Real estate enters Wild West era thanks to NAR settlement | Private Equity Weekly

With March 15th just around the corner, a month associated with misfortune and bad luck in the ancient Roman calendar, NAR announced a commission lawsuit settlement.

If you were blindsided by news of NAR’s proposed settlement, you’re not alone. I’m still trying to figure it all out, but it feels like we’ve been hit with a sledgehammer.

Highlights of the settlement include:

• NAR to pay $418 million in losses over next four years
• NAR will agree not to create rules that would allow listing agents to set compensation for buyer’s brokers
• Starting around mid-July, compensation offers will no longer appear in the MLS
• MLS participants will be required to work with buyers to enter into a written Buyer Representation Agreement prior to touring a home
• There was no admission of guilt in the settlement.
• The settlement agreement is subject to approval by the Department of Justice and the courts

NAR through it all

We should see the signs. NAR has remained extremely quiet throughout this process, providing very little guidance to members that we have yet to receive from our brokerage firms, state and local associations. They came late into the game to deal with a sustained barrage of inaccurate attacks, Clickbait media coverage About our continuing profession.

There doesn’t seem to be a rapid communication team ready to deal with these issues other than the same team Several sentences were repeated over and over again. Because if the media promotes a message enough, no matter what the news source is, it becomes the public’s reality and misinformation and misunderstandings spread like wildfire.

Then there’s the offer of taking an Accredited Buyer Representative (ABR) course for free. Something is brewing.

Once again, the failure of the association we were asked to join to protect our compensation is an understatement.The consequences that follow are About NAR’s Sexual Harassment and Unlawful Conduct Issues, There have been multiple leadership changes in a short period of time.

The disruption and dysfunction caused by these situations, coupled with massive litigation, exposed fissures in the organization. For years, NAR allowed MLS data to become a free data source where “authorized” consumers were entitled to the data, thinking they didn’t need us and that we were a public information service about real estate.

The data is laid out so transparently that many believe our role is no longer needed. We are fighting with ourselves, trying to justify our value and blowing our own horn alone in the room, but are consumers really listening? Do they care?

The reality is that they are only concerned with obtaining a property that meets their needs and give little thought to the process of obtaining the property and who is compensated (if at all).

If it bleeds, it can cause

The media is awash with inaccurate headlines such as New York Times: Powerful real estate brokerage group agrees to cut commissions to settle lawsuit. Of course, the proposed settlement makes no mention of commission cuts, as all commissions have always been negotiable, quotes varied, and dollar amounts were never discussed.

But this headline will reinforce the public’s belief that they are overcharged for every real estate transaction they are involved in, and that real estate agents do the same amount of work regardless of the deal or price.

For some reason, lawyers, the Department of Justice, the media, consumers and the court of public opinion do not recognize the risks involved in getting paid as a 100% commission profession.

In many of these lawsuit remarks, references continue to be made to how other countries handle real estate, but no details are revealed other than the following: See, in Japan they only charge X% and so on! Well, this is the United States of America and we are structured differently than other countries.

Healthcare is available in many of these countries, people are generally paid more in various occupations than in the United States, and there are inherent cultural differences. On top of that, the laws in these countries require consumers to pay their agents.

If the buyer fails to compensate his agent as stipulated in the contract, the agent has the right to sue. I explore this in depth in my article: “Real estate the Australian way?It Won’t Solve the U.S. Commission’s Dilemma”.

many questions.still no answer

As the situation continues to evolve and questions continue to pile up, particularly regarding compliance and enforcement of compensation, I hope we will have answers soon.

In all the talk about transparency, I never thought NAR would agree to cancel MLS’s compensation offer.

In my article “9 questions we still don’t have answers to after Cece”, I push for greater transparency to show all agents and consumers the amount of compensation for both listing and seller sides, as buyers may have to participate in the compensation paid to their agents.

As a result of this ruling, agents have fewer protections than ever before. We have always been a contingency-based profession, which comes with its own set of risks – buyers may not buy with us, sellers may choose not to sell and take their homes off the market.

While not perfect, between the MLS rules and the NAR Code of Ethics, most brokers play well in the sandbox and make sure we are compensated.

I realize there are exceptions to this, and there are many horror stories and other opaque situations surrounding purchases due to bad behavior on the part of the buyer, seller, and sometimes just the agent.

Now we are going into real estate blindly, working tirelessly for buyers, not knowing if we will be compensated (despite a buyer’s agency agreement) or what the sellers might be willing to do.

What is considered OK? All other professional and service providers charge fees or prices that are known in advance.

We have the freedom to charge an upfront fee or an hourly rate for the work we do or the time we spend, but managing, supervising, and executing is another matter.

Anything can happen; our current enforcement provisions were always limited and don’t mean much now. What can be done to stop buyers and sellers from negotiating a better deal directly, bypassing the agent?

While an offer to indemnify cannot be conditioned on the offer being accepted, let’s face it: If the seller has a choice as to whether to compensate the buyer’s agent (and the buyer has limited financial means), the seller doesn’t want to consider an offer that requires the buyer’s agent to indemnify.

Some listing agents may not want to work with certain agents who bring buyers. Unfair bias can show up in many things that are out of control: The listing agent dislikes brokerage firm Tell other companies whose agents may be compensated.

Other listing agents may have preconceived notions about a buyer based on race, background, creed, or sexual orientation, and biased sellers and/or agents may discourage representing that buyer by telling them that no compensation or benefits will be provided. agent’s interest. Rarely is it intentional to discourage interest.

Since nothing is revealed in the MLS, there is no way to review what the buyer’s agent or his client may have been told. So what do agents and their buyers do at this point? Take a chance, show the property and submit an offer to test your theory?

This raises another question: Will the fees, if any, paid to the listing and/or buyer’s agent in the MLS or anywhere else be revealed when the transaction closes? Only then will agents who feel the listing agent is being less than transparent with them see what’s really going on, and by then it’s too late. For the sake of transparency, we absolutely need to know.

At that point, are we going to be bogged down in filing complaints and lawsuits that may well exceed the cost to the council because that’s what they’re saying/what they said at the time? Compensation paid (or not paid) may affect the final sales price.We need to know this information when reviewing comparable sales Both Buyers and sellers advise on value, as do appraisers.

As an industry, we will not interfere with the consequences that may arise from this. Agency relationships and everything we know may have to be completely redone. It’s almost like starting over as a brand new agent and you have to hit the delete button on everything you know.

The learning curve will be huge and the biggest challenge will be getting all agents to agree on the right way to do things, whatever they are. We will face a lot of confusion, misinformation and misunderstandings between agents and consumers.

There is already an inherent distrust between agents, who can be deceived by one another even in the best of circumstances. The MLS is designed to determine what compensation is available to agents who work with buyers. There will always be situations where foul play occurs between agents and consumers, and the MLS helps protect the agent’s expected compensation for bringing in buyers.

Now, it’s a free-for-all. The rule is that there are no rules. Don’t think that someone won’t find a way to hide from the agents who are paid to do their hard work.

The fire is made even more confusing by the fact that agents don’t have to be members of Major League Soccer to be paid for their work. What rules will the agent follow?

The NAR Code of Ethics doesn’t seem to mean much, so is there going to be a new handbook that applies to all agents with a real estate license, regardless of which organization you belong to (or don’t belong to), and regardless of whether you call yourself a real estate agent or not? . Real estate agent or real estate agent?

Do we all need to buy new titles? Real estate advocate or consultant? Will we see brokerages and agents choose not to list properties on the MLS? Trying to keep up with all the products on the market in a comprehensive, efficient way will create confusion.

Are listing agents and sellers willing to negotiate compensation with 20 different agents before showing their home? Agents working with buyers have the right to know what they will or will not get paid before they drive 50 minutes to show 10 properties. In some cases, their buyers may not be able to pay their bills, so compensation costs cannot simply be added to the sales price, as this may push their monthly payments beyond their comfort level, or force They exceeded the maximum they were eligible for.

So, welcome to the Wild West. Everyone will be in a different sandbox, all of which creates unnecessary confusion. Fear of agents stems from not knowing who will pay them and how much (if they get paid at all), and having no practical means of ensuring compensation.

Are we prepared to sue the buyer at any time and have legal counsel on standby ready to send a collection letter? While this sounds like a good idea, who will pay for it? Because of the market shift and all this litigation, most brokerages are running lean operations and can’t afford this expense. Neither do agents.

Additionally, all compensation is payable to the broker, so the broker does have this liability.

Four and a half months later, we had a settlement for hundreds of millions of dollars, and the only thing it did was essentially win the lottery for the plaintiffs’ attorneys.

What is the point of remaining a member of NAR or MLS? Perhaps an alternative system needs to be launched that is not part of all this so we can get back to common sense.

Good luck to everyone. We’re going to need it.