Changes from a landmark settlement affecting brokerage fees by the nation’s largest real estate trade association take effect this weekend and could create a more complicated and uncertain buying process for consumers, according to industry experts.
Phil Crescenzo Jr., vice president of the southeast region for Nation One Mortgage, told FOX Business that the changes, made as a result of a $418 million settlement with the National Association of Realtors (NAR) announced in March, “add even more uncertainty and unknowns to an industry that is already under stress and pressure.”
The deal is sure to make the process more complicated, but Pending CEO Noel Roberts said it would pave the way for greater transparency around the transaction and negotiations with the agency board.
Pending is a technology-enabled real estate company that facilitates off-market transactions.
Under the settlement, the NAR agreed to implement new rules banning the offering of compensation on listing databases it controls, also known as multiple listing services (MLSs), in an effort to put an end to a series of lawsuits that allege broker commission policies lead to excessive commissions and violate antitrust laws.
NAR has denied any wrongdoing and has repeatedly maintained that the trade group does not set the fees.
NAR said these fees are and will remain fully negotiable between brokers and clients.
Roberts said the new rules would mean sellers would no longer have to pay a buyer’s agent a commission, upending the traditional 5% to 6% commission split, where the seller typically picks up both the asking price and the buyer’s agent’s commission.
Going forward, transactions will require the explicit agreement of a Buyer’s Agency Agreement (BAA), a legal contract that defines how much revenue the buyer’s agent will earn, regardless of the seller’s offer.
The agreement must be reached before the buyer can tour the home.
Crescenzo Jr. said these fees were, and remain, negotiable between the two parties and therefore will not directly affect a real estate agent’s income.
Crescenzo Jr. also noted that because the change goes into effect on Saturday, it remains to be seen how this will impact the market and the actual impact on how agents and companies will process transactions going forward.
“The new rules will change the value proposition of using a buyer’s agent. Active inventory does not reflect the actual inventory available in the market,” Roberts said.
“There are plenty of potential sellers who don’t want to publicly list their property but are still accepting offers. Now that many homes can be easily found online, if a buyer’s agent can help uncover hidden or hard-to-find properties, their true value will become more apparent.”
Impact on buyers and sellers
Buyer
Roberts said the previous structure gave the impression that buyers’ agents were working “pro bono.”
The new rules, which take effect Aug. 17, will provide more transparency for buyers but could also mean higher costs, he said.
For example, if a buyer agrees to pay a 2.5% commission to an agent, the buyer needs to ensure they can afford that fee unless an equivalent concession is negotiated with the seller.
As a result, buyers “may be more selective about the properties they look at and the agents they work with, depending on whether the seller is willing to cover some or all of the buyer’s agent fees,” Roberts said.
Seller
Roberts said the new changes, which reclassify buyer’s agent fees as “concessions” rather than “commissions,” “may lead to more nuanced negotiations.”
“Especially in competitive markets, sellers may feel pressured to make these concessions to attract buyers,” he said.
But Roberts noted that there is no standard way to demonstrate such concessions, which “adds complexity and can make it difficult for buyers and their agents to quickly evaluate potential deals.”
