How I Believe The New Real Estate Laws Will Impact Buyers, Sellers, and Agents?

How I Believe The New Real Estate Laws Will Impact Buyers, Sellers, and Agents?

As most of you know, quite a few massive class-action real estate lawsuits are pending but nearing a settlement.  Whether you're a real estate agent or not, the terms of this settlement will be of interest to you when you're ready to buy or sell a home.  The litigation is pitting disgruntled home buyers on one side who believe they've been forced to overpay for their homes because buyer agent commissions are "baked into the home prices" on one side.  On the other is the National Association of Realtors and virtually every major real estate brokerage in the country. 

This lawsuit has been ongoing for over a year and appears to have been settled in favor of the home buyers. The Department of Justice still has to give its final approval of the settlement and has been vague about weighing in up to this point.  But once that occurs, the law will probably be passed this summer.

I'm not an attorney, just a concerned Realtor watching the wheels of justice turn slowly.  I have no idea how much money is involved in the settlement, where it's going, and how it will be disbursed.  My real interest is how the new law will impact our residential real estate industry.  Below are some key points I understand are part of the settlement.

  • Buyer agents must have a signed right to represent their buyer client before showing homes. That agreement will include any buyer agent fees.  This is how we have always operated.  Frankly, I just assumed all agents worked this way. 
  • Agents are no longer allowed to post buyer agent commissions (BAC) on the MLS
  • Sellers will pay their own listing agent's fees, and buyers will pay their buyer agent's fees.  This is where I believe it's going to get "sticky."
  • Sellers may instruct their listing agent to contribute a portion of their fee to the buyer agent fee. If that contribution doesn't satisfy the fee negotiated between the buyer agent and the buyer, the buyer will be responsible for making up the difference
  • Because the BAC will no longer be shown on the MLS, Buyer agents will be required to contact every listing agent of every home they're showing to their buyer to determine if the seller will contribute to the buyer agent fees and, if so, how much.

My Personal Feelings About The Proposed Settlement

While it's true Buyer Agent Commissions (BAC) are typically built into the price of the home which inflates the cost, it's important to remember that buyers are not obligated to retain the services of a buyer agent.  Nothing is preventing them from negotiating directly with the listing agent.  In fact, we've sold homes this way for many years without issues.  Whether it's wise for a buyer to purchase a home without representation by a competent agent is an entirely different matter, but it is their option.  The bottom line is if the buyer decides to retain the services of a buyer agent, the agent is going to want to be paid.  The only questions are by whom and how. 
I have many questions about the upcoming changes and am asking myself it was really thought through. For example, what happens when the buyer doesn't have the resources to pay their buyer agent?  Will the buyer be allowed to finance the BAC with the home? Financing commissions would not be allowed in today's practices, but if that option becomes available to buyers, in effect they're still paying more for their home.  We're back to where we started which started the lawsuit in the first place.

Will sellers take this settlement as a signal to lower their contributions to the BAC? Is it already starting to happen?  If so, will it result in lower prices for buyers?

This new law could turn out to be a major industry disrupter or, as some predict, it will not have much of an impact.  Whatever happens, we want to reassure you that we'll be here conducting business as usual and will weather the storm, ensuring that your real estate transactions are handled with the same level of professionalism and care.

A Snapshot of Today's Buyer Agent Commissions on the MLS

Real estate commissions have always been and will always be negotiable. That's the first thing agents are taught when they are going through their real estate licensing. The last thing our industry needs is a reputation for price fixing, so it's not surprising agents are not allowed to run MLS reports based on Buyer Agent Commissions (BAC).  However, to establish a baseline of where we are now so I can make a comparison of where we'll be at the end of the year, I manually searched for the BAC being offered on all homes in Fairview, Lucas, and Parker, Texas. I chose this area only because we've been selling homes here for 25 years, and it's our area of specialty. 
The answer I'm looking for is whether the new law will have an impact on the amount of the BAC (Buyer Agent Commission) being offered. Comparing the CDOM (Cumulative Days on Market) now and then isn't useful because the market slows down substantially in the winter months.  I don't know if this exercise will provide any answers, but here's where we are now and stay tuned for my December numbers ...
There are 104 Homes in FLP Priced at Over $1 Million Currently Listed as Active, Active Option, Pending, etc.
  • 81 Sellers, through their listing agents, are offering a 3% BAC - CDOM 87 days
  • 15 Sellers, through their listing agents, are offering a 2.5% BAC - CDOM 67 days
  • 7 Sellers, through their listing agents, through their listing agents are offering a 2% BAC - CDOM 54 days
  • 1 Seller, through their listing agent, is offering a 1% BAC - CDOM 48 days
There are 75 Homes in FLP Priced at Under $1 Million Currently Listed as Active, Active Option, Pending, etc.
  • 71 Sellers, through their listing agents, are offering a 3% BAC - CDOM 64 days
  • 4 Sellers, through their listing agents, are offering a 2.5% BAC - CDOM 66 days

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