August 17 is going to be quite an interesting day for those involved in real estate. That’s the day that the National Association of Realtors (NAR) has set as a deadline for its members (I’m one of them) to implement the practices they agreed to implement as part of this whole saga. There is a whole lot of information out there on What It All Means, and most of it has been wrong. I have my opinions on how things will change in practice, which might end up being wrong as well. For now though, I’d like to explain as best as I can what is going to change and how I think those changes will change things. Yes, I said “change” quite a bit there.
There are exactly two changes being implemented. The first one will effect how buyers and their agents work together– starting August 17, all Realtors will be required to sign contracts with their buyers before doing any real estate stuff. That includes showings. Gone will be the days of casually agreeing to open a couple doors for a prospective client in a “get to know each other” phase. An agreement will have to be signed first. These agreements will outline geographic search area, duration (which might be for just one day or might be for a year, or anything else) and, most importantly, compensation.
Hold up. Compensation? Yes, compensation. For those of you who have bought a house in the last, well, ever, you likely never had a conversation with your buyer’s agent regarding compensation. Their fee came out of the seller’s proceeds, and that commission amount was predetermined by the seller and their agent, and published on the MLS for everyone to see. Now, the compensation for the buyer agent will be agreed to between buyer and agent, and if a seller isn’t willing to offer commission to a buyer agent (as they commonly did before), the buyer will be on the hook to pay their agent directly, or they may have to bridge a gap between what the agreement says and what the seller is offering.
By the way, many states already mandated these agreements, including our neighbors up in Washington, and many agents in places where they weren’t mandated were using them in practice. With the national mandate it just puts everyone on the same playing field.
Now for change number two. This one’s bigger. As of August 17, no MLS will be allowed to display or communicate whatever buyer agent commission (if any) is being offered by the seller. As of now, those commission rates are publicly displayed and adherence to them is enforced by the MLS that’s displaying them. That will be no longer. The various Multiple Listing Services (there are around 600 of them in the US) will be completely out of the game when it comes to commission.
What happens next regarding that one is anyone’s guess. Sellers may still choose to offer compensation more or less as they always did, and information regarding that amount of compensation can be shared by their agent via non-MLS means (their own websites, phone calls, etc). I suspect that in the near term at least, that’s what will happen. They can also choose to make any call regarding compensation a game time decision. Perhaps they’re only willing to compensate an agent that brings in a buyer if it’s a full price offer. Perhaps they’ll negotiate the amount of compensation based on whatever challenges they’re facing in the market. Perhaps they’re not going to pay one single penny to a buyer’s agent under any circumstance. All of those are potential outcomes.
It’s a new world, and like it is in any field when the status quo gets upheaved (and I know that’s not a real word), some will evolve and some won’t. The conversations that agents have with their clients will change, and buyer agents are going to need to do a much better job of explaining their value. It’s going to get tougher for those just breaking into the industry, and a whole lot of people will be turning in their licenses (which has already been happening over the last couple of years, and that churn will, in my opinion, accelerate). Personally, I don’t see anything wrong with any of that. Let’s get going.
