where and when it served them best.
One other potential change could be the rise in Buyer Broker Agreements. Think of these as retainers for attorneys, where no matter the home, a Buyer’s Agent assists a buyer with as many offers and viewings as it takes to either secure a home or decide on a different outcome (relocation, pause in search, revised budget, etc.). Real estate brokers have been using them for years and their popularity may grow to secure working relationships with professionals who can get the job done while ensuring their commission if the Listing Agreement no longer protects their commission.
For Sellers:
Sellers, on the other hand, may find themselves in a shifting landscape when it comes to the representation they receive and the financial implications of selling a property. On the one hand, Listing Agreements may no longer include an agreement to compensate Buyer Agents, however the tradeoff could result in a host of agents willing to represent Buyers for less and with a lot less professional acumen–think botched medical procedures when enlisting the assistance of the lowest priced practitioners. As Listing Agents, we are in the business practice to provide solutions and recommendations while at all times allowing for a client to make their own informed decisions. Recommendations often include the soundness of offers based on financial merits, but also less tangible criteria like: was the contract fully executed; were all signatures obtained; is there extraneous legal language in the contract (bizarre addendums); were all the necessary forms included; how do other offers stack up? There is a LOT of room here to differentiate the work of professionals in the field, all of which will end up in the ear of the Seller and potentially deny an otherwise qualified Buyer based on the business practices of their representative.
In Conclusion:
We are committed to keeping you informed about developments that can shape your real estate journey. The lawsuit verdict has far-reaching implications for both homebuyers and sellers. The aftermath of the NAR lawsuit is a reminder of the importance of staying aware and being proactive in understanding the ever-evolving real estate landscape. We are here to provide the guidance and support you need as we navigate these developments together. Stay tuned for further insights as we continue to monitor and analyze the impact of this landmark ruling.