Effects of NAR settlement?

[PhiloFarnsworth]

I am utterly confused about the likely, possible and certain effects of the recent settlement with the NAR regarding commissions. The media stories I've read seem less than clear about the implications outside a lot of sensationalism about how it will now be practically free to sell your house.

My own experience has included some RE agent classes back in the early 90s in Maryland. In the first class, which covered the RE agent equivalent of USPAP, that there was no such thing as a "standard" commission and one should never make such a claim. Of course, it was admitted that 6% was typical on most sales, but any commission might be negotiated. I presumed (or it was made explicit, I forget) that the reason this rule was that to talk about "standard" commissions could be seen as price fixing, apparently what the NAR lawsuit was all about.

My next experience was buying and selling our first home in MD for which we paid 6% as total newbies.

And then there was about 20 years as a RE appraiser, during which time I noted that, while a 6% (3%/3%) was typical, there were plenty examples on 5%, 5 1/2% total commissions and even some FISBOs where a small 2% commission was offered to buyer's agents.

Finally, in 2018 my mother passed and I was tasked with selling her condo. Given the situation I decided to forgo any realtors and didn't even use the MLS. I did however use a lawyer to help with the process; the buyer also had no realtor and had only her lawyer to help.

I researching our present aim of selling our home, I researched a number of flat rate listing services for about $500 or so with an offer to entice buyer's agents with a cut of 1 1/2%-3%; whatever I thought I needed. It's all good.

Sorry for prattling on so much, but from my experience, as it stands now and has up until today, anything goes. So, what's really changed? Could it be that the NAR, in some markets, have been colluding to get around the ethical restrictions that the state of MD mandated against years ago? But the "expert" guests I've seen on some cable channels excitedly announcing that "you don't have to pay 6% to sell your house anymore!" or that "sellers don't have to pay the buyer's broker, the buyer will have to pay!" almost certainly are talking through their hats. I would think that, to at least a large extent, market forces tended to set commissions or at least how they are split.

 

[Terrel L. Shields]

what's really changed?

As I've said. We do not know what we do not know and the unintended consequences of the best of intentions can be utterly unpredictable. Someone somewhere will exploit the situation. Our church is in the process of dissolving and sold the buildings to another church. We got an appraisal and with my guidance we asked the buyer (another church) to bid. They bid above the appraisal but that includes the personal property, etc. We are getting the title company to assist us in closing. When my brother was alive and banking, we actually closed on several pieces of property - all without a Realtor. In fact, of the six pieces of property I've bought and sold, I've not used a Realtor.

But agency will be worked out and to me, one outcome will be a series of suits against Realtors, brokers, and perhaps boards and MLS's to make the process more transparent - perhaps meaninglessly so. I mean who benefits really? Tort lawyers. Not much of anyone else.

 

[Joe Flacco]

All the threads and discussions online about the commissions getting old. Nothing is really changing in the near term. Tired about reading / talking about it.

 

[alebrewer]

Doesn't go into effect until July, I think. There are 100 different scenarios on how it could ultimately play out. One scenario that WON'T be in the offing is for buyers to pay their agents out of pocket. Just not gonna happen.

 

[Elliott]

(I asked)

What is the likely future real estate commission so that a buyer's agent in a home real estate transaction that a buyer's agent will enter into with the buyer and what will the commission rate be?​

Gemini AI said:

The future of buyer's agent commissions in real estate is in flux due to a recent legal settlement [1]. Here's the breakdown:
Before March 15, 2024:

• Traditionally, the seller pays the commission (typically around 6% of the sale price), split between the buyer's agent and the seller's agent.

After March 15, 2024:

• The National Association of Realtors (NAR) agreed to eliminate fixed commission structures [1]. This means the traditional model is likely to change.

Possible future scenarios:

• Direct payment: Buyers might directly pay their agents, leading to negotiation on commission rates [2].
• Reduced commission rates: Experts predict a 25-50% decrease in commission fees [1].
• Rise of alternative models: Flat-fee or discount brokerages offering lower commission rates could become more prominent [2].

Impact on commission rates:
It's difficult to predict exact commission rates for buyer's agents. However, with more negotiation and competition, rates could be lower than the traditional 2.5-3% share of the sale price.
Recommendation:
The real estate commission landscape is evolving. Discuss commission rates and payment structures openly with potential buyer's agents before entering into an agreement.
..........................................

Gemini, you indicated there will be more negotiation and competition under the new commission structure, why would that be? Will more agents want to be buyer's agents?​

There will likely be more negotiation and competition under the new commission structure for buyer's agents for a few reasons:
1. Power shift to buyers: Traditionally, seller-paid commissions meant buyers didn't directly negotiate agent fees. Now, with buyers potentially paying directly, they'll be more likely to shop around and compare rates, driving competition among agents.
2. Transparency and flexibility: The elimination of fixed rates allows for open discussion about commission structures. This could lead to creative options like flat fees, tiered commissions based on service level, or even hourly rates.
3. Agent differentiation: In a competitive market, agents will need to showcase their value to win clients. This could lead to increased specialization or focus on specific buyer needs, attracting clients willing to pay a premium for expertise.
Will more agents want to be buyer's agents?
The impact on the number of buyer's agents is less clear. Here's why:

• Challenges for new agents: Attracting clients and building trust might be harder for new agents without a track record. Success may depend on strong marketing or finding a niche market.
• Potential for higher income: Skilled and experienced buyer's agents could potentially earn more through direct negotiation, especially if they can demonstrate their value proposition.

Overall, the new structure might not significantly change the total number of buyer's agents, but it could influence how they approach client acquisition and potentially lead to a shift towards more experienced agents commanding higher fees."
.........................

So if you are a buyer's agent you will advertise the great properties and great prices you got your clients and show how other agents got their clients bad properties at bad prices. "Sure, I charge 3% to be your agent, but I work like a dog, and I will find and negotiate a great property at a great price, where the other agents might charge less, but you'll end up paying too much!"

 

[J Grant]

(I asked)

What is the likely future real estate commission so that a buyer's agent in a home real estate transaction that a buyer's agent will enter into with the buyer and what will the commission rate be?​

Gemini AI said:

The future of buyer's agent commissions in real estate is in flux due to a recent legal settlement [1]. Here's the breakdown:
Before March 15, 2024:

• Traditionally, the seller pays the commission (typically around 6% of the sale price), split between the buyer's agent and the seller's agent.

After March 15, 2024:

• The National Association of Realtors (NAR) agreed to eliminate fixed commission structures [1]. This means the traditional model is likely to change.

Possible future scenarios:

• Direct payment: Buyers might directly pay their agents, leading to negotiation on commission rates [2].
• Reduced commission rates: Experts predict a 25-50% decrease in commission fees [1].
• Rise of alternative models: Flat-fee or discount brokerages offering lower commission rates could become more prominent [2].

Impact on commission rates:
It's difficult to predict exact commission rates for buyer's agents. However, with more negotiation and competition, rates could be lower than the traditional 2.5-3% share of the sale price.
Recommendation:
The real estate commission landscape is evolving. Discuss commission rates and payment structures openly with potential buyer's agents before entering into an agreement.
..........................................

Gemini, you indicated there will be more negotiation and competition under the new commission structure, why would that be? Will more agents want to be buyer's agents?​

There will likely be more negotiation and competition under the new commission structure for buyer's agents for a few reasons:
1. Power shift to buyers: Traditionally, seller-paid commissions meant buyers didn't directly negotiate agent fees. Now, with buyers potentially paying directly, they'll be more likely to shop around and compare rates, driving competition among agents.
2. Transparency and flexibility: The elimination of fixed rates allows for open discussion about commission structures. This could lead to creative options like flat fees, tiered commissions based on service level, or even hourly rates.
3. Agent differentiation: In a competitive market, agents will need to showcase their value to win clients. This could lead to increased specialization or focus on specific buyer needs, attracting clients willing to pay a premium for expertise.
Will more agents want to be buyer's agents?
The impact on the number of buyer's agents is less clear. Here's why:

• Challenges for new agents: Attracting clients and building trust might be harder for new agents without a track record. Success may depend on strong marketing or finding a niche market.
• Potential for higher income: Skilled and experienced buyer's agents could potentially earn more through direct negotiation, especially if they can demonstrate their value proposition.

Overall, the new structure might not significantly change the total number of buyer's agents, but it could influence how they approach client acquisition and potentially lead to a shift towards more experienced agents commanding higher fees."
.........................

So if you are a buyer's agent you will advertise the great properties and great prices you got your clients and show how other agents got their clients bad properties at bad prices. "Sure, I charge 3% to be your agent, but I work like a dog, and I will find and negotiate a great property at a great price, where the other agents might charge less, but you'll end up paying too much!"

What out to lunch, detached from reality, "experts" write this stuff?

What are known as seller's agents are the agent who brings the buyer to the property. So nothing has changed in that regard except that some people keep calling them "buyers; agents" - but the seller pays them, and on the contract, they are called a seller agent or cooperating agent or the like. The only change is now the commissions are not disclosed on the MLS. Which means zilch,

A true buyer broker agency is rarely seen since it means the buyer agrees to pay their agent, a buyer's agent, either a fee for service or a commission out of their own pocket, an unpopular option for various reasons. I fail to see how anything is different regarding that with the fake toothless NAR changes that supposedly will upend the commission structure.

 

[Joe Flacco]

It is selling / cooperating agent that brings the buyer and works for the listing agent. This is not the case if the buyer and the agent has an agency agreement. If the buyer and the agent have a buyer agency agreement, then the agent represents the buyer. Compensation to the buyer agent is still received from the listing broker.

 

[Fernando]

When I want to buy a property from the MLS, I know that I will get paid from the Listing Agent. It's agreeable among us agents even when I'm buying for myself.
I don't worry about the payment and concentrate on negotiations and the offer.

When I want to buy a commercial property not in MLS, it's different because Listing Agent has different ways of paying me. Some won't pay me because I'm also the buyer.
Some have different commission compensation in which I have to address before making an offer.
I can't imagine having fiduciary duty to buyer but also a duty to myself in getting paid.

It was easier buying properties from MLS than dealing with individual commercial listing agents.

 

[Fernando]

NAR is still finalizing the settlement and should be in effect by mid July 2024.
NAR has tried to include as many parties into the settlement to pay a fee.
I wasn't aware of many lawsuits against NAR regarding commissions. In CA alone, there are four lawsuits. If settlement agreed by courts, many future lawsuits will go away against NAR.
How convenient. NAR promised not to increased agents for this year when they pay $418 million over installments. Of course, no admission of wrongdoing.

The change will be that buyer's brokers will have to figure out how they will be paid.
Listing agent and sellers got it made in that they will have an agreement before listing the property in MLS.
Sellers will not be able to state how much commission they will pay buyer's brokers.

Many consequences and potential problems for everyone including appraisers.
How will it effect FHA and VA loans?
Did NAR include commercial properties in the settlement?
Buyers agents have to have a fee agreement for scope of work. If buyers go out of certain neighborhoods (showing more listings out of price range), will that be considered redlining?
Sellers can vary commission rates to different buyer agents. Charles can say no commission to Fernando (We know Charles is bias against Fernando) but offers 3% to other buyer agents.
This opens up to discrimination.
Buyers agent be less inclined to work with first time home buyers and low income buyers who have less funds to pay agents.
Already, first time home buyers have hard time competing against strong income buyers. During sellers market, agents would present 10+ offers which would be rejected.

Appraisers will have to do more work in figuring out different commissions involved in each comp. Some could be in disguised as NRCCs.
Before when commissions will generally "constant", it wasn't a factor to considered as much in the sales price.
Many changes how things are done after July.