What Does the Proposed NAR Settlement Mean in our San Carlos and Mid-Peninsula Market?

Human sacrifice, dogs and cats living together... MASS HYSTERIA!

This quote from Ghostbusters came to my mind after the news broke about the proposed settlement from the National Association of Realtors (NAR) from the Sitzer Barnett case that NAR lost in late 2023. The headlines and stories from the news outlets were dramatic, texts were coming in from friends asking what it meant, and my brother who produces a talk show in Seattle was going to be discussing it on his show and wanted to talk to me so he could know more. Real estate has always intrigued the masses, but this was MASS HYSTERIA! I knew I needed to write about this and share my take on it for those who were curious. 

If you are a bullet point person, this part is for you. It is in no particular order. 

1. It is a proposed settlement. It still has to be approved by the court. 

2. It is not a new thing that buyers pay for the services of the agent who represents them. It has just been indirect and unfortunately there has always been a group of agents who said their services to help a buyer purchase a home were “free”. The fee has come from the proceeds the seller receives when the buyer (and their lender when a loan is being used) puts their money into escrow to purchase the home. 

3. Compensation to the buyer's agent is something that has been negotiated forever. Agents get asked all the time if they will give a credit back to the buyer from the fee the buyer's agent gets paid. Some agents agree to it and some do not. There is a well-known real estate brokerage that built itself on this model - Redfin. And yet not that many transactions actually happen in our market where Redfin is the buyer’s broker. 

4. Buyers have always had the option to go directly to the listing agent to write up their offer and have the listing agent represent both sides. Some listing agents have no problem doing this, others, like myself, feel like this is a conflict of interest and will not do it. 

5. Big Change #1(starting in Summer 2024 if the proposed settlement is approved): All buyers will be required to sign a buyer representation agreement. This document has existed for a long time - just very few agents used it in the San Carlos and surrounding markets. It is the buyer version of a listing agreement that is always used when an agent represents a seller. It lays out the fiduciary duty to the buyer, the nature of the relationship between the buyer and the agent (exclusive relationship or not), and the compensation to the buyer’s broker.

6. Big Change #2 (also starting in Summer 2024 if the proposed settlement is approved): The MLSes will no longer be able to publish any compensation to the buyer brokerage. Does this mean that sellers will just no longer offer compensation? It is one of the many unknowns at this point.

For those of you who want to geek out on this more, continue on.

Now there will be situations where the seller is offering no compensation or some reduced compensation to the buyer’s brokerage. There will be various ways this is dealt with. For now it is an option for there to be no buyer representation agreement in place. So the buyer’s agent may just not get paid for their services and then the agent did literally work for free. Another option… there is a document that exists that can be submitted with an offer to ask the seller to cover the fee for the buyer’s agent. And yet another option… the buyer can offer a higher price and then ask for a credit back to cover the fee to their agent. 

What can’t be done at this point if the seller is not offering compensation is financing the fee  (like how it is essentially done now) because Freddie Mae, Freddie Mac, and FHA do not allow it. There is talk about changing the laws so maybe this will be allowed one day. 

Here are issues I see arising as we navigate this…

These changes may push more people to attempt to go through the listing agent and forego independent representation. This freaks me out. Real estate is almost always the biggest asset that someone acquires. It is a very complex transaction with many possible pitfalls. I certainly wouldn’t want to do it without a trusted expert representing my interests. 

I wonder about the impact on VA and FHA buyers. These loan programs allow buyers to buy homes with very little down payment. This could put another barrier in the way for homeownership for those at the margins of being able to afford it. 

If decoupling - the term to describe the situation where buyers pay for their representation and sellers pay for theirs - truly happens, it is conceivable that home prices are going to drop by a commensurate amount because sellers are no longer paying the buyer’s agent fee and now the buyers have to. And if the buyers are going to eventually be able to finance their representation fee in the loan, then funnily enough the buyer will be paying the same price they would have paid before all of these changes.   

Currently, we are definitely in the unknown about how these proposed changes are going to impact things, if they go into effect. Guaranteed, there will be unintended consequences that may take a long time to unravel. 

What I firmly believe will stay the same, is that those consumers who hire a professional to get them through buying or selling a home will make more informed and better financial decisions.