national association of realtors

August 17th the Y2K for Real Estate?

by John Rice

Here we are just a few days from the date that the media thinks is going to change the entire real estate market.

Leading up to this reminds me of most of the year 1999. Back then, the media took the opportunity to let us know that most computers were never prepared for the year 2000. Doomsday was scheduled to begin January 1st 2000 since the computers would think the year was 1900 instead of 2000. This was called Y2K. People stocked up on cash, water and food in case the world froze up.

Of course, what happened on 1/1/2000 was that everybody woke up to find nothing had changed. Whenever I see a pantry stuffed full of a lifetime supply of canned goods, I wonder if that is somebody’s leftover Y2K stash.

All of us will wake up on 8/17/2024 and find that the real estate market kept going, just as it always has since the first person hired somebody to be their real estate agent whenever that was.

There are a few changes, and they are not at all like the so called journalists predict. Housing prices will not go down. No real money will be saved by anybody. Commissions in my area have dropped a little. I used to see mostly 3% offered to Buyer’s Realtors with an occasional 2.5%. I am now seeing a lot of 2.5% commissions. The change is really more of a technical inconvenience than anything mind blowing.

What will change is basically the equation to get to the same solution that has always existed.

In the “Old days” of right now, the Seller’s Realtor had a certain commission they wanted to make for selling the house. They would add an amount to that for the Buyer’s Realtor. The sum of those two numbers were what the total commission was going to be. By the way, commissions have always been negotiable.

The new model pretty much does the same thing…..at least in my market. A seller will have 3 options when signing a listing agreement with their Realtor: 1) The Seller’s Realtor is paid a larger commission and will offer to give part of it to the Buyer’s Realtor. This is the old fashion way. YES, it still will exist! 2) The Seller’s Realtor will charge their own commission PLUS the Seller will offer an amount to the Buyer’s Realtor to be paid directly by the Seller. 3) The Seller may choose at that time to not offer any commission to the Buyer’s Agent. Option 3 is the one everybody is assuming will change the industry. Well, time will tell if I am wrong, but I don’t really see Option 3 being viable in anything less than the absolute hottest real estate market ever. Why? Because history has proven that Buyer’s want their own Realtor involved. That is why most For sale By Owner listings fail to sell. Almost all Buyers prefer to have their own Realtor involved.

On the Buyer side of all this there are a few things I want to point out: The National Assoication of Realtors (NAR) is wanting it’s members to have Buyers sign an agreement which details how their Realtor will get paid. There has been no change in Kentucky’s state law at all. Why? Because commissions have always been negotiable. The NAR is a professional organization whose membership is voluntary. You can be a real estate agent without being a member of NAR, you just can’t call yourself a Realtor because they own that word. You would have to call yourself a real estate agent. This new NAR rule is really like being a member at a country club and having to wear a tie to dinner because it is a rule.

So back to how things change for Buyers. Well, for those real estate agents that use the NAR form, there will be a place to put what commission is to be paid by either the Buyer or Seller for the Buyer’s Realtor. This has always been on existing Buyer Representation Agreements, so the concept is nothing new. This is the part the media is in a frenzy over……but hold on, there is more to this. Our new offer to purchase contracts have a paragraph now for Buyer’s Realtor commission. Yep. You can write on the offer that you want the commission for your own Buyer’s Realtor to be paid for by the Seller. Aaaaaand this is something I think most all Buyers will want to do since few have the cash to pay for their representation.

There will be Sellers who try not to pay, either directly or indirectly, for a Buyer’s Realtor. They will probably find that not many Buyers look at their home. This is effectively like a For Sale By Owner situation, something most Sellers fail when attempting, largely because most Buyers want their own Realtor involved.

So in the end, what we have is a lot of hoopla with little real change. Most all Sellers will either directly or indirectly pay for the Buyer’s Agent commission one way or another. The Seller now just has a choice of how to do it. The Buyer now has to write in their offer how much, if anything, their Realtor is to be paid by the seller.

3+3=6

3.5+2.5=6

6-3+3=6

6+0=6

Yay, you get to pick your own equation now. Any numbers you want which will total somewhere between 5-6% commission when selling your house, just as it always has. Keep in mind too that a Seller’s Realtor is not going to do 100% of the work for both a Buyer and Seller for the same price. Also, just like any market, there is a point where it just isn’t profitable to do the work. Commissions can only go so low before Realtors just say no.

Do you really need a Buyer’s Agent?

by John Rice

YES!! YES!! YES!!

I’m seeing a lot in the news that the future of real estate might do without the role of a Buyer’s Agent.

That sort of scares me. Not because half of my work is with buyers. It scares me because buyers need an agent, almost more than sellers need a listing agent.

Having cut my teeth in the worst market in all of real estate history, I can tell you first hand that a buyer doesn’t know if they have made a mistake in picking a house, or overpaid, until they sell their home. It has been a good market for so long that I think most people think all there is to buying a house is picking the one they like…….as if it is as simple as choosing which product to buy on Amazon. One day, every buyer will become a seller. Your home may be a noose around your neck and you don’t even know it yet.

This was a common scenario for me when I was called to list a house between 2008 and 2011:

Seller calls me to list. They say they paid full price in multiple offers to get their house in 2003-2005. They assumed it would always be that way when they needed to sell. Then I have to tell them their house is worth less than they paid and they really should have called me before they bought the place. I could have saved them not only money, but a lot of time, frustration and headache.

I frequently saw where a spouse was transferred here. Their home back wherever they were from was on the market. The spouse was living in a studio apartment here until their house back home sold. The family was separated. Nobody was happy. Trust me, you don’t want to be this buyer.

This is how a Seller’s Market works: EVERYTHING sells for top dollar and fast since there aren’t many options. This is how a Buyer’s Market works: ONLY the choice, Grade A homes in Grade A neighborhoods sell fast and for top dollar. Everything else goes for less. Have a house in a less desirable school district? Have a house with an awkward floor plan? Have a house with a terrible lot (Think steep driveway, no privacy, backing to a busy road, etc)? Good luck selling in a Buyer’s Market because every buyer can get that Grade A house. You need to have a big price difference between those Grade A homes and your home to entice a buyer.

Aaaaaaaand you need a Buyer’s Agent who can tell you these things BEFORE you buy a house.

Winners & Losers of the NAR Settlement (Plus what I think about it)

by John Rice

Let’s get this out of the way first thing. Contrary to what the media and even President Biden has said after waking up from what looked like a great nap, real estate commissions have ALWAYS been negotiable.

Don’t believe the things you are reading in the media. Remember, their goal is to sensationalize news so you will read their article. The journalists assigned the task of telling you about changes in the real estate industry know little about it. They are only experts on the english language and shouldn’t postulate on much beyond that.

Okay, let’s begin with a brief history of how we coupled the commission for both the Listing Realtor and the Buyer’s Realtor.

Back in the olden days, you as a seller would hire a real estate agent to sell your house. They were tasked with finding you a buyer. They didn’t just put it on the market and wait for a buyer’s agent to show it like today. They had to literally procure a buyer for you. I don’t know who is responsible for this revelation, but somebody along the way figured out that some real estate agents had people wanting to buy a house. Just like the old Reese Cup commercials where somebody eating peanut butter crashed into somebody eating chocolate, it was discovered that the process of selling a house went faster if the agent with the house split the commission they charged with the agent who had the buyer. Voila! (Did you see what I said there? The entire commission was paid from the seller to the listing agent. It was the listing agent who agreed to split the commission THEY CHARGED with the buyer’s agent. It was NEVER the seller paying the buyer’s agent commission. It was the listing agent paying the buyer’s agent.)

Over time, this stuck. Early on, BOTH realtors worked for the seller. Even though the agent working with the buyer was helping the buyer, they owed loyalty and a fiduciary duty to the seller. Eventually that changed where we had laws to protect buyers which meant the buyer’s agent only represented the interests of the buyer. To make things easy for all, the MLS (Multi-listing Service) came into existence. We created policies and procedures to create transparency and order to the business of selling houses. One of which was to offer a commission to ANY realtor who produced the buyer for a listing. This was great because it meant the buyer’s agent knew what commission amount the listing agent was willing to offer should their buyer end up purchasing the place. While 3% in my market was the most common offered, there has always been offerings of 2%, 2.5% and even some fixed amounts.

Like all things, nothing last forever. This NAR Settlement is separating the buyer’s agent commission from that of the listing agent’s commission. We will no longer be able to post the commission amount on the MLS. That is really all that has changed.

I will point out that this is not a market driven decision. I don’t think anybody was really complaining about how the process worked. The public didn’t really understand the old way of doing things and I don’t think they will take the time to figure the new method out either. All they know is that it cost money to sell their house just as it costs money to do anything. If you are remodeling your kitchen, do you care that you are only paying your contractor who has separate deals worked out for each of the subcontractors? Why do you pay your contractor this way? Because it is easier for you and you are paying the only person you actually hired. Imagine if instead of paying just the contractor the whole amount, you paid him less but also then had to write checks to the plumber, electrician, cabinet contractor, and countertop person who worked on your house. Do you think it would be cheaper? No, it would be the same total, only you’d be writing more checks.

While I think the next year or so may be choatic, I do not think this will change all that much. We will see if I am wrong. Right now, there is a lack of organization because large brokerages, the NAR and local realtor associations are too afraid to say anything. I think they will try to leave it up to us to figure out. Currently, everybody is trying to figure out a way to benefit from the settlement. Zillow sent out an email saying they are here for us realtors. It wouldn’t surprise me if they are working on a way of creating what is effectively their own MLS. Many agents who expect a mass exodus of agents are working on setting up referrals so departing agents can still make a little money by sending their clients to active agents.

While I am sure average commission amounts might drop slightly, I don’t see that much of a change. Just like that kitchen remodel I mentioned above. In a great economy where there is a lot of work, prices are at the highest. When the economy is bad, your kitchen contractor isn’t going to work for half price. Sure, they will give you their best price. but they won’t take on the job if they can’t make a living.

One of the biggest reasons why I feel it won’t change much is because in every email I have gotten from NAR and my MLS, we have been reminded that while we cannot post an offered commission on the MLS soon, we can post a seller concession. I suspect that the commission will become similar to the way the Master Bedroom became the Primary Bedroom. It’s just a name change. The seller concession will be offered to allow buyer’s to pay their own agent. The amounts may change but the end result is unfazed. So what this might look like is that the listing agent charges a certain commission percentage and the seller offers a certain percentage as a concession to the buyer.

I am sure there will be lots of sellers who will offer no commission to the buyer’s. I am sure there will be agents who will work with these sellers. I also am sure that given enough time, both will realize that it is good to offer a commission/concession to the buyer so their agent gets paid. Why? The goal is to sell the house. How much money did you save if your house didn’t sell? Buyers want their own agent to help them make decisions and navigate the process. If no buyer’s agent can make even a penny from the sale, they simply won’t do it. Then who does the buyer’s agent tasks fall upon? The listing agent. I think in time, the listing agent will want more than their usual commission to do twice the work, which isn’t saving the seller anything.

So, let’s look at who are the Winners and Losers of the settlement:

Biggest winner: The lawyers of Cohen Milstein. Guessing they will get the usual 25-33% of the settlement. I wonder why nobody has ever filed a class action lawsuit against lawyers? They all seem to take the same percentage of a settlement or judgement. Sounds like collusion to me?????

Biggest loser: The National Association of Realtors. I don’t mean loser in the sense of they lost. I meant it more as a pronoun. They let us down. Regardless of whether anybody thinks real estate commissions are too high or not, the fact is that commissions have always been negotiable. They did a poor job of proving that and they are currently doing a pathetic job of helping realtors figure out how to help our sellers and buyers during this crazy time.

Let me add that if the NAR and local realtor associations are not going to help us right now, I see no need for their existence. I can post my listings on zillow, I can get documents from the Kentucky Real Estate Commission and I am sure I can figure out how to keep my lockboxes working. Provide leadership or you become as useful to us as Conferderate era coins.

Winner: Sellers. Not because of anything having to do with the settlement. Sellers have been winning the real estate game for years due to a shortage of houses for sale. Do remember though that nothing lasts forever. I have been in this business for so long that I remember sellers offering bonuses and even as much as 4% commission to the buyer’s agent. See, commissions have always been negotiable…..not everybody realizes that in a bad market the commission could go higher!

Loser: Buyers. You have been thrown under the bus. If you think you might be able to get a house for cheaper now, you will be surprised. You will not. If a seller has a $400k house, they are not going to list it for 97% of that because they want you to benefit. No, they will still sell it for $400k. How do I know? I have worked with several For Sale By Owners over the years. None have offered to sell for less since there is only one realtor to pay.

Loser: Realtors. We now have to figure out how to work for our clients without any organization or direction. We can’t discuss anything in a group or it is considered collusion.

I am anxious to see how all this goes. My predictions may be right. They may be wrong. I am sure I will be blogging about this in the near future as it develops.

Know this though. Regardless of what, it anything, changes. I am still here for my friends and clients. I only work with 3 group of people: Those who are past clients, those who have been referred to me by past clients and friends, and those who find this blog. I’m not really worried how I get paid or how much. If I really wanted to, I could liquidate a few assets and comfortably retire. This month marks my 19th year as a realtor. I plan to keep doing it as long as you all need me.