Have you heard of the monumental lawsuit affecting the real estate landscape right now? It’s absolutely true that NAR has settled with the Department of Justice for claims of price fixing. It’s my personal opinion that the judges erred - and if you ever want to discuss, let’s go get dinner - but at the end of the day, the suit has been tentatively settled; pending a federal judge’s signature on the agreed settlement deal.

Here’s a link to an Associated Press article about it: https://www.https://apnews.com/article/national-association-of-realtors-agent-commissions-lawsuits-d62a66cb80639be3c4c3b429053a22c5

So why would I tell you? Well, I think there is a lot of unfortunate misinformation going around. Items that the media is playing into, but may not be rooted in how things happen economically or psychologically.

The Background

The suit has to do with buyer agent commissions. A class action suit was brought in Missouri and ended in October because sellers felt that the use of the MLS - and creating coop commissions - unfairly propped up real estate agent commissions and thus, price fixing. NAR appealed the ruling and recently settled the suit causing the onslaught of news media. One of the key items that was resolved is that MLS listings may no longer have any public or private stipulation of commission paid to buyers agents. Buyers Agents will be responsible for having their buyers sign paperwork stipulating to a specific fee. If a buyer isn’t willing to enter into a contract with an agent for representation, then they won’t be represented. Period.

Buyers Will Pay Less… ???

News headlines flooded the internet saying buyers ultimately stand to save BILLIONS in national savings as sellers begin to lower the cost of purchasing a home. And, in a perfect world that we learn about in our elementary economics course, you’d be right. Sellers can negotiate each offer from a prospective buyer uniquely, factoring buyer agent commission into the terms.

Experts believe this will reduce the average cost of purchase.

I think the experts are full of bologna.

Let’s take an average scenario. A seller contracts an agent to sell their home for a fee. A buyer wishes to buy the home and the seller refuses a concession to the buyer or commission to any buyers agent. The buyer ultimately buys the home. The seller has, objectively speaking, saved money by not paying that buyer agent commission. The seller benefitted.

But did the buyer? Only if the seller decided to share those new profits with the buyer. If the seller didn’t reduce the price or offer the concession, then the buyer paid as much as they would have had a buyer agent been paid. And so the buyer has a neutral effect in terms of price. I don’t know about you, but having sold over a hundred homes, I’ve met a handful of sellers who willingly gave the buyers part of their equity out of kindness. It has happened - I once sold a home in Orlando where I told my seller I could get more from her in negotiations if she allowed me; and she opted to take the original buyers offer because “she was nearly 100 and the buyers needed the money more than she did.” And hey, that’s an awesome story, and it made for an amazing transaction and phone call to that buyers agent! But it’s not the norm. And I don’t see it getting better just because buyer agents have to negotiate their commission into the deal.

Kilted Team Sniffs a Storm Brewing

Here are some very real problems I foresee coming forward once these new rules start being enacted in July. I mentioned in the background that if a buyer isn’t willing to sign paperwork entering into a buyer agency representation with an agent, then they will forego any representation

But what if a buyer can’t enter that agreement. What if they’re a first time homebuyer? What if they’re short on funds and only have enough to pay for closing costs and down payment? Then that buyer won’t be represented by an agent and will have to try and purchase on their own. From handling negotiation and paperwork, to conducting their own due diligence, to interpreting reports that are used to close real estate transactions - like inspection, title insurance, and purchase agreements.

First time homeowners made up 32% of transactions in 2022. Most first time homebuyers don’t have the resources to pay commission, closing costs, and a down payment because many first timers struggle just to come up with the closing costs and down payment! And so, the most vulnerable group in purchase will be left on an island to fend for themselves.

And there are sharks in the water.

As a professionally licensed real estate agent, I have a duty to treat customers with fairness and respect. A customer, by definition in our code of ethics, is someone in the public whom we do not represent. Let’s say I contract a home to list and the seller has decided not to offer marketing concession towards a buyer agent commission and ends up going under contract with a first time home buyer who has no means to afford their own buyer agent.

They just stepped into the ring with me. They have to negotiate against an agent with professional training and years of experience. Someone who lives and breathes real estate and does it for a living VS your average homeowner who works a 40 hour job in any industry that isn’t real estate. 9/10 times, I’m gonna mop the floor with them in negotiations. They won’t know what to ask, and I have no duty to help them. They won’t be able to interpret problems, and may move forward on a deal that I may have told them to avoid had I represented them. I believe this will ultimately lead to more lawsuits as buyers feel they were taken advantage of in the transaction. And sadly, they weren’t taken advantage of, they were just forced into a transaction without representation to buy a home because they, like most Americans, weren’t wealthy enough. In the legal field, they call this a “justice gap”. It boils down to needing something, but not being able to afford it, and having otherwise preventable negative outcomes occur because they couldn’t afford the resources.

Here’s one extra issue — VA buyers, American veterans, are at the largest disadvantage. As it stands, and I will say in good faith this hopefully gets cured before July, VA buyers will NOT BE ALLOWED to use a buyers agent if the seller won’t pay the commission. The VA has rules stating that the veteran cannot be forced to pay for services for the cost of real estate. And from what I’ve heard, that can’t change without an act of Congress so I’m not holding my breath. But this poses a terrible problem. Will buyers agents even sign veterans to agency contracts knowing they won’t get paid if the seller decided not to pay? After months of searching, the veteran finally finds a home only to find the seller won’t pay. The agent is out months of work. I could see agents who decide to wholly cut out veteran buyers until this gets resolved. And as an agent where veterans make up a third of my yearly business, it’s something that I will be following closely when it comes to VA loans and transactions.

There are other items I see problems with - commission and procuring cause have historically been tied together. Now they aren’t. I could see agent to agent lawsuits happen where Agent A is the procuring cause, and a deal falls apart, but Agent B swoops in and does the deal for the commission acceptable by a seller. Agent A did all the work to find the home and get the deal to terms - Agent B picked up the pieces. Agent A has a contract the buyer owes them money though. Agent A could potentially sue the buyer as well! It’s really a problematic scenario!

Ultimately, I disagree with the decision, but we live in the land of reality. And this is the landscape coming to real estate right now. For all my clients and friends, I’ll stand by you with all of the tenacity I’ve done until this point. But, I think it’s beneficial to be transparent about what this real estate expert thinks about the items that need to be handled QUICKLY. People will continue to buy and sell homes, and I look forward to helping people with their real estate goals - and do it transparently and for the most money possible.

Kilted Team means Kilted Trust. Always has, always will.