Real Estate Agents Pay The Price - NAR Attempts to Settle
Real Estate Agents Pay The Price - NAR Attempts to Settle
How To Prosper in the New Commission Jungle
Real Estate Agents Brace For Change
Introduction
Since March 15, 2024, the airwaves and digital press have been inundated with articles and opinions attempting to describe and predict the outcome and impact of the proposed Sitzer-Burnett settlement.
A group of home sellers filed the landmark class-action lawsuit in Missouri federal court against NAR and others, including Anywhere, Berkshire Hathaway HomeServices, Keller Williams, and RE/MAX.
The plaintiffs claimed that real estate commission rates are too high, buyers’ representatives are paid too much, and NAR’s guidance and practices lead to inflated commission rates.
The National Association of Realtors (NAR) has unleashed a beast of a marketing and reputation repair campaign.
The damage has been done.
The NAR’s neglect and mismanagement have depreciated public trust in agent value and destroyed the National Association’s reputation.
Real estate agents and brokers will bear the cost and must adapt to survive. Prosperity is possible for the nimble.
The economic benefit available to the consumer, the home buyer and seller is yet to be determined.
Regulatory scrutiny, lawsuits, and settlements accelerate change already in motion.
Innovation and technology, paired with competition and transparency will lead to a more efficient marketplace.
Table of Contents
Real Estate Agents Brace For Change and Pay The Price
NAR Regulatory Scrutiny Accelerates Change Already in Motion
Review Of Proposed NAR Settlement Terms
What We Know and Don’t Know
Residential Real Estate Post Sitzer-Burnett
Real Estate Agents Will Pay in Dollars and Reputation
How To Prosper In The New Commission Jungle
The Future
Let’s Work Together
Appendix - Definitions - Notes
NAR Regulatory Scrutiny Accelerates Change Already In Motion
Two years ago, in February 2022, I wrote an article Real Estate Agent Compensation: Are Commission Rates and Fees Too High?
The article began:
At the risk of cutting off my nose to spite my face, the answer to the question, “Are fees too high?” is a foregone conclusion. Agent compensation is coming down.
Consider it axiomatic that there is no stopping the downward pressure on commission rates and fees.
I expect to feel the ire of real estate agents and brokers directed toward me relentlessly for highlighting the obvious.
Without a doubt, I felt the ire and venom directed toward me by scores of angry real estate agents, brokers, and peripheral players.
Anything That Can Be Digitized, Will Be Digitized - Kara Swisher
Even without Sitzer-Burnett and numerous other lawsuits, it was clear that technology and free or cheap access to information (Googlization) were fundamentally reshaping how residential real estate transactions are to be completed in 2024 and beyond.
It defied logic that with the likes of Zillow, Redfin, Aalto, Opendoor, and literally dozens of digital tools, software platforms, databases, and let us not forget artificial intelligence (AI), the industry was going to avoid a reckoning and rationalization of commission, fees, and employment.
If you don’t agree with me yet, spend 30 minutes with a search engine and ask questions such as:
How to Buy A Home Without An Agent
Do I Need An Agent to Sell My Home
Is Buying A House Without A Realtor A Good Idea
Can I Negotiate Real Estate Commission
Go down that rabbit hole and then rethink any logic that is based on the status quo.
Reflect on this, and you will likely agree with me that although change is upon us, there remains—and will always remain—a place for value-added services and service providers.
A real estate agent or broker who demonstrates value and justifies a fee, whether flat or commission-based, will be paid, praised, promoted and will succeed.
Review Of Proposed NAR Settlement Terms
What We Think We Know And What We Don’t Know
A brief outline of the main elements of the settlement proposal. NAR targets mid-July 2024 for implementation of changes.
Sitzer-Burnett proposed settlement - March 2024
Final approval of all conditions of the agreement is pending.
Buyer Representation Agreement
Written agreements with buyers will be required before touring a home. Consumers must be fully informed of services offered and their cost.
Compensation to Buyer Brokers
Disclosure of fees and commission as negotiable and may take the form of:
Fixed-fee commission paid directly by consumers
Concession from the seller
A portion of the listing broker’s compensation
MLS Changes
A new rule prohibiting offers of compensation on the MLS.
Consumers may continue to receive cooperative compensation as an option if it is pursued off-MLS through negotiation and consultation with real estate professionals.
U.S. Department of Justice
The Department of Justice (and the Federal Trade Commission) have signaled their interest in real estate commission cases.
Previously, the DOJ raised "significant concerns" with the settlement agreement in a different MLS lawsuit, stating it's not enough just to allow $0 buyer-broker commissions.
Outstanding Lawsuits
A slate of active or potential lawsuits and challenges exist. Much will become clear after the DOJ and FTC state their concerns and conditions and the Court approves or denies the proposed settlement.
A couple to keep an eye on:
Moehrl v. The National Association of Realtors
Wang v. National Association of Realtors et al
National Association Of Realtors Media Blitz
With the announcement of the proposed Sitzer-Burnett settlement, the NAR immediately began an information campaign directed at both the general public and its members.
Emails and videos were distributed to NAR members and an all-out PR campaign was initiated with press outlets.
The NAR continues to deny any wrongdoing and proposes a $418 million payout over four years.
NAR Factsheet
On March 15 of this year, and subsequently updated and moved from URL to URL, the NAR sent members the NAR Settlement Factsheet:
NAR and plaintiffs have reached a proposed settlement agreement that would end litigation of claims brought on behalf of home sellers related to broker commissions.
The agreement would resolve claims against NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all association-owned Multiple Listing Services (MLSs), and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below. The settlement is subject to court approval.
Did The NAR Properly Represent and Protect Member Interests?
The NAR Mission Statement
Take four minutes to watch the video highlighted below and consider whether the NAR lived up to its tacit dual mandate of "always working in the best interest of our members…and those that it serves.”
June 2020 Video: What NAR's Mission and Vision Statements Mean for Members
Members want flexible and proactive leaders who anticipate…provide tools before they need it.
Did The NAR Protect The Interests of Home Buyers and Sellers?
Further excerpts from the mission and vision statement and video:
Our vision is to be a trusted ally, guiding our members and those they serve through the ever-evolving real estate landscape.
These duties, which are in the client’s best interest, can be summarized by the acronym OLDCAR: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care.
Expertise and Committment to The Code of Ethics…that consumers can trust.
Never forget the impact we have on buyers, sellers and all consumers and communities.
Residential Real Estate Post Sitzer-Burnett
Rebuild Reputational Capital
There is no doubt that the NAR has suffered reputational damage. I suspect the damage is permanent, and it is unlikely that the Association will ever garner the influence it once wielded.
The negative impact on public perception of the industry and the harm caused to agents and real estate brokers is perhaps unquantifiable. What is known is that the damage to licensed professionals is massive.
Reputational capital takes much time to build, and requires very little to destroy. For this destruction, the NAR is responsible.
Agents and Brokers must work tirelessly, from the ground up, to restore faith in their chosen profession and to establish a framework to benchmark the value provided in exchange for the fees they will charge and the commissions they will earn.
A Cooperative Environment
Cooperation is not collusion.
Cooperation is the process of working with another person, company, or organization to achieve something.
Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading, or defrauding others of their legal right.
Prepare to Share the Real Estate Pot of Gold
Commissions on average will be reduced. The trend is in place and is accelerating.
Plan and reorganize around a new business model that includes full commission services and flat-fee, a la carte offerings.
Establish working relationships with agents and consultants who work on a flat-fee or reduced commission basis.
How To Prosper In The New Commission Jungle
12 topics every real estate agent should evaluate
Fiduciary Responsibility
Think and operate as a fiduciary first
Go above and beyond
Fiduciary duties are all the duties that a real estate agent or broker is legally beholden to when working with a client
Fiduciary duties include duty of care, loyalty, good faith, confidentiality, prudence, and disclosure
To serve the best interests of the beneficiary
Advocate for Higher Licensing Standards and Greater Oversight
I know of no other profession where so much is at stake ($$$) with such limited oversight
It is too easy to obtain a real estate license
Be Proactive - Commissions Are Coming Down
Outline your new business plan and create multiple levels of service offerings
Adapt To Change - Don’t Fight It
A quote attributed to Bruce Lee: Be like water making its way through cracks. Do not be assertive, but adjust to the object, and you shall find a way around or through it
Don’t fight the inevitable
Know Your Value
Learn to clearly and concisely articulate your value proposition
An elevator pitch as well as a long-form version
Know Your Brand
Whatever it is, get comfortable in your own skin
Become a Better Negotiator
The negotiating skill you demonstrate during the quest for your new client will directly influence the commission or fee you can charge
Think of it this way: assume I am the prospective client; my attitude is that if you can not convince me to pay you, I certainly do not want you representing me in a negotiation with property and money at stake
Buyer Rep Agreements Are A Good Thing
Knowing what you will be paid and setting expectations with your client contractually establishes a professional relationship
Rule of Thumb: People do not appreciate what they get for free
Prepare For A Marketplace Of Unrepresented Buyers
The DIY model is in play
Develop Relationships With New Referral Sources
Find professionsls willing to work for a flat fee or reduced commission (Zero Hour Group and Native Angelino Real Estate)
Constant Learning
Technology moves quickly - keep up
Plan to Prosper and to Survive - It’s A Jungle Out There - Think Like A Winner
The Future
NAR Failed Real Estate Professionals and The General Public
I am a member of the NAR. I often question the value of membership, services received, and whether the lobbying efforts (which I choose not to support financially every year when I pay my dues) are aligned with my interests.
I value access to forms via the California Association of Realtors and my local MLS. Additionally, the historical databases and access to professionals for industry-specific information are of value.
I do maintain a .realtor website as the SEO juice associated with the franchise is powerful.
Yet, the historical requirement to join the Association and the inability to visualize a direct link between my membership fee and services rendered leaves me to wonder if a better solution should be formulated.
I don't believe home buyers, sellers, investors, or any other party I have worked with care whether or not I am an NAR member. Never have I been asked.
Services to be Unbundled
In my opinion, it is inevitable that real estate services will be unbundled. An "a la carte" menu offering will become standard in the not-too-distant future.
This applies to real estate purchases and sales as well as the routine forms agents use to create and submit offers. Documents will likely be available via monthly subscription, on a per-use basis, or from a third-party source, e.g., an attorney. Thus, the need to join NAR or similar organizations will be further reduced.
Higher Licensing Standards
It is far too easy to become a real estate agent. Barriers to entry are low, while obstacles to success are high. Increasing standards would reduce the number of agents and act to improve performance and public perception.
Independent Contractor Status
An industry heavy on independent contractor relationships, with many brokerages operating pseudo pyramid structures dependent on monthly office or 'desk' fees, does not lend itself easily to a trust-based, fiduciary framework.
The self-regulatory framework needs to be more cohesive and consistent. The need for and benefit derived from a trusted national organization is apparent.
Greater Oversight Is Required
The oversight is minimal. Can you think of another relationship that includes fiduciary elements with such minimal oversight and very low barriers to entry?
Do we need a new National Association and Multiple Listing Service?
Leadership
It's time for change, and perhaps now, a new association built from the ground up, in line with the modern world, will emerge and gain significant market share.
Review and consider joining:
The National Listing Service (NLS)
The American Real Estate Association (AREA)
NAR Settles - Real Estate Agents Will Pay The Bill
A $481 million fine over four years likely paid from member dues.
With unearned dollars and a hit to reputational capital, real estate professionals have and will continue to pay the price for the lapses at NAR.
In this article, we discuss the hard truths, estimate income dynamics, and, importantly, sketch out a plan for success and prosperity in the 'deregulated' or perhaps newly "regulated" environment.
Prosperity is possible. A few will gain market share and experience higher income. The many will struggle to compete, and it is very likely that overall employment and the number of active licensed practitioners will fall rather dramatically.
NAR Leadership Failed to Be Proactive
Googlization, artificial intelligence, and financial market transactions at the speed of light; the signals were everywhere and bright as the shining sun.
I don't know which metaphor is correct: the mighty battleship that is large and changes course very slowly or the happy glutton stuffed and immobile.
In either case, the failings are real, and the bill will be borne by dues-paying real estate agents and brokers.
Worse than the crimes or misdeeds that may or may not have happened is the failure to anticipate change, protect their members, and skate to where the puck is going.
Let’s Work Together
Dual-Agency Revisited
A dual agent is a real estate broker, or agents working for the same broker, who act on behalf of both the seller and the buyer in a transaction. A broker is permitted to act as a dual agent in California only if the buyer and seller are both aware of and consent to the dual agency.
The holy-grail in real estate transactions is to act as dual-agent. In industry jargon, to double-end a deal or also known as ‘home cooking’.
Dual-agency by it’s very nature raises questions of conflict of interest. Arms-length transaction tests and the like are necessary to build trust and maintain a fair and orderly market.
Consider Refusing to Act As A Dual-Agent
In this era or realignment, it might make sense for a listing agent to refer business to an outside agent or consultant to avoid any hint of impropriety.
Give up a little to make a lot. Longevity is key.
Appendix
Definitions - Notes
Agent, Broker, Realtor
I use the term agent, broker and realtor interchangeably. In practice there are different licensing requirements for agent and broker. The term realtor is trademarked and available for business use only by those that are members of the National Association of Realtors (NAR).
What Is an Arm's Length Transaction?
Arm's length transactions assert that both parties act in their own self-interest and are not subject to pressure from the other party. They also assure others that there is no collusion between the buyer and seller.
Googlization
Googlized: Googleization (to googleize) is the process of data addition to the Google database; transparency and access to information increase as data acquisition costs approach zero. The term's first use is credited (2003) to John Battelle and Alex Salkever.
I modify the definition only slightly to add: When private or proprietary information becomes readily available without friction, such information and data sets are "cheap," i.e., inexpensive to acquire.
This phenomenon is almost passe as artificial intelligence and machine learning expand the logic stack of simple, one-dimensional information.
About The Author And Podcast Host
Tom Levine, leveraging a 25-year tenure in capital markets, leads Zero Hour Group and Native Angelino Real Estate, offering a suite of consulting, strategic analysis, and real estate services.
An alumnus of USC Marshall School of Business and the Claremont Colleges with a term at the London School of Economics. Additionally, he holds a CADRE broker's license (#02052698) and the designation certified Short Sale Specialist under the National Association of Realtors.
Have a challenging transaction? Let's discuss.
I consult on a range of transaction types and deal structures.