NAR Buckles

What a headline! Nowhere in this article does it say that NAR is slashing commissions or that any agents – the people who determine the commissions – have agreed to slash the commissions. The weak, spineless agents who have nothing else to offer will gladly agree to work for less because to them, it beats not working – but consumers suffer when they hire a weak agent.

Nothing will change until consumers realize that the key is to GET GOOD HELP!

There will be only one result from these commission lawsuits. The buyer-agent will be eliminated in the name of ‘saving money’, and home buyers will be forever harmed by not getting any, let alone adequate, representation.

The full NYT article without paywall is HERE.

Nobody from the industry is quoted in the article, and they published the most outrageous quotes they could find.

Excerpts:

Housing experts said the deal, and the expected savings for homeowners, could trigger one of the most significant jolts in the U.S. housing market in 100 years. “This will blow up the market and would force a new business model,” said Norm Miller, a professor emeritus of real estate at the University of San Diego.

The lawsuits argued that N.A.R., and brokerages who required their agents to be members of N.A.R., had violated antitrust laws by mandating that the seller’s agent make an offer of payment to the buyer’s agent, and setting rules that led to an industrywide standard commission. Without that rate essentially guaranteed, agents will now most likely have to lower their commissions as they compete for business.

Economists estimate that commissions could now be reduced by 30 percent, driving down home prices across the board. The opening of a free market for Realtor compensation could mirror the shake-up that occurred in the travel industry with the emergence of online broker sites such as Expedia and Kayak.

“The forces of competition will be let loose,” said Benjamin Brown, co-chairman of the antitrust practice at Cohen Milstein and one of the lawyers who hammered out the settlement. “You’ll see some new pricing models, and some new and creative ways to provide services to home buyers. It’ll be a really exciting time for the industry.”

Under the settlement, tens of millions of home sellers will likely be eligible to receive a small piece of a consolidated class-action payout.

The legal loss struck a blow to the power wielded by the organization, which has long been considered untouchable, insulated by its influence. Founded in 1908, N.A.R. has more than $1 billion in assets, 1.3 million members and a political action committee that pours millions into the coffers of candidates across the political spectrum.

The antitrust division of the Department of Justice is continuing its investigation of N.A.R.’s practices, including the organization’s oversight of databases for home listings, called multiple listing sites or the M.L.S. The sites are owned and operated by N.A.R.’s local affiliates. For decades, the Justice Department has questioned whether these databases stifle competition and whether some N.A.R. rules foster price-fixing on commissions.

Some experts said the shift on commission structure, and the billions of dollars that would flow into the housing market as a result, could spark a recovery in the housing market, going so far as to say that it could be as significant as the 1930s New Deal, a flurry of legislation and executive orders signed by President Franklin D. Roosevelt designed to stabilize and rebuild the nation’s economic recovery following the Great Depression.

“This will be a really fundamental shift in how Americans buy, search for, and purchase and sell their housing. It will absolutely transform the real estate industry,” said Max Besbris, an associate professor of sociology at the University of Wisconsin-Madison and the author of “Upsold,” a book exploring the link between housing prices and the real estate business. “It will prompt one of the biggest transformations to the housing market since New Deal-era regulations were put in place.”

Despite N.A.R.’s turbulence over the last several months, however, there was one constant: their insistence that the lawsuits were flawed and they intended to appeal. With Friday’s settlement agreement, N.A.R. gave up the fight.

The settlement includes many significant rule changes. It bans N.A.R. from establishing any sort of rules that would allow a seller’s agent to set compensation for a buyer’s agent, a practice that critics say has long led to “steering,” in which buyers’ agents direct their clients to pricier homes in a bid to collect a bigger commission check.

And on the online databases used to buy and sell homes, the M.L.S., the settlement requires that any fields displaying broker compensation be eliminated entirely. It also places a blanket ban on the longtime requirement that agents subscribe to multiple listing services in the first place in order to offer or accept compensation for their work.

“The reset button on the sale of homes was hit today,” said Michael Ketchmark, the Kansas City lawyer who represented the home sellers in the main lawsuit. “Anyone who owns a home or dreams of owning one will benefit tremendously from this settlement.”

From the NAR President:

NAR has agreed to put in place a new rule prohibiting offers of compensation on the MLS. Offers of compensation could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. And sellers can offer buyer concessions on an MLS (for example—concessions for buyer closing costs). This change will go into effect in mid-July 2024.

Moving Towards Single Agency

It’s been obvious that the entire real-estate-selling business has been deteriorating towards single agency. I see it every day on the street, and I’ve posted evidence of the shift regularly.

The trend is moving quickly now on multiple fronts.

The DOJ is going to decouple commissions, which will prohibit sellers from offering to pay the buyer’s agent. The buyers can include it in their offer, but it likely won’t get that far. The buyer-agents who are left will want a written agreement to get paid by the buyer if the seller won’t pay. How many agents will be able to demonstrate why they are worth it? Not many, but maybe the buyers won’t ask too many questions.

Homes.com is spending millions and billions on advertising their website to compete with Zillow. Their twist? They funnel all the leads back to the listing agent, instead of farming them out to the highest bidders like Zillow does. I’ve been called by several phone jockeys from Homes.com to sign up for their enhanced listing packages, and I’ll sign up. Robert Reffkin responded positively to the Homes.com program, and you can see how Gary Keller feels about it above.

Agents are giving up on representing buyers because it’s too hard and doesn’t pay enough. Most of the unsold listings are grossly over-priced and the occasional deal gets multiple offers within minutes. Agents have to spend months or years working with their buyers before they get lucky, only to then get a reduced commission from the listing agent. Now I have to convince the buyer to pay the commission too? Great, thanks.

Listing agents are advertising for buyers to avoid paying the buyer’s-agent commission by coming directly to the listing agent instead. Realtor cannibalization is what we deserve. (link)

This house priced at $1,985,000 in Rancho Penasquitos received 15 offers and likely sold for 15% to 20% over list (an offer that was 12% over with free rentback wasn’t enough).

I remember when $2,000,000 got you a decent house in Carlsbad!

Hiring a Buyer-Agent

The commission lawsuits and action by the DOJ will cause buyers to wonder if they need to pay for representation, and what do they get if they do.

It will also be a function of how much it costs. If the service was free, everyone would do it.

It’s been like that in the past, but it also caused buyers to be a little too casual about who they selected, and they tended to just grab someone – which doesn’t always bode well.

  • If the fee was 1% at closing, you’d probably do it – if you liked them.
  • If the fee was 1.5% to 2.0% and the terms were clean and non-exclusive plus the agent made a really good case why he’s worth it, then yeah, maybe.
  • If the fee was 2.5% to 3%, there would need to be some guarantees or real promise that you would get exactly what you wanted, and be very impressed with the service too.

Buyers will be able to include in their purchase offer that the seller pays all or part of the buyer-agent commission. But there won’t be any promises about what a seller might pay – if anything. So buyers should be prepared to pay the entire amount to their agent, as agreed up front.

What should buyers expect? What are the skills that good buyer-agents possess and implement on behalf of their buyers? Here is my quick list:

Overall analysis of general market conditions

Video /audio tours of prospective homes for sale

Pinpoint Home-Value Analyses

Measure up the sellers and listing agents

Winning-price predictions

Offer Strategies

Bidding-War Management

Contingent offers that win

Tough and detailed inspections with free quotes on repairs/improvements

Expert deal management

Foreclosure hunting

Bridge-loan financing

Off-market homes for sale

Sniff out any shenanigans

See the new listings in person every week.

There are also the 132 things agents do for buyers linked here, but the real problem is demonstrating the skills. How will buyers know what they need? How will agents show them what they have to offer?

When you go to the car dealer, they let you take the car for a drive around the block. How can you do that with a buyer-agent?

It would be fruitful for agents to have a blog where they demonstrate how they work, and provide evidence of their results. But that may be asking too much of agents.

We do free consultations for sellers. Let’s do them for buyers too.

Buyer-agents should offer their list of services AND be willing to meet any prospective clients-to-be at a home for sale so agents can show them what they do. A tour of a house to point out the positives and negatives will give the potential buyers a great sense of the agent’s expertise.

Agents – let’s make the free consultation at a home for sale part of the effort to assist buyers. Besides, you want to get a sense of whether you want to work with these buyers too.

Before you get married, you should have at least one date!

What do you look for when you meet your potential realtor at a home for sale to see what they have to offer? If they add to the experience something you didn’t know, then you’re on the right track – ask questions! If they say, “Here’s the kitchen”, it is an automatic disqualification – just run to your car!

Dominance vs. Fiduciary

These Palo Alto guys have been making national headlines since they rolled out their reduced-commission program last week. They are offering a $10,000 fee to buyer-agents, instead of a percentage, AND encouraging buyers to come directly to the listing agent to avoid paying any fees (which is my beef).

Why would a high-end independent brokerage that sold 100 homes in the last 12 months – mostly in the $3,000,000 to $10,000,000 range (with sales of $40,000,000 and $44,000,000 too) – feel the need to effectively shut out their fellow real estate agents? Beats me.

Last week, the Department of Justice stated that commissions should be decoupled and NO fee be offered up front to buyer-agents by the seller or listing agent (though they did agree that buyer-agents can include a seller-paid commission in their buyer’s offer).

What gets lost in the discussion is the 120-year history of broker cooperation – where other agents can sell my listings, and I can sell theirs. It is a terrific system that best serves the sellers and buyers, which is our fiduciary duty.

But greed and market-share dominance is pushing fiduciary duty to the sidelines. Instead, brokerages are taking advantage of the current uncertainty to craft a quasi-single-agency package that effectively shuts out the cooperating buyer-agents under the guise of saving the seller money. Is it in the seller’s best interest to discourage the outside buyer-agents?

This is one of their first listings to hit the open market that offered their $10,000 fee to buyer-agents, and it went pending in seven days:

https://www.compass.com/app/listing/764-parma-way-los-altos-ca-94024/1510956913476773969

Keep this house in mind – I’m listing a house near it this weekend!

More MLS Remarks

Please use your own directions.

NOW EXCEPTING BACK UP OFFERS…

AGENTS: PLEASE PROVIDE BUYERS POF AND LENDER APPROVAL OR, IF CASH – BUYERS PROOF OF FUNDS WHEN SCHEDULING A SHOWING.

Seller only wants serious buyers.

Do not sue ShowingTime.

Michelob lamp does not convey

Google maps works better than Apple Maps but both of them will take you to the home…. I just like google better.

Seller has a strong preference for using First American Title and First American Escrow, if your buyer can not accept that do not make an offer.

Big Price adjustment was to no fault of property owner simply wanted to test market to make sure they were not leaving any money on the table.

Buyers are recommended to investigate neighborhood safety by contacting the local police department. (listing in Carlsbad)

I do not know if the seller will accept an offer or counter. We cannot discuss offers.

“Dear Seller” letters will NOT be presented to seller. Please do not send.

Please do not ask me to host open houses. (vacant listing by an Orange County agent)

Complex also boast pickleball and tennis courts.

PLEASE DO NOT CALL TO HOST OPEN HOUSES. ***

Please note La Jolla does not allow “For Sale” signs.

Please whatever you do….do NOT use Showing Time.

Self Destruction

We don’t need the DOJ or commission lawsuits to take down our business – realtors will self-destruct, beginning with the elimination of the buyer-agents as we’ve known them.

A few of the comments below. Click here to see the whole thread.

The AI Realtor

It’s inevitable that artificial intelligence will be utilized in the business of selling homes. Having AI assist with writing home descriptions or other advertising would seem to be a natural fit.

How about speaking with clients on the phone though? Listen to the brief conversation above.

Here are some of the results:

Portal Wars

As a battle of words and philosophies rages between major real estate portals, Compass CEO Robert Reffkin on Thursday jumped into the fray and threw support behind the newest entrant in the space, Homes.com.

Reffkin was asked about Homes.com’s “your listing, your lead” strategy that aims to direct consumers to listing agents, and about Andy Florance, CEO of Homes.com parent CoStar. “Do you agree with him?”

“Yes,” Reffkin simply replied.

Replacing NAR

Kayla works for Mauricio at the Agency, and she sent this in! If listing agents recognize the value of buyer-agents and convince their sellers to pay them a decent commission, then the current model might survive. Or will they take the lazy way out and just hope buyers come to them directly without an agent? It is also possible that the courts will outlaw sellers paying a buyer-agent commission, which will force the issue – I hope we get some notice on that!

Two prominent real estate agents have started a new trade association in a direct swipe at the embattled National Association of Realtors.

Founded more than 100 years ago, the group known as N.A.R. has long held sway over the American real estate industry, collecting hundreds of millions of dollars in annual dues from its 1.5 million members. It owns the trademark to the word “Realtor.” But in recent years, the organization has been saddled with a barrage of antitrust lawsuits and sexual harassment allegations. Over the past several months, multiple top leaders have stepped down, stoking concerns in the industry that the organization is on the edge of implosion.

Jason Haber, a New York agent with Compass, and Mauricio Umansky, the Los Angeles-based celebrity agent and founder of the luxury brokerage the Agency, told The New York Times that their new group, the American Real Estate Association, could be an alternative.

Mr. Umansky said that A.R.E.A. will offer its members a nationwide database of home listings as an alternative, built from the technology he acquired for his own private listings service. That platform, which they’re calling the National Listing Service, is currently live with limited listings at theNLS.com.

“A centralized database with access to the full scope of listings across the country is better for everyone in the industry, and someone just had to do it,” Mr. Umansky said.

In addition, A.R.E.A. will allow agents to set their own commission rates and will not require any cooperation between buyer and seller agents.

Organizationally, A.R.E.A. will not have a president and vice president, Mr. Haber said. He emphasized that rather than seeking to replace the 100-year-old association, his goal was to offer something new.

“N.A.R. was too big to fail, until it failed,” he said. “People want something different. We’re setting ourselves up for failure if we try to replicate the N.A.R. model.”

https://www.nytimes.com/2024/01/23/realestate/american-real-estate-association-nar.html

(‘cooperation’ = sellers paying a buyer-agent commission).

Get Good Help

I try not to double up the content here, and this was only linked in a previous blog post so I’m not sure how many readers saw this previously. But it is noteworthy!

https://consumerfed.org/reports/a-surfeit-of-real-estate-agents-3-abundant-jobs-inadequate-mentorship-and-few-sales/

This third report on a surfeit of agents focuses on the role of real estate companies in the creation of the glut and related incompetence of many agents.

Our analysis of the sales experience of 2000 representative agents from large companies in five different areas revealed that there is an even greater surfeit than we and many others had imagined. Nearly one-half (49%) of these agents had none or only one sale in the previous year while nearly three-quarters (70%) had five sales or fewer. Almost all of these agents hold another steadier job or are retired. For most agents, the residential real estate industry is truly a part-time business. Yet despite this agent glut, many large companies keep recruiting new agents, often regardless of agent qualifications. They do so largely because of four factors – high agent turnover rate, new agent sales to friends and family members, fees paid by these agents, and limited liability for these agents since they are independent contractors. For these same reasons, many companies continue an association with agents even when the agents routinely sell only one or no properties a year.

The surfeit of agents ensures that many will not be able to receive adequate personal training and mentorship. One agent reported that a managing agent had been assigned responsibility for more than 100 agents. Large companies do make available on-line training but many agents report that what new agents really need is experience working with a veteran agent and close supervision by a broker while they are selling properties. That close supervision is not required by most states. Of the 50 states (and DC) we examined, only seven require closer supervision of new agents than more experienced ones. Furthermore, that close supervision is often not clearly defined, and we have seen little evidence that state regulators have focused on the issue.

Consequently, some companies and agencies feel permitted to adopt a “sink or swim” approach to their new agents that certainly is not to the benefit of their consumer clients. There are roles for states, the National Association of Realtors, and individual companies and agencies in addressing this issue. State legislatures should require close broker supervision of inexperienced agents beyond checking paperwork. Colorado, Illinois, and Montana not only require closer supervision but define what this supervision entails. States should also follow the lead of those states, a small minority, that require agents to receive post-licensing education on the practicalities of selling property. Moreover, regulators should intervene when the complaints they receive show evidence of inadequate training and supervision.

The National Association of Realtors (NAR) could play a role differentiating inexperienced sales agents from full-time professionals by raising the standards of earning Realtor status. Today, few consumers understand or are influenced by this status. If NAR were, for example, to require more experience and competence from Realtors then publicize this difference, consumers would more likely hire these agents. These requirements could include, for instance, selling more than five properties in the previous year and initially passing a new exam on the practicalities of selling property.

Many companies and agencies take seriously the training of new agents, yet many do not. The latter should recognize that heightened consumer awareness of industry practices resulting from class action litigation is likely to encourage more informed selection of agents. The industry should also recognize that increasing the number of agents does not appreciably affect home sales but does reduce the average income of individual agents and brokers. Companies and agencies should value full-time professional agents and brokers more highly than part-time sales agents who are engaged in other occupations.

The glut of agents and the inadequate training and experience of many has an important implication for consumers. Both home sellers and buyers should choose their agents carefully. These consumers should pay particular attention to the number of recent sales and client evaluations of the agents considered. Both Zillow and Realtor.com list this information about many agents, and this information tends to be more objective than that offered by referral agencies. Consumers should be wary of agents without an informative listing on either website. Friends and family members who have recently sold or purchased a home can also be consulted, yet consumers should also use Zillow and Realtor.com to supplement the information these individuals provide.

Click here for the full report:

https://consumerfed.org/reports/a-surfeit-of-real-estate-agents-3-abundant-jobs-inadequate-mentorship-and-few-sales/

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