Thanks to NAR settlement, real estate is in its Wild West era

The ides of March are upon us and exactly on March 15, which is the date associated with misfortune and doom in the ancient Roman Calendar, NAR’s commission lawsuit settlement was announced.

If you were blindsided by the news of the NAR proposed settlement, you are not alone. I am still trying to make sense of it all, but it feels like we’ve been hit by a sledgehammer. 

Highlights of the settlement include:

• NAR would pay $418 million in damages over the next four years
• NAR would agree not to create rules that allow listing agents to set compensation for buyer brokers
• Offers of compensation would no longer be displayed in MLSs starting around a mid-July timeframe
• MLS participants will be required to work with buyers to enter into written buyer representation agreements before touring homes
• There is no admission of guilt with the settlement
• The settlement is subject to DOJ and court approval

NAR through it all

We should have seen the signs. NAR remained extremely quiet throughout the course of it all, providing members with very little guidance that we weren’t already getting from our brokerages, and state and local associations. They were late in the game to respond to ongoing attacks of inaccurate, clickbait media stories about our profession that are continuing.  

There did not seem to be a rapid-fire communications team at the ready to respond to these issues, other than the same few sentences that were repeated time and again. Because if the media pounds the message out enough, no matter what the news source, it becomes reality to the public and misinformation and misinterpretation spread like wildfire.  

Then there was the offer to take the Accredited Buyer Representative (ABR) course at no charge. Something was brewing.

Once again, the very association that we have been required to join has failed to protect our compensation, and that is putting it lightly. There was the fallout that ensued regarding the sexual harassment and illicit behavior issues at NAR, with several leadership changes in a short period time.  

The distraction and dysfunction of those situations, coupled with massive litigation, have exposed the cracks in the organization. Over the years, NAR allowed MLS data to become a free-for-all, in which the “empowered” consumer has become entitled to it, think they don’t need us and we are a public information service about properties.  

Listing data is so transparent that many think our role is no longer needed. We are fighting against ourselves, trying to justify our value, and tooting our own horn in a room by ourselves, but is the consumer really listening, and do they even care? 

The reality is they only care about getting a property that meets their needs with little regard for the process involved in getting it, and who gets compensated, if at all.  

If it bleeds, it leads

The media is running rampant with inaccurate headlines, such as The New York Times: Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits. Of course, the proposed settlement does not mention slashing commissions, because all commissions have always been negotiable, vary in offerings and no dollar amounts have ever been discussed.

But this headline will reinforce the public belief that they’ve been overcharged for every real estate transaction they’ve been involved in and that Realtors do the same amount of work no matter the transaction or price.  

For some reason, the attorneys, DOJ, media, consumer and the court of public opinion do not acknowledge the risks involved in getting paid as a 100 percent commission-based profession.  

The references to how other countries do real estate continue to be mentioned in a lot of this litigation rhetoric, but no details are ever shared other than: See, in Japan they only charge X percent, etc.! Well, this is the United States of America, and we are not structured like other countries.  

Many of these countries offer health care, people are generally compensated better in various professions compared to the United States, and there are inherent cultural differences. Most importantly, it is the law in those countries to require consumers to pay their agents.  

If the buyer doesn’t compensate their agent by contractual agreement, the agent has the right to sue. I dive into a lot of this in my article: “Real estate the Australian Way? It Won’t Solve US Commission Woes.”  

Many questions. Still no answers

The questions continue to stack up as this situation continues to evolve, particularly about compliance and enforcement regarding compensation, which I hope we will get answers to very soon.  

With all the discussion about transparency, I would have never imagined that NAR would have agreed to remove offers of compensation from the MLS.  

In my article “9 post-Sitzer questions we still don’t have answers to,” I pushed for more transparency in terms of showing what the compensation was on both the listing and selling sides to all agents and consumers, since buyers may have to participate in the compensation to their agent.   

As a result of this ruling, agents have less protection than ever before. We have always been a contingency-based profession, which carries its own sets of risks — the buyer may not buy with us, and the seller may opt not to sell and take their home off the market. 

Although not perfect, between the MLS rules and the NAR Code of Ethics, both had most of the agents playing nicely in the sandbox and ensuring we got compensated.  

I realize there have been exceptions to this and many horror stories regarding procuring cause and other less than transparent situations because of buyer, seller and sometimes just bad agent behavior. 

Now, we are heading blindly into the real estate ether, working tirelessly on behalf of a buyer with no idea if we will be compensated (despite having a buyer agency agreement) or what a seller may be willing to do.  

How is that OK? Every other profession and service provider has a fee or a price they charge which is known upfront.

We have the freedom to charge a retainer or hourly fee for the work we are going to do, or time spent, but administration, oversight and enforcement of that is another matter.

Any number of things can happen; our current enforcement provisions were always limited and now don’t mean much. What is to prevent a buyer and seller from going around the agents in a transaction to negotiate a better deal directly?

While offers of compensation cannot be made contingent upon an offer getting accepted, let’s be real: if the seller has a choice between compensating a buyer’s agent or not (and the buyer is limited in their financial bandwidth of what they can do), the seller won’t want to consider the offer asking for buyer agent’s compensation.

Some listing agents may not want to work with certain agents bringing buyers. Unfair bias may ensue on any number of things that will go unchecked: the listing agent doesn’t like X brokerage, had a bad experience with them and won’t offer any compensation to any agents from that company, but is telling agents from other companies that compensation is available.

Other listing agents may have preconceived notions about buyers based on race, background, creed or sexual orientation and a seller and/or agent who is biased may discourage interest from the agent representing that buyer by telling them they aren’t offering any compensation or offering very little on purpose, to discourage interest. 

There is no way to vet what the buyer’s agent or their client may be told because nothing is disclosed in MLS. So what does the agent and their buyer do at that point? Take a chance, show the property and submit an offer to test that theory out? 

This brings up another question: When a transaction closes, will it be disclosed what fee if any was paid to the listing and/or buyer’s agent in the MLS or anywhere else? Only then could an agent who feels the listing agent was less than transparent with them see what really happened, but by then it is too late. In the interest of transparency, we absolutely need to know. 

At that point, are we going to get mired in filing complaints and lawsuits that will likely far exceed the cost of the commission because it is going to be a they said/they said at point? The compensation paid (or not) is likely to impact the final sales price. We will need to know this information when reviewing comparable sales for both buyers and sellers to advise them on values, as will appraisers.  

We as an industry are not set up to run interference with the fallout that could ensue from this. Agency relationships and all that we know may have to be completely redone. It is almost like starting over as a brand-new agent, and you have to hit the delete button on all you’ve known.

The learning curve is going to be huge, and the biggest challenge will be getting all agents on the same page on how to do things the proper way, whatever that is. We will be up against a lot of confusion, misinformation and misunderstandings between agents and consumers alike.

There is already an inherent amount of distrust among agents of getting screwed over by each other in the best of circumstances; the MLS served to establish what agents working with buyers could expect compensation-wise. There have always been shady situations that have occurred between agents and consumers, and the MLS helped to protect what the agent bringing the buyer could expect to be paid. 

Now, it is a free-for-all; the rules are there are no rules. And don’t think for one second there won’t be those trying to find ways to dodge paying hard-working agents.  

With agents not having to be members of the MLS to be compensated for their work, this adds even more confusion to the fire. What rules are agents going to be playing by?

The NAR Code of Ethics won’t seem to mean much, so is there going to be a new playbook written that applies to all agents with a real estate license no matter what organizations you belong to (or not) and if you call yourself a Realtor or are a real estate agent? 

Will a new title need to be procured for all of us? Real estate advocate or adviser? Will we see brokerages and agents opting not to list properties in MLS? Trying to keep up with all that is on the market in a comprehensive and efficient way will be mayhem. 

Will listing agents and sellers want to negotiate compensation with 20 different agents before they show their listing? Agents working with buyers have a right to know what they will be paid or not before they drive 50 minutes to show 10 properties. Their buyer may not be able to afford to pay them in certain circumstances, and along those lines, cannot afford to simply add the cost of the compensation to the sales price, as that may push their monthly payment beyond their comfort level, or push them past the max they qualify for.

So, welcome to the Wild West. Everyone is going to be in different sandboxes, and all of this will contribute to unnecessary confusion. The fear for agents stems from not knowing who will pay them and how much — if they can get paid at all — with no practical means of ensuring compensation. 

Are we going to be ready to sue a buyer at the drop of a hat with legal counsel on standby, ready to send a demand letter? While that sounds like a great idea, who would pay for that? Most brokerages are running lean due to the market shift as well as all of this litigation and won’t be able to take on that expense. Neither will agents.

Besides, all compensation is payable to the broker, so the brokerage really needs to be the one taking that on.  

Four and a half months later, here we are with settlements to the tune of hundreds of millions of dollars, and the only thing it has done is have the plaintiffs’ attorneys essentially hitting the lottery. 

What’s the point of remaining a member of NAR or an MLS? Maybe an alternative system needs be started that isn’t part of any of this, so we can get back to common sense.  

Good luck out there everyone. We are going to need it.