In a recent court settlement, the National Association of Realtors (NAR) agreed to make significant changes to its rules governing homes listed for sale on its affiliated Multiple Listing Services (MLS). This settlement has the potential to reshape the real estate industry and impact how real estate agents operate moving forward. <\/p>\n\n\n\n
For the purposes of this post, an agent is a salesperson, and a broker is a manager of a real estate office where an agent hangs his license and is tasked with the responsibility to supervise the salesperson before state regulatory agencies. In a typical transaction, brokers representing each side receive an equal split of the commission, which for decades in residential real estate had been traditionally 6%. So a broker representing a seller, and a broker representing the buyer each receive 3%. Now, the agent who actually represents the market participant gets paid according to a commission split arrangement with the managing broker, which can rage from 65% to 100% of the 3%. Those offering 100% typically have more of a subscription based business model and essentially provide managing broker requirements before the state to agents for a flat monthly fee. The point is, unless the agent you engage in real estate services is the managing broker, they still only get a portion of a portion of the commission. <\/p>\n\n\n\n
Home sellers behind multiple lawsuits against the NAR and several major brokerages argued that a trade group's rules unfairly inflated agent commissions and discouraged agents from showing listings with lower commission sharing percentage or discounted rate to be equally split between brokers. As part of the settlement, the NAR agreed to no longer require a broker promoting a home for sale on the MLS to offer upfront commission sharing to a buyer's agent. Instead, individual market participants can now negotiate compensation directly with any agent for either side of the transaction, and brokers can also freely offer commission sharing whether through the MLS platforms or outside.\u00a0 The duty of disclosure is now even more heightened however for the agent both to the client served, the capacity of the service, and full disclosure and access to other agents whether members of an association or not.<\/p>\n\n\n\n
In addition, the NAR agreed to require agents or others working with homebuyers to enter into a written agreement, ensuring that homebuyers are aware of the fees they will be charged for the agent's services. These rule changes alter the way real estate agents have operated for decades, and could lead to sweeping changes regarding how licensed agents earn their fees. <\/p>\n\n\n\n
You must disclose disclose disclose, and you cannot exclude. How do these matters get reconciled? Buyers of real property are motivated by a plethora of reasons depending on the unique property being offered. This not only effects home sales, but all real estate services. Home owners, developers of commercial real estate, depending on their level of need will potentially receive more competitive rates for real estate services. Another problem is that market participants are constantly trying to get agents to work for free. Asking them to constantly search for properties for them without ever signing an agreement to compensate the agent for their efforts, no matter how the matter ends. Market participants already have legal leverage over the agent in the form of backing out of their agreement at any time there is no active committed engagement in an existing transaction in most states. <\/p>\n\n\n\n
Agents have less leverage than ever before. Most already have alternate part time careers in another industry. And remember also that we are entering into the world of AI. Soon you may be able to buy a property online just like buying a car. After all, a contract prepared by an attorney can be digitized and placed on a website. And money can be transferred though an attorney escrow securely via ACH. Since the process for buying a home can be systematized, this change in the industry may very well benefit licensed home inspectors and appraisers. The negotiation and contractual portion of the process can be digitized, with perhaps licensed agents as the human guardians of the transaction and playing more of an advisory role due to their knowledge in real estate. If education of others is your only value, it may not be enough to convince another to enter into an agreement to pay you for that education. This is the information age. Many are willing to educate themselves and pay nothing. <\/p>\n\n\n\n
The court settlement and the ongoing discussions surrounding the role of real estate agents raise important questions about the future of the industry. Will agents be forced to compete on commission rates, potentially impacting the level of service they provide? If the listing broker does not offer a commission split, does your Buyer Agreement commit the buyer to pay you for your role? If so how much? Can you get that signed prior to the very first MLS search? And what is the future of MLS? Will there be sweeping legislation to digitize real estate and disrupt traditional agent careers? Could licensed agents become employees, and is that in the best interest of home consumers, sellers, and property investors?<\/p>\n\n\n\n
It's important to recognize that real estate transactions are not one-size-fits-all. There are unique relationships and benefits of ownership to consider, and the role of a knowledgeable and experienced agent can still provide value to buyers and sellers. Real estate is static, and immovable and in some cases may require the services of an expert in a particular field. While changes are inevitable, it remains to be seen how the industry will adapt and whether these changes will ultimately benefit consumers in the long run. Some I fear will get hurt because \"they don't know what they don't know\" and they make a costly decision in the process. Others that have mastery of the industry, but no license can take advantage of na\u00efve market participants. But it is always the agents challenge to market their value, and it appears as if income will going down, while expenses are going up.<\/p>\n\n\n\n
A seller or buyer's knowledge of real estate gives them tremendous leverage. But they need to be held accountable for compensating agents. Instead, many investors are utilizing call centers to find sellers before sellers even think of calling an agent. Are they practicing real estate without a license? Are they what the IRS deems a \"real estate dealer\"? Buyer's may now be asked to pay agents compensation. How will that work out in the residential market? Good luck selling that up front. If it is not their first home, they will likely choose to wing it without an agent, and deal directly with the listing agent. <\/p>\n\n\n\n
But wait. The internet is the digital real estate, and language is the currency. Agents are not web developers. They are crushed with membership fees, subscriptions, MLS dues, licensing fees, E&O insurance, continuing education, advertising budget, high levels of accountability and liability for every word they say, and having to pay for leads one way or another. And now as soon as the conversation starts, they need to start negotiation for their fees in a similar manner as that of an attorney. As a real estate marketing specialist, the learning curve never ends. You either evolve or your are economically eliminated. What is the average career for a full time agent? Who really knows. The success rate has always been low.<\/p>\n\n\n\n
In conclusion, the recent court settlement between the NAR and home sellers has the potential to bring significant changes to the real estate industry. Lower agent commissions, perhaps more flat fee based offerings, increased competition, and more transparent fee structures may be on the horizon. However, the long-term impact on the quality of service and the role of real estate agents remains uncertain.<\/p>\n\n\n\n
As a professional these days you have to know the law regarding real estate, and you have to know the impact of the evolution of digital marketing as well as that of AI. You have to master digital marketing to include website investment, IDX investment, social media including YouTube, radio, billboards. In other words you have to master marketing at a higher level, or have experience other agents do not have. Do you specialize in anything other than residential? <\/p>\n\n\n\n
So what many brokers do is farm all this out at a tremendous subscription based expense and for many the expense to income ratio is inefficient. Now there will be a downward pressure on demand for buyers agents. There is existing pressure from the \"home dealer\" using call centers to find sellers first, or the big wig internet gurus get to them first and want to be paid highly for their leads or subscriptions. It is a tough career is it not? And then there is stagflation similar to the 1970's. The economic environment does not help the timing of these changes either. Agents are struggling to survive at the 6% rate, and wondering where is their cost of living raise? Instead, the projection is downward? Agents also have to share a percentage of their commissions with their managing broker. I expect many agents will be shopping those management services from those with a higher level of education and licensure. <\/p>\n\n\n\n
What a bad forecast.<\/p>\n\n\n\n
The commercial market is also competitive. Property management is a unique skillset but it also is competitive. The question is, are you willing to make the investment to be a pro at all these things and remain a licensed agent? Can you develop a niche? Or will the digital revolution carry you into another direction entirely? I expect record numbers of licensees walking away in pursuit of a career equally rewarding with more stability and far less oversight, investment and liability. Larger brokerage firms are getting hit hard, and may very well be moving to a more corporate business model. But how long will they be able to sustain the change that the law and AI will bring. There is going to be consolidation. NAR is also going to have competition as well. That is a fight for control of data more than anything else. You heard it here. Time will tell. And if there are multiple MLS services in your market, do you now have to subscribe to all of them? Of course! <\/p>\n\n\n\n
But if you are going to stay in this business, it is because you love it! You love your role in the process, and the serving of clients and the friends you make along the way. If that is you then you will invest whatever you have to the cause of finding those that are willing to pay you for the service you wish to provide, how that payment is going to be made, and get that in writing before performing services whether agency related or otherwise. Flat rates for limited services that do not involve agency, percentage rates for full service agency, and perhaps there will be an increase in those that can master the \"transaction broker\" role and target market participants more broadly. I welcome your thoughts.<\/p>\n","protected":false},"excerpt":{"rendered":"
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