On March 15, the National Association of Realtors (NAR) reached a legal settlement of $418 million, resolving lawsuits regarding broker commission payments in residential real estate sales.
As part of the settlement, the NAR agreed to put in place a Multiple Listing Service (MLS) rule prohibiting the inclusion of offers of broker compensation in MLS listings. The organization also agreed to a new rule requiring MLS participants working with buyers to enter into written agreements with their buyers.
There has been speculation in the media and among local homeowners about what the settlement means. Although the terms of the settlement will not take effect until July, there have been media reports predicting that half of real estate professionals might leave the profession and that home prices will drop precipitously due to the changes.
We checked in with some career local real estate agents to see how they are reacting to the news and to hear what they think the NAR settlement means in Oak Park and River Forest.
Common misconceptions
There have been reports that the settlement will do away with an industry-standard 6% commission rate, typically paid by sellers out of closing proceeds, with half going to the seller’s agent and half going towards the buyer’s agent. All of the local agents interviewed stress that commissions have always been negotiable and were not set by the NAR.
Steve Scheuring of Baird and Warner said, “I think we’ve seen a lot of speculation after the decision.”
As to opinions that home prices will come down, he says, “Why would pricing come down? The valuation of the house is the valuation of the house.”
The agents also stress that no one knows exactly what the settlement will call for.
“As a realtor community nationwide, we will need some time to figure out the best changes in order to comply with the agreement while still serving our clients to the highest standard,” said Scheuring.
Michael Nowicki of Ideal Location — Oak Park, said, “I think it’s too early to tell what the ramifications of the settlement will be. I do, however, think that there are going to be many unforeseen consequences to this settlement, most of which will have a negative impact on not only the industry, but on buying and selling real estate for the consumer.”
Julie Stanczak of the Compass Lake Group said, “I was frustrated to see headlines that were inaccurate.”
All of the agents said that while the headlines have been garnering attention, they don’t necessarily convey the real picture behind what they do and how their practices work.
What buyers’ agents do
Although it is not currently mandated here, local agents say it is typical to use a buyers’ commission agreement when working with buyers.
Stanczak continues to use the buyers’ commission agreement that she has always used. She discusses her fee with each client before they begin working together. If a seller said they were not paying the buyers’ agent commissions, then the buyers would be able to pay her fee as a closing cost credit built into the sale price.
She is not sure how the NAR settlement will change the need to pay agents who work with buyers. Yes, the MLS allows buyers to see what is on the market without the help of an agent, but Stanczak says, “We do much more than let a buyer into a home. Once that buyer finds a home, our experience helps to guide them through the entire process, from writing the contract, to the price negotiations, the inspection issues, tracking dates, referring contractors, what’s needed before the closing, and with help beyond the closing, to name some of it.”
Scheuring echoed her approach. “Many of the brokerages like mine, Baird and Warner, have had detailed buyer representation training for our agents for some time now.”
He said local expertise is key to being a buyer’s representative and said, “In the last 25 years as a full-time agent, I have participated in more than 400 home inspections, and for some of my local colleagues, you can double that number. Most of us agents can walk into a home and within 20 minutes can tell you 70% of what is wrong with a home. This is an accumulated wealth of knowledge that is priceless.”
Nowicki said buyers’ agents are integral to putting deals together. “When a buyer’s broker presents an offer to the selling broker, part of the negotiation is to convince the sellers that the buyers are committed to the house and committed to the process, are well-vetted and able to bring an agreed-upon deal to the closing table. If buyers’ brokers are not part of the transaction, it will be very difficult for listing agents to go to bat for a certain buyer because they will not have that kind of relationship with them. [Without buyers’ agents] I think you’ll get many deals falling apart because of the buyers not having an advocate working on their behalf,” he said.
All of the agents stressed that when representing buyers, they do far more than look at the Multiple Listing Service and take their clients to see houses.
“We are here,” said Scheuring, “to give that buyer all the information they need throughout the transaction process so that they can make the best decision for themselves, their families, their investment and their future. We do this sometimes 7 days a week, at least 14 hours a day, and we get paid for that.”
Looking ahead
Stanczak doesn’t foresee remarkable changes in the local market when the NAR settlement is finalized this summer. She said agents have always had the ability to negotiate their commissions and said, “If someone is willing to negotiate the commission in July, they will be willing to negotiate their commission now.”
At the end of the day, Stanczak is frustrated with the NAR but not over the commission structure. “I do think the industry definitely does need reform,” she said. “People view it as an easy way to make a quick buck, when in fact, it’s much more complicated than that. It’s too easy to get a real estate license and too many people do it just to make some easy money, but then they don’t actually know what they’re doing. It makes it that much harder for those of us who do do it full time to work with agents like that and it tarnishes our reputation. People think we don’t do any work and make a ton of money. In reality, it is a lot of work if you’re doing it correctly with your client’s best interests at heart.”
She would not be surprised if some realtors leave the industry based on the NAR settlement. “In some ways that is good,” she said. “Transparency is good.”
Scheuring notes that as a full-service local agent, he does not discount his services but points out that local agents already are quite diverse in the fees they charge and whether or not they offer discounted services. He thinks that will continue under the settlement.
“When it comes to buyers, I think we may see fees being negotiated on the level of service provided. Still, it should be noted that the detail involved in the home purchase process and the actual transaction itself is overwhelming. A study found that 91% of buyers reported they would have found the process ‘very stressful’ without an agent,” he said.
Although the current real estate market is very hot, Scheuring said that won’t last forever. “There are already services that will list a home for a discounted fee. Will we see new ones? I don’t think so.”
Nowicki predicts there will be some changes locally, with some firms that want to capitalize on being new adaptors to the system, but he’s not sure how far that will go. He said, “In my professional opinion, I think that the top producing agents will figure out a system that will work well for the buyers and the sellers. Will the system look different than it does now? Yes, but if I had to guess, I would say that it will be more similar than different.”
Scheuring concurred. “In the end [the settlement] is change, and change is nothing but an opportunity to make something better. For many of us, buyer-mandated representation is a good thing.”
