With all the recent media attention, by now most everyone is aware of major changes afoot in real estate this month. Commentary has run the gamut from the demise of the industry to real estate services in the future will now be essentially pro bono. Pardon if my words convey a dash of sarcasm yet, after over four decades of helping buyers and sellers and running two of the largest brokerage companies in the world, I am compelled to read missives of the misinformed as they pop corks in celebration.
Let us quickly review the two primary changes required in the National Association of REALTORS settlement. The outcome stems from a blatant underestimation of the class action attorneys’ ability to sway a jury to a massive award, resulting in over $40 million in attorneys’ fees paid with less than $15 provided per person in the participant pool, almost all of whom had no complaints to begin with.
First, the compensation a seller offers to a broker assisting a buyer in buying a home will no longer be displayed in Multiple Listing Service. This means buyer agents must now individually contact listing agents to inquire about compensation amounts or find an alternative method. Additionally, the previously guaranteed compensation is now only a representation, requiring a separate agreement between brokerages before most offers from a buyer would be submitted.
Second, all REALTORS are now required to have a buyer-broker representation agreement requesting compensation for real estate services in place before buyers can be shown a home. This compensation may be fully or partially offset by the seller. These agreements may include flexible terms about the extent of properties covered and the related time frame. Arguably, some real estate brokers who experience the all-too-frequent situation of working with a buyer for months with no compensation only to see the buyer use another at purchase may view it favorably.
The new rules were justified as consumer friendly, with class action attorneys portrayed as champions of real estate buyers and sellers. I hold a contrarian perspective. In more than 40 years, I’ve had no buyer prefer paying the commission rather than having it included in the purchase price. Buyers also appreciated the freedom to view properties without commitment with the ability to select their favored representative when ready. Commissions paid by the seller to the buyer broker were, in fact, optional before the settlement.
An overarching goal of the suit was a total bifurcation of selling and buyer commissions, yet the previous structure never restricted either party from paying compensation to the broker of the other party, nor will it be restricted now. In addition, if a seller no longer wishes to offer compensation to a buyer’s broker, that outcome may still occur with a request to the seller from the broker or a request from the buyer in a contract offer. More complication and uncertainty.
Real estate transactions are emotional, yet the efficiency and customer satisfaction in how real estate is transacted in this country have been the envy of the world. The foundation of real estate sales evolved not out of collusion, as I’ve never had a conversation with a competitor about commissions since first licensed in 1981. Nor out of decree, since sellers were not forced to offer buyer compensation and buyers could have elected to pay directly at any time, but rather out of practicality and success.
What previously was a process described in 10 seconds now requires a decision tree flow chart that is more complex than a chemistry periodic table. Beyond that, these changes lead to reduced choices for real estate customers and infringe upon the rights of property owners to sell or buy homes as they see fit. I cannot help but view this as a Brexit moment where most believed it was a good idea yet soon realized it was not. And you did not even get a vote!
As to comments on rates, real estate is not a public utility. It is a business like others where owners set charges in a free market, with public choice and competition defining price elasticity. Fortunately, brokerages will still set their own fees like any other professional service, maintaining a wide range of offerings from discount to premium services with fees to match.
The good news is that we have prepared extensively for these changes, implementing standards and processes to ensure buyers and sellers remain well-represented and achieve their real estate objectives. We are ready. This month, the class action attorneys may be off to select their next yacht, but our team will show up for duty focused on their customers’ needs and best interests, just as before.
Budge Huskey is the Chief Executive Officer at Premier Sotheby’s International Realty.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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