By NICOLE MURRAY
The National Association of Realtors agreed to a settlement in March that is expected to permanently shift the real estate industry.
Buyers will be expected to enter into written compensation agreements with their real estate agents and it will be optional for sellers to pay for the buyer’s agent commission. In addition, those commissions will no longer be marketed on the Multiple Listing Service.
Preliminary approval of the agreement has been granted by a judge with a final approval hearing set for November, and industry experts are expecting these changes to roll out this summer.
It’s hard to predict how long it will take for the market to adjust. Real estate agents and lenders who recently spoke with The Mortgage Note said the settlement is coming up in conversations with buyers and professionals who plan on succeeding are already making moves to ensure their clients are kept in the loop.
Jules Zaphire, a real estate professional at The Pantiga Group, is licensed in New York and Connecticut. He said that a few clients have asked questions on how the rule changes will affect their homebuying process in the future.
“Customers’ concerns have been centered around ‘How will this affect me?’” Zaphire said. “But even despite the changes, it is mainly business as usual because I remain transparent with my customers, so they know what to expect. It hasn’t been anything earth-shattering.”
A buyer’s agent agreement is not required until mid-August. Still, Gabriella Lisi, a realtor associate at RE/MAX Revolution in New Jersey, is using an updated, more detailed contract with buyers.
“I only see this as a positive because the new agreement goes into greater detail on what everyone’s responsibilities are throughout the homebuying process,” explained Lisi. “Realtors put in a lot of work before we get paid, and this agreement is a great tool to show what we are providing and also what we expect in return.”
“You are making a massive purchase when you buy a home, so a lot of buyers understand why these contracts are necessary,” added Zaphire, echoing Lisi’s sentiments. “Plus, the agreement stops individuals from using 25 different agents at one time to find a property or from ghosting an agent after one or two visits.”
Once buyer’s agent agreements become mandatory, an agent from Long Beach Island who has eight years in the industry predicts experienced agents will struggle to adapt while those who are newer can simply learn these tactics from the start.
“I am finding that these seasoned agents are struggling to change their language and articulate why these agreements are important because they have been doing business the same way for years,” he explained.
As part of the settlement, sellers will no longer have to offer to pay for a buyer’s agent commission, but many industry professionals think they should because it will only be in their best interest.
“Keep in mind that you get what you pay for so not having that help to get eyes on your home could affect the clientele that shows up at open houses,” said Lisi.
“If you don’t offer the commission, I predict there will be buyers who, if they are between two homes, could make their final decision based on that commission to avoid adding to the total cost,” said Zaphire.
Rob Jensen, broker/owner of the Rob Jensen Company in Las Vegas, said offering a buyer’s agent commission is still the best way to sell a home for the highest price in the shortest time possible.
Jensen also predicted there will be buyers who attempt to purchase a home without representation because of the new agreements and added cost of commissions. All agents say this is a mistake.
“People underestimate what agents do for our clients,” said Jensen. “We pinpoint what they can afford, the best area for their situation, spot the lemons, negotiate the pricing and repairs. Real estate is a service business, and you can get burned really bad if you do not know what you are doing.”
Shant Banosian, executive vice president of sales at Guaranteed Rate in Waltham, Massachusetts, said they have been discussing the changes with agents and clients. In his opinion, homebuyers need real estate agents to guide them through the process.
“These types of purchases are important life decisions and to do it without representation is risky to say the least,” said Banosian. “I am in the real estate business, have closed 40,000 transactions, and still have used an agent for any piece of real estate I have purchased because I need the help.”
If buyer’s agent commissions are not offered, some buyers will be heavily affected while others won’t be phased.
Lisi said first-time buyers will be hit the most.
“This group is usually putting down 3.5%, they don’t have equity from another home and don’t have as much money saved as someone who is more established,” Lisi said.
“On the luxury side of things,” countered Jensen, “higher-end buyers will have more cash to deal with or spend so it may be a sticker shock, but the money is there for this new setup.”
There is one sector who currently gets the short end of the stick if rules stand as is: Our veterans.
“Right now, VA does not allow a veteran buyer to pay any sort of real estate commission as part of a transaction which could disqualify them from a deal if the seller is not willing to pay it,” explained Banosian. “I hope the VA takes action soon because veterans are a group of people who deserve home ownership more than anyone.”
Leaders at the VA announced last week that they intend to release a circular before June 12 that bridges the gap on that rule prohibiting buyers from using their loans to pay for agent compensation.
Zaphire said that for all buyers, their success will hinge on the ability of their agent to communicate with them and negotiate on their behalf.
“Agents are going to have to get used to having discussions regarding pay from the get-go,” explained Zaphire. “This is all about transparency.”
Moving forward, it is predicted the real estate industry will condense because only those with strong communication skills will be able to articulate their value to buyers and be successful with the new rules.
“You will definitely see more agents get out of the business, especially on the buy side because they are just not equipped to get people to sign these agreements or the juice may not be worth the squeeze pay-wise,” said Jensen. “It may not be the worst thing because it will raise the standards of what is expected.”
Banosian believes real estate agents with the skills and knowledge will adapt successfully if they can commit to giving it 100%, but acknowledges it’s likely agents will drop out of the industry.
“Over time, the best of the best will be left which will only give the consumer a better experience,” Banosian said.
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