A New Day Dawns For Home Sellers!
I'm certain, if not hopeful, that if you are currently seeking to sell a home that you've heard or read about the National Association of Realtors (NAR®) class action lawsuit settlement that was announced in March 2024. Afterall, if you are venturing into the home market you should be researching the current goings on of the local and national markets.
However, my fear is that you are just as confused, if not more so, as your local Realtor®. Many of the agents I've spoken with as recently as July knew very little about the changes because their broker didn't make it a priority. So they just assumed business would continue as usual. In full transparency, I asked both OpenAI's ChatGPT and Google's Gemini to summarize it recently. Even these large language models with their access to the vast information available online were almost completely incorrect in their summary and misled in forward looking expectations (I'll cover my expectations in a later article).
Yes, I really do love the West Wing!
Without any further ado whatsoever, let's dive into what I think are the most important things to know and some words of caution. Video: NAR Settlement & Home Sellers
Don't Believe The Headlines!
I shouldn't have to say this, but I know that I do. Online & television media (even those with "news" in their name) headlines are only meant to get your attention so that you'll click on the article so the media company can sell ad space. That's it. Nothing else. That's why they exist.
I find that first one about "Eliminate Rules on Commissions" to be especially humorous as well as troubling.
In fact, rules still exist. It is 100% legal for a brokerage (the name you see on the signage for instance) and the individual Realtor® to set rules on minimum commission percentage and minimum total dollar amount paid by clients. I have rules for my team that in order to go below my thresholds, I must first approve in writing.
That's no different than any other business. Have you ever walked into a Starbucks, placed your order, and when told of the price said "No, I'm only going to pay half that amount" and still get your coffee? How about stopping at the gas station and telling the attendant "I'm filling up, but I'm only going to pay $1.15 per gallon"? Good luck.
So it's no different in the real estate industry.
What's Changed For Seller?
The Department of Justice (DOJ) wanted a complete decoupling of listing and buyer side commissions with an absolute ban on the seller providing any financial value to the buyer side in any form. Essentially removing an adult's ability to decide how to spend their money in a legal manner. That appears, in my opinion, to be an attempt at massive government overstep of power. They didn't get that in the end (though the DOJ is still trying).
So understanding the DOJ opinion, it really depends on your perspective on the changes outlined in the settlement.
I say that knowing full well that some of the sellers out there are thinking "I don't have to pay a commission anymore!"
In fact, there are a couple issues with that statement.
The first issue is that a seller compensates their Realtor® for a successful sale of property via commission. It doesn't matter if it's a percentage, flat fee, hourly (yes that's a thing), or some combination. So thinking someone will work for free is unrealistic. I certainly don't expect my mechanic, barber, attorney, plumber, or anyone else to work for free.
The second issue, and this is what's really meant by the above statement, is assuming you were paying a mandatory commission to the buyer's agent.
Offering compensation to a buyer's agent was always negotiable as an incentive to work with you in selling your home to their buyer client.
The seller wasn't actually directly paying the buyer's agent. When you listed a property for sale with the listing agent, you agreed to a compensation percentage or specific dollar amount. That amount was very likely to be paid whether there was a buyer's agent or not. The buyer's agent compensation, in fact, came from the listing agent/brokerage's compensation as part of the Clear Cooperation policy.
What has changed is the language used in the listing agreement, the conversation between seller and their listing agent, and what buyers for a specific property may ask from the seller in the contract.
Listing agreements now must make a declaration that all compensation is negotiable. They also now, from what I've seen, break out the following categories: 1. Listing brokerage compensation. 2. Buyer's brokerage compensation. 3. Seller Concessions. Let's take each one by itself.
Listing Brokerage/Agent Compensation
This is just what it says it is. It's the amount that you the seller agree to pay your agent and brokerage for finding a willing and able buyer that actually purchases your home. This amount has always been and will continue to be negotiable.
However, if you think for a moment that you will retain the services of a Top 10%-15% agent (a club of which I'm a proud member) while offering 1%, I have bad news for you. That's like going into the North Olmsted Rolls Royce dealership and offering $30,000 for a Ghost.
Not going to happen.
We simply do too many things differently to add significant value for our clients compared to below average agents. Yes, compensation is negotiable, but both sides must agree. If not, either party (the seller or the agent) can say "No" and walk away.
Buyer's Brokerage/Agent Compensation
This, again, is just what it sounds like. It's the amount that you the seller are offering (though not necessarily paying in the end) to the buyer's representatives. Again this is negotiable, including when the buyer writes an offer which may be different than what the seller offered up front in order to satisfy the amount agreed to in the Buyer Representation Agreement (now legally required).
A word of caution: this is where some sellers may err. Many see it as paying the opposition (I'm not going to lie. I used to). Especially those selling their "starter home." In my opinion, seller paid compensation to the buyer's representative is more of an incentive. An incentive to show the home to the qualified buyer (assuming it meets their criteria) and to guide the buyer through the buying process successfully.
Moreover, not offering compensation to the buyer's agent (either up front or during contract negotiations) may actually cause your ideal buyer to be unable to purchase your home.
Don't believe me.
Think back to when you were buying your first home-your "starter home". Like many first time home buyers, you may have used a mortgage program like FHA due to it's much lower down payment. Today, those buyers are scraping together the 3.50% down payment due to ever increasing home values. If they've also agreed to a 2.5%-3% buyer compensation, they may not be able to purchase your home without the seller incentive to the buyer's agent. Even if they are the absolute best buyer in every other way possible.
In effect, the seller may be forgoing a potentially smooth transaction with a qualified buyer & tens if not hundreds of thousands of dollars over buyer's agent compensation while postponing the pre-exiting motivation to move in the first place.
So the decision to provide an incentive and possibly achieve a successful sale is entirely up to the seller.
Seller Paid Concessions
I may have to write a whole article about this topic because it can get quite complicated based on individual scenarios. For the sake of this article, I'll keep it short and simple. Seller paid concessions are an amount paid by the seller toward the buyer's transaction costs-not commission (this is where is can get complicated due to lenders).
Common seller paid concessions before the historic sellers market that began in 2020 were amounts toward closing costs, interest rate buy down points, etc...These are not new and have been around longer than I've worked with real estate.
Yes, the NAR® settlement did resolve some of the ongoing (not all) lawsuits as announced earlier this year. However, the new environment created may be unsettling or confusing to some sellers given the narrative. The headlines immediately following, and continuing on to this day paint a very different story than what is actually taking place. To say very little of the Department of Justice's continuing attempts to ban sellers from making their own financial decisions. Realtors® such as myself can offer guidance and opinions to clients under these new rules. But in the end, the client is the one whom has to live with the decisions being made surrounding compensation, among other things, to involved parties.
One thing is absolutely clear, there is no one solution for every home selling scenario.
Wes Purvis
Director & Founder
The Purvis Team
Berkshire Hathaway HomeServices
Professional Realty
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