NAR Federal Ruling
Big news came out last month, when NAR (the National Association of Realtors) lost a federal case in Missouri. This ruling could completely change how real estate transactions are conducted nationally.
The case started when home sellers were unhappy having to pay their seller’s agent commission as well as a commission to the buyer’s agent to attract interest from buyers.
The jury ruled that NAR was conspiring to artificially inflate commissions for home sales (essentially helping the agents and not the sellers) and awarded $1.78B in damages, which could potentially be tripled to well over $5B.
According to NAR, they will ask for reduced damages and also appeal the decision, which could take multiple years in court to resolve.
Where do we go from here?
If you are thinking of selling, as of this writing nothing has changed. However, depending on where things go, we could be moving in one of two very different directions:
Direction 1
Prior to our existing model, where sellers pay one fee and cover both the seller’s and buyer’s agent fees, there were no buyer agents in Cambridge/Somerville/Medford.
The result was that sellers in the 90s were often paying 5-6% fees to their agents, but buyers were completely unrepresented and on their own. Buyers often had a lot of trouble navigating transactions, as they were relying on listing agents to help them navigate transactions where the list agent was representing the seller and NOT the buyer.
From my POV, if we go back to this model, it could cause serious problems for buyers. If buyer’s agents don’t exist and buyers are stuck relying on a seller’s agent that doesn’t have their best interests in mind, consumers lose in a big way.
And if buyers decide to go at it alone instead, I think they are in for a world of hurt. A great buyer’s agent has the experience and resources to understand how to negotiate a purchase, what a good deal or bad deal looks like, how to avoid potential bombs that can blow up deals, and how to navigate difficult situations as they come up.
Here are just a few examples of bombs that have come up in the last year or so that we were able to diffuse:
An oil tank started leaking the day before closing
Rent & lease terms represented in MLS by the seller were not accurate
A water leak in the basement at the final walkthrough
A large volume of stuff left by the owner on day of closing
Property appraised for less than offer price
An unrepresented buyer could easily have panicked and lost these deal. Or even worse, they could go to closing without the awareness these issues were even present in the first place.
As you can see, having a buyer’s agent who aggressively looks out for your best interests can save you tens of thousands of dollars, plus potential headaches and legal issues.
Direction 2
The other possibility and the scenario I think is far more likely, is buyers start to pay for buyer agent representation. If this happens, buyers would pay out their agents at closing, potentially adding their buyer’s agent fee to the purchase price and then paying the agent out as a closing credit.
If this happens, I expect that buyers will start factoring in their buyer’s agent fees when making offers, reducing their offer prices to make up the difference.
For example, with the current model, let’s say you’d be willing to pay $1M for a house. The seller pays the buyer agent fee of 2.5% or $25,000.
If the model changes, the buyer now pays the buyer agent fee of $25,000. They accomplish this by putting in an offer at $975,000 + $25,000 added to the offer to pay out the buyer’s agent. The seller will walk away with $975,000 - the same amount they would have had they offered to pay for the buyer’s agent fee.
From my point of view, if we switch to this model, the net result will be a financial wash. Buyers will begin paying for buyer’s agent fees, since they want professional representation AND buyers will pay less than they were previously, when the fee was covered by the seller.
Either way, the buyer agent fee the sellers think they will be saving from this ruling will likely result in lower sales prices from buyers to make up the additional expense being pushed to the buyer.
Final Thoughts
For now, nothing is changing, but if you’re a buyer it’s important to monitor this case closely, even if it may take multiple years to play out in the courts as NAR appeals the decision.
While at this very moment buyers will not be paying a fee in most scenarios (except for off-market transactions), be prepared for a change in the way transactions happen in the future.