Defending The New Normal…..

The information/misinformation lines of communication have been abuzz lately about the NAR Settlement and what is means when we move forward. The terms of the approved settlement and how it will change the way selling and buying real estate will take effect in August. It will vary state by state. From my perspective as a veteran California Broker, I can say that in an effort to make it all work, the California Association of Realtors is doing a remarkable job of attempting to clarify the process and pivot a very fast paced business that in and of itself is it’s own economy. Needless to say lots of moving parts and with that lots of new forms to learn as an agent. For some, the need to have documented buyer representation will be foreign but for others it is a matter of using different paperwork. The processes that have been in play in California will have a few more steps but the clarity will be refreshing as long as everyone operates with honesty and integrity.

The settlement terms dictate upfront negotiation of compensation paid by both buyer and seller. If a buyer wants a home that the seller is not willing to assist with the fee for their selected agent, then the buyer will be paying their agent’s fees. This is where the Buyer Broker Agreement comes in. It handles the “what if” scenario so that the buyer knows at the time they write their offer what they will be expected to pay for the services on any given home. In it’s essence, the ruling moves the compensation off of the seller’s plate and puts it on the buyer’s plate. Since the current housing market is still very tight in California, this is going to be a big shocker to most buyers who come to the table with minimal down payments due to the cost of the housing. So we can expect to see people using more down payment assistance and lower down payments but paying more mortgage insurance and higher rates because of the change. Sadly, this will also price many people out of buying a home at all.

Forcing all buyers to have a representation agreement in place will provide much clarity on who the key players in a transaction. A buyer representation agreement which will be required by law will be drafted early and will have a short shelf life. It will dictate how the agent writing the offer for the buyer will get paid and exactly how much will be expected for the representation. To support this process there are forms for showing properties and for open houses so that it is real clear when the buyer selects a home that they will have to compensate their agent or if the seller will be offering compensation. This, ultimately, is a good thing for the consumer but the transparency will come at a cost of slowing down the process to some degree as it relies on the seller and listing agent to be responsive to calls, texts and emails so that an offer can be written. As with any change, time will tell if this has helped the consumer but I suspect that it may hurt at first. The current system allows homes to go on the market and be in contract anywhere from a few hours to a few days and also have very quick closings (most lower than 30 days). Great for the seller and the buyer but the extra paperwork and upfront negotiation over compensation will slow this down. Maybe it is a good thing for the buyer because it will give the buyer the time to understand what they are doing more clearly. As for the seller, they can decide not to help out the buyer with the compensation as they have always done but in order to not do that they will be limiting the number of buyers able to purchase their property greatly. It will likely take more time to get the home sold too. A lawsuit that was to protect the seller of a home may actually hurt them to some degree.

For those who just say that the buyer can go straight to the listing agent to write an offer on a home, this is true for now. The buyer, if they do not have an agreement in place with an agent, can still do this but they will need to make sure they have not promised their purchase transaction to a buyers agent beforehand. The downside for the buyer is that they may inadvertently breach a Buyer Broker Agreement and will still need to pay the fee to their agent. This is where it all goes down hill. On the one hand the buyer who has very little money for compensation can get in line for a home but the cost is having their own advocate with their own errors and omissions insurance to rely upon. The situation of a dual agency is something both buyers and sellers need to understand fully before they enter into such a contract. It is not just about saving money on the commission it is about sacrificing protection and guidance that is afforded in single agency.

To sum this all up, transparency is good. Clarity is good. Who is ultimately going to pay the price- the consumer. At least the number of unqualified buyers looking at the homes will be reduced. So that is a win.