Reality Check on the NAR Ruling to Change the Landscape of Real Estate Transactions

Have you heard about the NAR or National Association of Realtors in recent news regarding price fixing on commissions? Maybe you have questions about why this affects you. Do you wonder why this matters and how it will affect real estate with the need for a buying and selling agent?

Allow me to dive into some of your concerns and explain viewpoints as to why having a selling and buying agent represent both parties is advisable. 

First and foremost, let’s understand what the accusation is that is circulating. The NAR is accused of price fixing and pinning high commissions on consumers, specifically the seller. However, Realtor fees are ALWAYS negotiable and have always been. Fees could be in the form of any dollar amount or even with simple “consideration”. 

If I were representing a client that had a flock of chickens, I very well could tell my client “I will sell your property but as compensation for representation, I am asking you to give me half your chicken flock once we close…”. Sounds silly doesn’t it? But it is not. This could be an actual scenario. Sounds antiquated but it is actually an old method. 

Another example, I am a buyer and I own a farm next to my neighbor. I want to buy an acre he has near my property line. I negotiate an acre of his 100 for consideration of 2 steers… or even the hand of my daughter to his eldest son…. (I would never actually do that. She would kill me!)

My point is these are actual scenarios we learn in school as far as negotiations which is one of my favorite aspects of real estate. As students we learn everything is negotiable and payment is relative to the individuals involved in a transaction. Always has been and always will be. 

Got it?… Good okay, so now let’s take a look at how realtors are paid and the expenses associated to get a complete understanding of why agents charge fees to clients. 

First let’s define Brokerage. Brokerage is basically an agreement to provide a service in exchange for a transaction. All transactions are negotiated based on agreements. As buyer's agents we can opt to have our buyer sign what is called a Buyer Rep agreement to ensure payment. In the past, the seller usually paid both agents; his listing agent and the buyer’s agent, thereby making this Buyer Rep agreement not as necessary for the Buyer’s agent. This new litigation is now making that Buyer Rep agreement very much necessary. 

Brokerage is a bit like being a “poker” coach. We cannot show the other player our client’s cards. Our fiduciary obligation is to the party we represent to protect and advise solely them. However, let’s factor in another scenario. 

I represent Ken as a buyer but we do not have a Buyer Rep agreement. Ken wants to buy Barbie’s house. Barbie only wants to pay her selling agent.  Ken decides he does not want to utilize me as his agent. He goes into negotiations with Barbie’s agent drafting the contracts thereby creating an Intermediary Status “Without” Appointments. Later that week, I run into Barbie at a wine bar. I am not bound to Ken (could I spill the beans of what Ken’s top price is?… yes, as I am not bound to Ken). Barbie’s agent is ALSO not bound to Ken NOR Barbie to give any advice. Later after the contract is executed, the AC needs to be replaced according to the inspection. Ken asks for the Barbie to replace or give money back for repairs at closing. The listing agent cannot convince her client to do either and the Ken is now committed in the contract or he loses t=his option money because the listing agent can now only act as a facilitator of the transaction. No one is being properly represented. This is a problem. 

When the buyer decides not to enter into Buyer Rep Agreement with an agent acting on your behalf and goes directly to the listing agent, you cannot ask the agent for any advice and expect to it to be in your best interest. Additionally that seller’s agent can now NO LONGER advise his/her client should a question arise. That agent is now legally considered an intermediary without appointments in the State of Texas.

Realtors are independent contractors typically working on a 1099 status with various fees to market themselves and properties. We have business expenses such as paper, electronics (phones, printers, computers), office supplies, car maintenance and expenses, because let’s face it we often drive all over the place, MLS (ex. HAR) fees and service fees, education expenses as laws are always changing, errors and omissions insurance, and are usually responsible for paying a broker fees. We even have to pay a fee to have an app on our phone to open the doors with those magical boxes on doors! It is a very expensive country club! And it all comes out of our pockets before we even pay Uncle Sam then ourselves. 

Realtors also work under the umbrella of our broker to facilitate deals in order to be in compliance with local, state, and national laws which is how we are guided within the scope of our duty - to service our client’s needs and represent them. We pay brokers by the transaction. 

These are all non-negotiable expenses we have, yet we still negotiate our fees with our clients on both the listing and buying side. 

If we look at how realtors are paid you have to factor in the costs associated with being a member of the local MLS and NAR. Our annual dues cover us being able to access sales in our areas of specialty and come up wit concrete numbers when we are listing homes or assisting buyers with making realistic offers. Because let’s be honest, not every seller/buyer is realistic about value. Which is how we are finding ourselves where we are today; in a market inflated by a pandemic when everyone got into bidding wars. 

Now fast forward to 2023/2024 with the onset of higher interest rates which most people expected to slow growth of the real estate market. Yet we do not see a trend of prices dropping. Instead there seems to be shark frenzy of investors/corporations, coupled with Airbnbs, as these entities continue to drive up prices. It’s no wonder the average home prices have risen almost 40% since 2020! 

Now let’s get into “why” you need a buyers agent. I am about to drop the MIC. Guys, how many of your shop at Amazon, Target, or Walmart? Guilty…? Why…? Why do you choose to shop at these stores? Because you love them?  Not as likely as it is because of the convenience they provide in spite of Amazon almost being daunting to look for the simplest item, when 1000 items populate. 

Apply this same principle to real estate. Sure you can search the web for what you want. However, as realtors we are professionals and have information available at our fingertips through the MLS to track actual sales. A price is just a price but without demand and a basis for the number, it could be way off. Do you really want to spend earnest money, option fees, inspection fees, and get to an appraisal only to find out your contracted price is above value. Then what? How do you get out or can you? Realtors can sort and sift and see trend data that Zillow and Realtor.com just cannot come close to touching. 

We all know the old adage “time is money”. Hypothetically, let’s say you drive to the suburbs, which is realistic to many, and you find 6 houses to look at with 5 different agents for each. Are you really going to be able to get appointments to open all those doors without an agent of your own the same day? With a buyer agent representing you would. 

Speaking of “time”, if the average consumer understood how much time a realtor spends to simply prep for a lease/buyer showing, I promise you would never no show again but rather be praising the “good buyer’s agent” for the thoughtful consideration, fact checking, and research we do as we identify that perfect house like a needle in the haystack. 

Now, don’t get me wrong. There is definitely a flaw in the system when we are seeing agents walk away from deals with $120,000 in commissions for not doing but maybe one of their open houses, putting up a listing, and printing off some marketing materials. Those agents just know the right people and happen to have bigger expenses. But REALLY?! How much do you really need to make?

Going forward the writing is on the wall. There is demand for knowledgeable agents with creative knack for negotiating. BUYER REP agreements will be the wave of the future whereas in the past we did handshakes. If this new ruling does put the kibosh on sellers paying the buyer agent, it will not lower the cost to the consumer. It will just pass it off to another party, the buyer, which may slow market until there is balance. Negotiations may end on less repair dollars or the buyer or seller putting fewer repairs back into the house. It may ultimately result in homes not closing as quickly in the event agreements cannot be met due to appraisals and repairs. 

In summary, Realtors are professionals. Our service is to the consumer. If I had a heart problem I would certainly want a heart specialist I could trust. Just as if I were a buyer or a seller of possibly my biggest asset, I would want someone representing me on either side. I would suggest the body of consumers and general population to settle down and reevaluate the notion of trying to cut Realtors out of transactions, rather let’s negotiate and find the higher ground so all parties can celebrate that win, win at the closing table!