I have held off for a long time in regards to the NAR settlement and New Policy changes, because I wanted to make sure that I had all the facts before sharing with you all.
If you are not aware there was a pretty big lawsuit that happened over the course of the past year that has rocked the boat for many Brokerages and individual REALTORS. This lawsuit came about because clients were feeling like they were being taken advantage of and not given all of the information before they were asked to sign contracts, and in most states the contracts don’t exist at all. While I do not know all the ins and outs of how that came about, I do know 2 things: 1 My brokerage Beiler-Campbell REALTORS had zero complaints filed against us throughout this process and we were never named as a brokerage that was at fault. 2 Here in PA we have had a Buyer Agency Contract (BAC) since the 90's that spells out everything that a potential home buyer will need to consider, negotiate and agree upon with their REALTOR before submitting an offer on a home- and if you have worked with me before, you know I bring this up when we first meet every time, so that no one leaves our first meeting unsure of a timeframe or a payment structure and everyone is fully aware of their rights and responsibilities from day 1.
Now, as a result of this lawsuit, the National Association of REALTORS (NAR) has released some policy changes that will take official effect August 17th. Unfortunately, most of the experienced REALTORS that I have spoken to seem to think that these changes are really big and really scary, but I do not think that they are going to be as big and scary as a lot of people are saying, and that’s because as my clients know we are ahead of the game and have already started implementing them. If you speak to a REALTOR and they start trying to scare you into anything please reach out to me and I'll make sure you get all the facts straight. There are quite a few changes being made so I have split this into 2 parts. This first part will focus on Policy changes, and the second will focus more on changes to contracts and forms.
1. You will not be allowed to tour a home without a signed buyers agreement. This means if you click on a house on Zillow, or realtor.com, or redfin, or any of those home sites, or even in the Beiler-Campbell site and an agent reaches out to you asking if you want to go see the property, you will have to sign a contract before you enter the home and see anything. NAR has done this because many states never created a BAC, and those that did were pretty laid back when it came to when that document was signed, so many home buyers weren’t finding out until they wanted to put in an offer what the REALTOR they were working with was going to charge them. This new policy makes it so that when you meet with a REALTOR you know what that REALTOR expects to get paid up front and can decide whether or not you want to work with them.
If you like the REALTOR and you have an entire buyer consultation with the agent, they will probably present you with an exclusive buyer agency contract which states that you and this agent are going to work together for an extended period of time to find you your dream property. You will then work with this agent only and be responsible for their compensation regardless of with property you buy, since this agent will represent you regardless of what property you submit an offer on and purchase.
If you are someone who likes to scroll online and do your own home searches and are just looking for an agent to show you a home you picked out, you can ask for a non-exclusive buyer agency agreement. This non-exclusive agreement allows the agent to show you a specific list of properties and will only ask for compensation if you decide to put in an offer on a property that they showed you. This agreement allows you to have the freedom to have many BAC with many REALTORs but only be responsible to pay the agent who represented you in the property you actually purchased.
2. There is a new form that some MLS systems are requiring buying and selling clients to sign. The MLS is a Multiple Listing Service. This is a tool that agents have that allows them to share with listings with all the agents in the area also subscribed to it. This is how we know about properties that are coming soon before listed on the market, and how we access all of the public records and listing information we are able to offer our clients. My brokerage uses BrightMLS and BrightMLS has released a new form to have everyone sign describing what the MLS is, what it does and has another section for the list side so that clients also sign off on the dates that their home go onto the website. This form may seem redundant for sellers, since it covers information that is already covered in the listing agreement, but may be found to be beneficial for buyers if your agent didn't take the time to explain the MLS to you. Either way, you will now know what the MLS is and how it works and will have to sign off on this when you collaborate with a realtor from here out.
The MLS is doing this to make sure that going forward they do not get heat for the service they provide REALTORS. The lawsuit had plaintiffs who made a lot of accusations stating that REALTORS were price fixing and that the MLS is how we were doing this. The MLS is not a place to price fix nor is it a way for REALTORS to communicate directly to one another, so now we are clarifying and making sure that everyone understands what the MLS is so that there isn't a confusion about the MLS and how it is used.
There is no options when it comes to this, REALTORS need to have this signed (on the list side) before your property can be listed on the MLS, or (from the buy side) when signing a BAC or they are fined $5,000.
3. REALTORS are no longer allowed to advertise compensation on the MLS. As I mentioned in the last point, there were a lot of accusations made about REALTORS colluding to price fix compensation. I should point out at this point that REALTORS are compensated through commission checks which can be a percentage of a sale or a set amount; some realtors may be compensated differently depending on how their employment contract is written, but as an independent contractor both the Listing Agreement and BAC both cover compensation as a percent or predetermined fixed amount. The compensation is a portion of both of those contracts is not preset and the client and REALTOR negotiate this to find what works best for each individuals. It is also important to point out that since REALTORS only get paid from these contracts so if your REALTOR won't go below a certain number, they know what they need to make ends meet and have a living wage and they probably aren't willing to work for you for no money, or at a loss. If you expect to get paid when you go to work, then think of this commission negotiation in the same way; everyone wants to get compensated for the work they do.
Now on the list side, sellers and listing agents have typically offered a compensation known as a cooperating brokerage or co-broke to the buyers agent as an incentive for buyers to want to buy their home. This is because after all the closing costs, its normally difficult for a buyer to also afford to pay their agent, but since they are contracted ahead of time in the BAC to pay the agent they will have to pass on properties that are priced higher or will require more out of pocket costs due to insufficient funds. Because of this, homes offering a co-broke typically sell faster and for more money than those not.
In the past the co-broke has been listed as part of the information on the MLS as part of the property's listing information since it is often a deciding factor in whether or not a buyer can purchase a property. Part of the settlement agreement was that the MLS will no longer be allowed to include this information as part of the listing. I believe the DOJ and NAR were trying to create more transparency between REALTORS and the general public but I personally feel like they missed the mark on this one.
This means that as a buyer, your agent will have to call the listing agent for every property you want to see before you go see it to check what the compensation is and if you can afford the property based on the compensation you will or won't have to provide. As the seller your agent will have to spend hundreds of hours more answering phone calls asking about compensation rather than being able to spend that time marketing your home. Basically, doing this doubled the work of every agent.
With all that said, Sellers are still able to offer this incentive to buyers and absolutely should if possible, as it presents a huge asset to any potential buyer looking to purchase your home over another. The only thing changing is that REALTORS cannot advertise it on the MLS.
Just to review:
1. The necessary documents will now be required to be signed on time
2. There's a new document describing the MLS
3. The Co-broke can not be advertised on the MLS
Come back next week for Part 2
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