If you've been paying attention to the news over the past week, you may have seen something about the National Association of Realtors proposing a settlement to a class action lawsuit against them. While this does have yet to be approved by the court, the changes are tentatively scheduled to go into effect mid July, 2024, which will be here before we know it! For those not in the industry, I will break down this proposal and let you know how it could potentially affect you in the future as a buyer or seller.
Offers of compensation will be moved off the MLS. Right now, if an agent is working as a buyer's agent, the most typical way they would get paid is at closing by the listing broker. How does this work? When an agent goes into a listing appointment and first meets with a potential seller, they will go over the listing agreement and it will include their fee. On Arizona's listing agreement, there is first a space to write in the total compensation and then below that, a space to write in how that total amount will be split between the listing brokerage and the buyer agent's brokerage. The listing brokerage takes that amount from their total compensation at closing and pays it to the buyer agent's brokerage. This is called a coop fee and is currently listed on the MLS for anyone to see. This is, and always has been, negotiable. It is up to each individual agent what they are comfortable charging for their services. I personally like this because I feel that more transparency is better. It also ensures that buyer's agents are fairly compensated for their work. Going forward after July, those coop amounts will not be listed in the MLS, therefore, agents will have to get a separate agreement from each listing agent prior to showing homes.
Buyers agents will be required to have a Buyer Broker Agreement signed prior to showing buyers any homes. While this has always been the ideal way to conduct business, I will be the first to admit that I've shown many buyers homes before without getting this signed beforehand. This is a document stating that the buyer's agent will represent the buyer for a predetermined amount of time for a certain amount of compensation. Again, this will continue to be negotiable as it always has been. The big difference is that in the past, the buyer rarely if ever has actually had to pay out of pocket for buyer's representation. I believe this system worked well because buyers are struggling now more than ever with scraping together enough money to afford a down payment and closing costs without having to come up with additional cash to be represented in a real estate transaction. However, now those conversations will have to take place up front. An agent may have to ask a buyer, if I work for $X, would you be ok with me showing you homes that pay less than that amount, leaving you to come up with the rest, or should we skip those homes? Maybe it will make the market even more competitive?
While I am almost always in favor of consumer protection, I don't believe that this lawsuit will end up favoring consumers. In some cases, sellers just may not want to pay a buyer's agent, and where does that leave buyers who are first time or low income buyers? They may not be able to afford representation. It's kind of like being sued and just saying "oh I'll just go with whatever the other guy's lawyer says". VA buyers aren't allowed to pay real estate commissions, even if they want to have representation! So, the system has been working for buyers and sellers alike and now we will just have to figure out how to best represent clients who need us the most.
Sellers will have to decide whether they want to offer compensation to buyer's agents. I will write another post about the value of buyer's agents to the seller, but for now I will just say that 88% of today's buyers are represented by a buyer's agent. If you want to try to save money buy skipping buyer agent compensation, you might be shooting yourself in the foot by eliminating a huge swath of potential buyers.
Only time will tell how this plays out in the real world. I don't know exactly if or how this will change my business. What I do know is that after 11 years in this gig, I have been through other changes that brought panic throughout the industry and we learned to go with the flow. This too shall pass and what I can promise is that I will still only offer the very best service to my clients!
If you have any questions or thoughts, feel free to let me know!