By Jennie Norris, IAHSP® Chairwoman, Professional Property Marketer and Home Stager, Speaker, and Author
Disruption. In simple terms, disruption is a new way of doing something that already exists.
The NAR Settlement and other settlements from large real estate brokerages are about DISRUPTION of the real estate process, in place to help ensure sellers AND buyers have proper representation by PROFESSIONALS educated in the process, contracts, and issues involved in selling and buying a property. I am not convinced this is a good thing. And only time will tell how it actually impacts the process.
This article is about educating ourselves as affiliates of the real estate industry, as we need to stay on top of situations involving our clients. The legal ruling does not impact Stagers as far as how we do business. We are not paid commission as part of the sale. We DO want to be informed, and understand what took place, the impact to the industry we serve, and ultimately, what benefits we may experience.
The multiple settlements and rulings have rippled through the industry with many offering their opinions on how it will change the process of buying a home. In a nutshell, listings in an MLS will no longer share buyer agent commissions, leaving that piece up for negotiation. In 2005, I was part of ABC's 20/20 Segment on Home Staging, and one of the other 2 features for that show were these guys from Freakonomics, who shared agents were overpaid, and did not deserve to make more than $500 for the work they do. The day after the show aired, the NAR President blasted the show for maligning agents and the real estate industry, and advocated for the commissions earned in the sale or purchase of what is, for most people. their largest asset. And here we are 19 years later - with commissions under attack, and the impact means real estate, as we have known it, will never be the same.
My first thought was that buyer agents will still have a place, and they will have to write their commission into any offers they present to sellers - with sellers paying the commission, like always. If the seller does not want to pay that commission, the listing agent would negotiate an agreeable solution or sellers would reject the offer. The buyer agent would have to adjust their expectations or move on, or the buyers would have to pay for the services of the agent representing them. The offers coming in will have to consider that piece of the puzzle, whereas before, the listing agent determined the commission to the buyer's agent with "agent cooperation", and often the buyer's agent got MORE than the listing agent.
I always thought was wrong. The listing agent does far more work to get the house sold, but the commission to the buyer agent was there to compel or motivate them to show that property over others, especially in a competitive market. That, to me, needed to change, and that was part of the premise for the lawsuit.
Part of the lawsuit involved sellers who were FSBO - For Sale By Owner - were not getting the same showings as traditional sellers, often offering lower commission to the buyer agents. The buyer agents KNEW they would be doing more work to close the sale as FSBO people are fairly clueless about the process. It was an issue of bias and collusion - and not equal opportunity for buyers to see ALL properties, even though the buyer agent was right - they would have to pick up the slack to close the sale, which is not fair to them when they are only being paid for one side. The defense did not do a good job defending the Realtor's work and role to justify and support the income they earn.
On top of that, in separate cases, there was evidence some agents were purposely not showing certain homes to buyers if they were a certain race - they would take them to different neighborhoods, versus showing all available. Agents were accused of racism, so that was not good. All it takes is 1 or 2 bad apples, and it spoils it for the whole bunch. NAR had not only this issue to deal with, but they also had a President accused of sexual misconduct resign, replaced by a woman who got death threats and resigned, and as a result their image has suffered greatly. Members have lost confidence in NAR, even though for over 100 years they have represented their members and the industry against government intrusion into the free market of buying and selling property.
NOW - as I read and hear what others are saying, I am shifting my stance as I believe the ONLY way buyer agents will remain viable and paid well is if agents all agree to do this and unify - so sellers have to pay or else the burden falls on the buyer. The problem with that is they can again be accused of collusion. As a result, buyer agents, as we know them, could cease to have a role, which is a regression from the equal representation for both sides of the sale/purchase. Experts share it will make buying a home more affordable for buyers, however that is not necessarily true. The Sellers benefit the most by not having to pay a commission to the buy side, but the selfish thing about that is THEY didn't pay commission to the agent that helped them buy. And now that they own a house, they don't want to pay it forward.
If the seller is no longer required to pay a commission to the buyer agent, and a buyer wants to use an agent to purchase, they may have to come up with money to pay commission to their agent. This will lessen the amount of down payment they will have available to pay for a loan. Even cash buyers, who are king with offers as no loan contingency and often no appraisal requested, might have issues with affordability if they have to pay their buyer agent. This will be hardest for first-time home buyers who are starting out - and ALL of this will harm young buyers the most. They already cannot afford to get into a property with rising interest rates and how fast prices rose during Covid, and now have another hurdle to jump with financing.
Lenders currently are not able to give loans to cover the commission - they can only lend on the purchase of the home which is the tangible product. They are going to have to come up with creative ways to get around that - underwriters are going to have to allow alternative funding of some sort that will not harm their approval on the major loan. A first-time homebuyer only has to put 3% down, so there are some programs with flexibility, however when faced with the choice of having to pay 2-3% to a buyer agent or use an attorney and keep most of that money to use to buy a better house or get into a house at all, a buyer will opt for the second choice. However, attorneys are not necessarily licensed real estate agents, and are not going to negotiate terms of the purchase on behalf of the buyer. An attorney is usually around $1000 to help a buyer with paperwork and those rates are probably going to increase now as the attorneys may become in more demand.
Some loan programs currently have only 10% down as a new standard, but that can still be a lot of money. Production builders of new communities are offering low % down incentives to get buyers in there. When the market was hot, builders dishonored buyers AND agents - not paying any commission to agents who brought buyers to the new community - they raised the prices of their "releases" every 3 months by tens of thousands - and laughed all the way to the bank. Now that the market is slower, they are begging people to come and purchase, and there should be some regulation on these production builders, in my opinion.
For most buyers that are not selling a home to buy, the downpayment is a formidable sum to save up. If they want to buy a $500K house, they need $15K downpayment, and now they are looking at an ADDED $10-15K to pay their agent. It will be attractive for them NOT to pay an agent to represent them, which is a huge risk for a buyer. The problem is the buyer will not have adequate representation, and they risk getting into a home where there are issues of condition or repair that were not disclosed, were not discovered, or were not negotiated as part of the purchase, and you will have all these buyers with no legal protection or recourse, which is what Errors and Omission Insurance, required by NAR members, covers.
Different states have real estate purchase agreements – they are not all uniform. In states like California, the contract favors the buyer as far as how and what the seller is required to disclose, and the potential penalties involved. In Colorado, the contract favors the seller who is supposed to disclose known issues with the house - but on the listing form they can check, "Not to my knowledge." Which in the legal world is the same as someone saying, "I don't recall" on the witness stand. It gives them an out because it is about a person's memory and recollection, versus facts. Without a way to PROVE a seller knew about something like mold or a faulty system, a buyer would rely on a home inspection to reveal issues, and the buyer agent would then negotiate terms of the purchase based on the inspection - asking sellers to address any health and safety issues. IF a buyer has no advocate, they may not know how or what to negotiate or ask for concessions - and the listing agent is not going to just give up the seller's profit. Interesting times for sure.
A listing agent could double-end the sale - meaning get both the seller and the buyer, and possibly charge MORE commission to the Seller for handling both sides - as much as 1-1.5% more - which is great for them. A listing agent would be smart to get another agent on their team to handle the other side of the transaction - so the buyer truly has an advocate for them, otherwise, the 1 agent becomes a "coach." All they really can do is advise because they would essentially be negotiating against themselves as the listing agent. And as shared already, buyers can also hire an attorney to do the paperwork for them.
For NAR - they are already losing members to a new association called the American Real Estate Association (AREA) started by New York-based Compass agent, Jason Haber, and Mauricio Umansky, star broker and co-founder of The Agency (from Millionaire Listing Los Angeles - married to Kendall whose sister, Kim, was a popular child actress - they are on the Real Housewives of Beverly Hills). Mauricio has a lot of exposure from these shows – and as a result has a strong reach to many agents. Jason Haber is not as well-known as far as shows and media, but he started the NAR Accountability Project in latter 2023, as part of an initiative to deal with allegations of sexual harassment from then President of NAR. The lawsuits and lack of a plan by NAR in the event they lost the ruling, made his decision to join forces with Mauricio and form another group for agents to join - an easy one.
Under the new association, Umansky and the Agency’s Chris Dyson have built a nationwide listings database using the technology from Umansky’s private listings service. They are calling the platform the National Listing Service (NLS), which is now live with some listings on www.NLS.com. A national database gives access to all listings no matter where an agent works - and is an open platform for them to use which is especially helpful if you are a buyer who does not know where you want to move or an investor looking for a good deal and have not focused on one state or city yet.
With all this happening, it will be a mad scramble for agents to get LISTINGS - as that is where the guaranteed income is for agents. If this situation progresses to where buyer agents are no longer getting fair compensation, this will cut the business in half for the agents out there - and ultimately put a lot of agents out of business. Interesting times.
I don't think the ruling and settlement will dramatically increase the number of houses for sale - that number is all about the interest rates right now, and sellers who have a very low rate locked in now are reluctant to sell and then have to finance a purchase at a higher mortgage rate. This impacts the homeowners who are moving up in size - young families who need more room to grow. They use the equity from their sale to buy a bigger home - but if the interest rates are much higher - and right now they could be as much as 5-6% higher than the current rate (1% was a rate many locked in!) - it means they could be looking at a much higher monthly mortgage payment, and affordability and what they can qualify for will shift dramatically. Sellers are currently sitting - waiting for interest rates to drop - and buyers are in a holding pattern too because there is not available inventory to buy.
Sellers who have a LOT of equity and can pay cash for a house purchase or only have to finance a small amount, will be the ones who sell. Right now, those are the Sellers who have been in a home for more 5-10+ years - those who had their house values double during Covid. Boomers and older Gen-Xers who are downsizing will have ALL that equity to pay cash for a home - they are usually not sizing up. Millennials are the ones in the sizing up phase and will have challenges with interest rates and affordability as income has not gone up in line with interest rates. Inflation and cost of living has skyrocketed in the past 3 years, we are paying far more for gas, groceries, clothing, etc. – which leaves less money to pay for a mortgage. Multi-generational families or co-op buyers will also become more popular to combine income to afford a home.
For Staging - I predict it will INCREASE demand as Listing Agents will HAVE to do something MORE to get the listing over their competition - or to compete equally. Staging is one of those tools that levels the playing field or advances an agent over another. Staging will be less about the SELLER ensuring their house looks great for the target buyer, which is still important, and it will be MORE about a LISTING AGENT getting the listing - and the race to provide MORE than other agents also vying for the business.
A stager’s marketing messaging needs to address the agent’s BRAND and how Staging will help elevate them over their competition, help them win more listings, and provide a valuable service to help sellers net the most in the sale. It adds VALUE to the listing agent services. I also believe more agents will be forced to cover the staging as a way to win business over agents who expect the seller to pay. In this scenario, we can help educate our agents about protecting their commission, not leaving the offer to pay for staging as an open-ended amount, and having the seller pay up front and reimbursing them at the SUCCESSFUL close up to a certain dollar amount. The KEY is education.
Note that these are my views on the situation, having watched the progression of the legal battles. You may or may not agree, however only time will tell. My final thought is this is sort of sad time for real estate – being driven backwards from lawsuits by sellers who benefitted from the system – not paying commission when they purchased – and now getting out of having to pay commission to the buyer agent. As a wife and mother to two real estate agents, this impacts us financially as well. I know how hard agents work for their pay - often going without any income for months as they work with buyers and sellers. If people took the time to really break down the income and what it covers, they would never accuse an agent of making easy money. And it will make buying a home harder for younger buyers and lower income buyers - as if the interest rates and skyrocketing prices have not done enough damage. Time will tell if these predictions come true.
Jennie Norris is the Chairwoman for the IAHSP®, International Association of Home Staging Professionals, the largest home staging industry association in the world—and she’s determined to help its thousands of members of home stagers, real estate professionals, and designers across the globe to thrive in ways they never imagined. Jennie is also the president and CEO of the world’s leader in home staging training, StagedHomes® , providing quality education for real estate agents and staging pros to help them thrive and succeed in business. She has educated thousands of real estate agents and stagers around the world, and loves sharing her knowledge of the industry to help others succeed.
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