Wednesday, December 11, 2024
Effective Aug. 17, the National Association of REALTORS® is set to introduce regulations that significantly change how commissions are handled in real estate transactions. This move follows a lawsuit settlement that highlighted the need for greater transparency and fairness in the industry.
All real estate agents must now negotiate compensation terms directly with their clients, whether representing buyers or sellers. The days of automatically splitting a 5-6% commission are over.
According to the U.S. Census Bureau, the Dallas-Fort Worth metroplex has a population of approximately 6.6 million, with about 2.69 million in Dallas County and 2.24 million in Tarrant County. The Texas Real Estate Commission reports around 59,000 real estate agents in the area — this means there is roughly one real estate agent for every 112 people in the D-FW metroplex.
In such a competitive market, the new NAR rules are set to affect the livelihoods of many agents, leading to potential shifts in how real estate agents conduct business across the region.
ABOUT THE LAWSUIT
In November, CNN reported that a federal jury in Missouri found the NAR and two brokerages liable for $1.8 billion in damages due to a conspiracy to keep real estate agent commissions artificially high. Since the case involved antitrust violations, the NAR could potentially face up to $5.4 billion in damages, as antitrust laws allow for the tripling of the awarded amount.
Ironically, the NAR, an organization known for enforcing a strict code of ethics among its members, faced a lawsuit concerning ethical issues in real estate sales. According to U.S. News & World Report, “The group (NAR) has made it clear it denies any wrongdoing in connection with its MLS (multiple listing service) or compensation rules.”
The lawsuit challenged the NAR over commission practices that allegedly forced sellers to pay high, industry-standard commissions around 5-6% — an amount split between listing and buyer’s agents. According to the complaint, this limited sellers’ ability to negotiate rates, drove up housing costs and reduced transparency, all of which are critical issues in ethical real estate transactions.
VYBE Realtor and real estate marketing expert Eric Wilkins pointed out that while many changes are coming to the industry, the core issue has always been that sellers could have negotiated commission pay — something many sellers may not have realized.
Multiple listing services, many of which are owned by NAR subsidiaries, are key online tools for real estate agents. They allow them to list and find details about homes for sale in one place.
The MLS also helps agents work together by sharing property information, such as details, including the commission percentage offered to the buyer’s agent, which was clearly outlined there. Like a catalog, the MLS makes it easier for buyers to find homes and for sellers to reach more potential buyers.
The NAR has implemented a new rule regarding the MLS as part of the settlement. NAR has agreed to eliminate the requirement that sellers must offer compensation to buyer agents on the MLS.
Compensation offers will no longer be displayed on MLS listings, allowing agents to negotiate these terms directly with buyers off the MLS.
REALTOR DUTY
“Negotiation is at the heart of real estate. Agents who shy away from it are not just avoiding conflict; they’re missing out on opportunities to secure the best deals for their clients.” — Anonymous.
“And so, everybody knows an agent,” said Wilkins. “The problem is that many agents don’t handle a lot of transactions, so they don’t encounter the real-world issues that come up frequently in the business. Dealing with actual situations is necessary to gain practical experience.”
Wilkins emphasized the evolving nature of the market and the need for creativity and adaptability. “We may see buyer agents charging flat fees or hourly rates. Agents’ flexibility and negotiation skills will be crucial in this new environment.”
The changing landscape of real estate sales, with its increased dialogue and negotiation, is set to foster better interactions between all parties. Granbury Association of REALTORS® past Board President Whitney Knieper said, “I think that in the long run, it’s going to build better relationships between a buyer and their agent. Clients are going to know what they should have known all along — that their agent is working for them. Their agent’s fiduciary duty is to their client.” This shift may provide hope for the future of real estate transactions.
“Negotiating commission has always been available. It was a common practice that sellers would cover the buyer’s agent’s commission,” said Wilkins. “Now, this is being addressed, and sellers are becoming more aware of their options as well.”
Wilkins added, “The MLS no longer lists the buyer’s agent’s commission, BAC, offered by the seller. We (agents) have to call the listing agent directly to find out if a commission is being offered. This creates an additional layer of negotiation and transparency.”
Joni Dawson, broker and owner of J Dawson Realty, provided insight into the lawsuit, saying “The National Association of REALTORS® has changed their rules for all of us nationwide.
“So, now, if a buyer calls me and says,’ Hey, Joni, I want to go look at a house,’ okay, I’m going to have to meet them at my office or somewhere before I open a door. They’re going to have to sign this buyer rep agreement and agree to whatever percentage we put in there, or a flat fee,” Dawson said, adding, “And that’s never been the case, ever, ever. In the early ‘90s, buyers weren’t represented at all. That was back in the days of ‘buyer beware’ … Everybody was always representing the seller.”
A NEW APPROACH
Dawson is proactively adapting her business model to address these changes. With over two decades of experience, Dawson has witnessed numerous market shifts, but she describes the latest NAR rules as particularly transformative.
“Previously,” Dawson explained, “sellers would pay the commission, which would then be shared between the listing and buyer’s agents. Beginning Aug. 17, buyers must sign a buyer representation agreement up front and agree to pay a commission or flat fee at closing.”
To better support her clients, Dawson is rolling out a new business strategy aimed at providing clarity and assistance to both buyers and sellers. “I felt a calling to help buyers navigate this new landscape,” she explained. “Many first-time home buyers have a hard enough time coming up with a down payment and closing costs. The probability of paying a buyer’s agent will put a big burden on them.
“That’s why I’m implementing a 1% flat fee for sellers, which covers a range of services. Additionally, each of my listings will specify the buyer’s agent’s commission to ensure transparency and simplicity in the process.”
PROTOCOL
All professionals in the area consistently emphasize the importance of a negotiated and signed buyer’s compensation agreement before accessing a property.
This change clarifies the financial obligations up front, ensuring buyers understand their agent’s commission responsibilities. Wilkins explains, “If someone calls and asks to see a house like 123 Jones Street, the REALTOR® must first send them the agreement, which must be signed before the property can be shown.”
Knieper, who has worked with Knieper Realty since 2010, said, “The major (transaction) changes involve updated forms to ensure consumers understand commissions, breakdowns and that these terms are negotiable.”
Dawson, a seasoned professional in the field, explains how this process works. “Every agent, when they’re showing, is going to have to call the other side and ask, ‘Is your seller offering buyer agent compensation, or is the listing broker sharing commission?’
“So, that’s the first thing, we cannot even open a door, so no more ‘looky-loos’ unless it’s an open house,” Dawson said. “No more making that phone call and having that agent meet you because it’s not going to happen without you (the buyer) signing the buyer rep agreement and negotiating a commission for services.” This policy change is a serious one, and all parties need to understand its implications.
PERCIEVED VALUE
The value of a buyer’s agent is evident in various aspects, such as negotiation, contract writing, and understanding Texas real estate contracts. Wilkins acknowledges that buyer’s agents also have valuable contacts with inspectors and can help explain title issues. However, the current changes might lead to new models emerging.
Changes such as a buyer’s agent charging per house showing, per hour, or a flat fee could deter casual buyers who are not serious about purchasing. As Wilkins points out, “Many buyers look at numerous houses in a day without finding what they want, even with the help of the internet to narrow down options.”
Wilkins believes those who adapt quickly to these new models will be the most successful. “The agents who make these adjustments will likely see success,” he said. The key will be proving their value in this new environment and running a sustainable business.
INNOVATIVE MARKETING
To promote her new commission model, Dawson has launched a billboard campaign along U.S. Highway 377 with the message, “Save thousands in commission fees.” Dawson explains, “We’re trying to make our value proposition clear and accessible to potential clients.”
J Dawson Realty proposes a new approach to real estate transactions. It plans to charge a 1% flat fee to sellers, offering various services for this fee with additional a la carte services available. “The NAR lawsuit highlighted the need for choices and options,” said Dawson.
Each listing sign will feature a QR code indicating that a 2% commission is available for the buyer’s agent. Dawson will clarify to her sellers that offering a commission to buyer’s agents will increase interest in their property. Dawson will charge 1% for her services.
“Every J Dawson Realty listing will offer buyer agent compensation. This way, the seller will be responsible for around 3% in total fees, rather than the traditionally negotiated 4% to 6%.”
LEVELS OF SERVICE
“The major changes that have happened are with the forms to make sure that consumers understand commissions and breakdowns and that they are negotiable,” Knieper explained.
“And on the buyer side of the transaction,” she added, “the major change that is not optional is that as REALTORS®, we must have a buyer representation agreement signed and agreed to by each buyer before we unlock a door and show them a house.” Knieper stresses, “We can’t even let you in unless you sign this form right here that says that I represent you.”
Knieper breaks down several options on the new required buyer’s form. “There’s a full-service agent who shows you the house, negotiates your contract, and handles all of your dealings with the title companies, inspection, etc. That’s a full-service agent.
“Then there’s also just a showing agent option indicating the buyer can give an agent X amount of dollars to unlock the doors,” Knieper said. “That’s it. The agent will just unlock the doors. There are options there, but it will be an interesting change.”
Knieper believes sellers who only pay their listing agent and do not agree to pay a portion of the commission to the buyer’s agent may find their showings very limited.
The main thing that happened with the NAR lawsuit was some confusion among consumers about commissions. “On Aug. 17, new regulations go into effect,” Knieper said. “These changes are not optional.”
TRANSACTION SUPPORT
Lauren Hutton, assistant office manager at Stonewall Title Company, noted the changes (resulting from the lawsuit) have encouraged closer collaboration among real estate agents. "Our role is to support agents and ensure transactions align with the new regulations. We've seen real estate agents working more closely together to navigate these changes."
Despite the complexities, the real estate community in North Texas appears to be optimistic. The new regulations are expected to foster better-informed transactions, benefiting both buyers and sellers in the long run. As Wilkins aptly put it, "Flexibility and strong negotiation skills will be crucial in this new environment."
SIDEBAR: WHAT BUYERS NEED TO KNOW
For further information and guidance, buyers and sellers are encouraged to consult with their real estate agents to fully understand these new regulations and how they may affect their transactions.
