Real Estate Professionals React To NAR’s $418 Million Settlement

By NICOLE MURRAY

People who make their living helping homebuyers and sellers have spent the last two weeks figuring out what the $418 million settlement deal announced by the National Association of Realtors means for them and their clients.

If approved by a judge, under the settlement buyers will be expected to enter into written compensation agreements with their real estate agents starting in mid-July. Sellers may pay a buyer’s agent commission as part of the negotiation process.

They can also opt to pay just their agent. This represents a departure from the current model, where sellers typically pay for their agent, as well as the buyer’s agent, through cooperative compensation.

The Mortgage Note spoke with real estate industry professionals to get their reactions and predictions on how these changes will affect the industry.

“There is nothing permanent except change,” said Jules Zaphire, real estate professional at The Pantiga Group. “So, you have to adapt.”

Zaphire said communication will be key as realtors and their clients figure out how everything will play out. He is licensed in New York and Connecticut.

“I think this is going to be a matter of logistics more than anything,” explained Zaphire. “We as agents just need to be more transparent with our customers because that is at the root of everything going on in the industry right now.”

Shant Banosian, executive vice president of sales at Guaranteed Rate in Waltham, Massachusetts, welcomes the additional transparency.

“This is how it is in every other business,” Banosian said. “For title insurance, a new car, you see the breakdown of everything you are paying for and why. It is a good thing to happen in real estate, so things are spelled out across the board. But I disagree in saying it was not that way before.”

Rob Jensen, broker/owner of the Rob Jensen Company in Las Vegas, said having buyers commit to an agent will be a good thing because it will solidify the business relationship.

“Buyers are not going to work with five different realtors at the same time anymore, which does happen more than you think,” Jensen said.

Jensen has concerns that less experienced agents who cannot articulate their value may struggle to get buyers to sign on the dotted line but Zaphire said it’s their job to be able to explain what they can do for buyers.

“I know tricks and tips when searching that a typical buyer probably knows nothing about, and they will know that before working with me,” Zaphire said.

Sellers who decide they will not pay for a buyer’s agent may find out that will work against them.

“I think it’s unwise,” explained Gabriella Lisi, a realtor associate at RE/MAX Revolution in New Jersey. “You may save on that extra commission, but it will also result in fewer showings, it could take longer to sell your home, which could ultimately lead to price drops, and then becoming desperate to close with whoever will make an offer.”

People who cannot afford an additional 2% to 3% on top of a home purchase price for a buyer’s agent fee will be the most affected by the settlement.

“From this perspective, this change is not the best,” Jensen said. “The original setup gave buyers some extra financial assistance, which in turn gave sellers more demand with hopes of closing on a better deal. Adding that extra 3% for buyers may mean lower offers or even lower budgets to account for the expense. Both scenarios do not help sellers in the least.”

Part of the problem is that commission for a buyer’s agent cannot be worked into monthly mortgage payments.

Nathan Hartseil, area manager at Main Street Home Loans in Hingham, Massachusetts, said they cannot finance someone for more than the home is worth.

Hartseil and others are concerned that if buyers choose to forgo representation to save money, that will affect all the parties involved in the transaction.

“If a buyer refuses to pay an agent, does not sign an agreement, and a seller will not offer a buyer commission, where does that leave us?” Hartseil asked. “No one is going to work for free so the market will be left with a bunch of uneducated buyers which benefits no one.”

Banosian said buyers need the guidance of realtors because the process is more complicated than showing up for an open house and putting in an offer.

“I would hate to see customers try and save the 2% to 3% in commission now when it could cost them thousands in the long run if they have no idea what they are doing,” Banosian said.

Industry professionals had different predictions on the pay structure for buyer’s agents if the settlement is approved.

“In some cases, it could remain a percentage-based commission, there could be a consulting fee or per diem,” Zaphire said. “There are a lot of different ways buyers’ agents can take this.”

Lisi said agents could charge a retainer fee.

“For example, it would cost this much for up to three months, and then this much for up to six months. I’ve also had agents negotiate their commission as part of an offer which could be a great tactic to utilize,” Lisi said.

One possibility, which is not legal in all 50 states, is a dual agency where one real estate agent represents both the seller and the buyer.

Jensen said this is a sticky situation that he tends to try and avoid.

“Dual agency can be looked at as a conflict of interest. I can’t fully negotiate or represent either side in this situation and if something goes wrong, now both parties are looking at me as the problem,” Jensen said.

Jensen added that the pay structure may change for a while, but that won’t last for long as people leave the industry.

“I predict you are going to see buyer commissions be low for a while and then shoot back up. At first, buyers will forgo having an agent or pay the bare minimum because the change is so new,” Jensen said.

“Less experienced agents who cannot articulate their value may think the juice is no longer worth the squeeze and leave real estate altogether. Those who are left are capable, qualified agents to represent the industry.”

Hartseil said there are currently 1.6 million realtors in the U.S. and up to a million of them may give up their licenses.

“I predict the part-time agents who are satisfied with their one or two transactions per year will be the first to go. Only the more prominent realtors will keep their heads above water and the same thing happened in the mortgage industry. Nearly 40% of loan officers have been weeded out in the last two years. This is a cycle that happens,” Hartseil said.

But just like any change, professionals who adapt will survive.

“The people who run towards the change to get themselves educated are the ones who are going to thrive,” explained Banosian. “People who harp on the ‘good old days’ are going to sink. It’s that simple.”