What The NAR Commission Settlement Really Means For Homebuyers and Sellers
There’s big news going on in real estate right now, and it’s all about these commission lawsuits. There are tons of articles about commissions dropping, the end of six percent, home prices going down, and the end of the real estate agent career as we currently know it. There’s a lot of misinformation out there and I’m going to take some time to clear up seven common misconceptions. I’ve been getting a lot of calls, emails, and texts about the impact of this so I want to make sure that you’re really informed. At the end, I’ll also share with you something I feel like should have been in the settlement too but wasn’t. So let’s dive in!
Myth number one:
The settlement forces agents to reduce fees.
False. The truth is that commissions have, and always will be, negotiable. As with any industry, there are agents with more experience whose clients pay them more. It’s up to buyers and sellers to decide whether or not that value proposition is something they’re willing to pay for. Sellers have had options to hire attorneys, at low fees to do paperwork for them, and even list their homes. Additionally, sellers have the option to sell their own home, and though I don’t see it often, some people have decided to go this route. There are countless discount brokers like Redfin, who, by the way, only have a one-and-a-half percent market share in San Mateo County, despite the fact that they’ve been offering listing commissions as low as 4% that cover both the listing and buyer side of the transaction. And, additionally, offer rebates back to buyers and we’ve seen that for a long time. So nothing’s new there. There have been countless other discount real estate companies that have gone out of business over the years, and too many to keep track of, quite frankly. Historically, sellers and buyers in San Mateo County have opted for higher touch and higher service models. And they’ve made a choice to work with the agents who, they feel, are experienced, and can help them negotiate and mitigate risk.
I’m Raziel Ungar, and I’ve ranked in the top five agents in San Mateo County. I’ve also been the number-one agent in Burlingame for over eight years. A big part of what I do is helping minimize risk in the transaction, helping clients like you feel empowered to make sure they bought or sold for the best possible price. Every day, my team and I help buyers and sellers just like you looking to make a smooth move, into or within San Mateo County. And I’d love to be your Peninsula real estate resource. Feel free to text me to set up a call or answer any questions that you have.
Myth number two:
Sellers are no longer able to cover buyer’s agent’s fees.
That is false. The settlement restricts these offers from being made in MLS, but my understanding is that it does not restrict these offers from being made on other websites, or in marketing, or in other ways. After all, if there is a world in which buyers would be expected to cover these fees, wouldn’t it only be fair that they understand what the fees are going in? Due to all the news around this buyers will be very focused on what sellers are offering and how it will impact their buying decisions and what homes they choose to focus on.
A good agent will help buyers understand the disclosures, and the risks involved, in making an offer, or a non-contingent offer, as well as the value of a home, and the fees involved with buying that home. On the peninsula, one pricing strategy we see is where asking prices are set a little bit lower to attract buyers. Only skilled agents will be poised to help a buyer understand those values and to bring an offer that the seller will accept and compete against the other skilled agents who also understand the value.
I recently used this strategy on one of my listings. It was a beautiful home, in San Carlos, on a cul-de-sac. It had been in my client’s family for decades and it was time for them to sell it and pass it along to the next buyers who could love it as much as they had. We priced it attractively, and very competitively, based on some other recent sales. Because this one had mostly a flat yard, and the other recent sales did not, we felt we were looking pretty good. Fortunately, we ended up with seven offers on the house, and around half of the buyers, in this case, were represented by agents who, quite frankly, didn’t understand the pricing strategy despite my best efforts to provide comps and explain it. However, many seasoned agents did, and they wrote offers in line with the value of the home. Ultimately, the house was sold at a price the seller was thrilled about and the buyer was willing to pay.
Myth number three:
The settlement will bring home prices down.
That is for sure false. First, let’s be clear. We’re talking in most cases about several percent. And this is not a number that puts a dent in affordability. This is a simple rule of supply and demand. If we want to bring down prices, we need more homes for sale. That’s the bottom line. And this change, I don’t think, is going to bring affordability down, at all.
San Mateo County, as you probably already know, is hugely sought after. It is one of the most desirable places to live. And because of that, not too many people ever want to sell, and there’s usually more people than who want to buy. At least that’s been my experience.
Myth number four:
The settlement is a win for buyers.
That is questionable. I think it depends. Historically, buyers have not been as diligent as sellers in choosing their representation. So it’s not unusual for a buyer to meet an agent at an open house, not understand their qualifications, and choose to work with them because they like them.
In the case of my San Carlos listing, I saw agents come from as far as San Jose, in the East Bay to write offers for buyers, and those agents had zero understanding of the market on the peninsula, or the disclosures for that matter. With buyers more focused on the possibility that they may need to pay commissions out of pocket because they will be required by the settlement to sign an agreement to see a listing that is not an open house, they will have a higher bar for who they choose to represent them. I think this is fantastic, and ultimately will result in buyers having better representation. So I do think this is a win.
One downside is it will make it very hard for new agents to enter the marketplace, which makes me sad because this has been a very rewarding career for me, and I’m very grateful for that. On the flip side, buyers deserve to work with an experienced agent, and I think they’re going to demand that. The questionable part is whether or not some buyers will choose to try to go on their own. I’m super certain that there will be all kinds of tech solutions available, where ChatGPT reviews disclosures, and offers are written by attorneys. I personally think these are terrible ideas, but buyers have the right to choose that if they want.
I think that most of the buyers in our area do understand that real estate around here can be very complicated and having an experienced professional by your side is crucial to choosing the right property, understanding the pros and cons of each house, and optimizing for the best deal. Good agents are also good negotiators and I believe that a good agent will be able to negotiate the seller’s paying commission. More on that next.
Myth number five:
Buyers will still need to start paying their own fees.
Questionable... but possible. The truth is, that buyers have effectively paid the fee for as long as I can remember. They bought the house, and then the proceeds from that house were re-distributed to the agents on the seller’s closing statement. If buyers have to come up with additional, significant cash up-front, I think this is a loss for buyers, particularly cash-strapped buyers who do not have additional funds to bring to the closing table. I think that the common practice will be that buyers’ agents will write offers that negotiate in that sellers will pay commissions through a concession on closing costs. The way a buyer has always won a house is by being able to pay the highest net price for the home. Is it possible that some buyers will choose to pay their own fees as a lever of negotiation? Sure. That’s for sure possible. Historically, they’ve only chosen to compete by paying a higher price than the next person. Whether that’s in the total value, or in covering the commission, it’s just not relevant for most people.
To the seller, the take home is the same but if buyers are choosing to cover the commission, with current lending guidelines, financing that fee is not possible, so I do not believe this is a choice they will choose to take. Maybe the lending industry will adapt. I don’t know, but I’m optimistic and hopeful that they will.
There are all kinds of things that sellers traditionally pay for. In San Mateo County, they traditionally also pay transfer tax, though occasionally buyers agree to pay this, in certain instances, where that makes sense. For a variety of reasons, it’s just much simpler for buyers and sellers to focus on paying the highest price for the home as a strategy to win, then to bring these levers into the conversation so it’s not typically what buyers and sellers are focused on. Some may choose to go other routes and save these fees, or waive representation entirely and I think this comes with a great risk to both buyers and sellers. And you can ask any real estate attorney that. The sellers could receive offers from buyers who do not understand disclosures, or contingencies properly, or how to structure a deal effectively. This is a danger to both buyers and sellers and as a result, in these kinds of situations, more litigation will undoubtedly be the reality for people who choose this route.
Despite what many people think, real estate is complicated. When my sister bought a home in San Francisco, despite it being 20 minutes away from where I live and work in Burlingame, and having lived in San Francisco for eight years in my twenties, I could have easily represented her and received the full commission due to the buyer’s agent. I’ve sold close to 600 homes, but I still recommended she engage and effectively pay a local agent because I knew there were things that I wouldn’t know about the disclosures, the neighborhoods, buried underground storage tanks, which is common in San Francisco, the 3-R report, plus, most importantly perhaps, I didn’t know all the local agents, nor had I been in hundreds of San Francisco homes to guide her, and provide proper context on how the home she was interested in compared to dozens of others that had sold in that neighborhood. I’m so glad she followed my advice to engage a local expert and it was well worth the money. And if you ask her that too, she will say that she was glad as well.
Myth number six.
The settlement is a win for sellers who will pay lower fees.
False. Or questionable. Currently, the sellers we’re working with are not choosing to pay less than they have been paying buyers’ agents historically. Yes, it’s true, the settlement doesn’t go into effect until July, but sellers have the option to do this now, and to be 100 percent clear, this option has always been available to them. The sellers we’re talking with see this as a necessary tool to sell the property, just as they see staging or house preparation.
You might be asking if they’re only choosing to pay this because it’s still an active field in MLS and they’re worried that it would damage the sellability of the home if they did not pay that buyer’s agent’s fee. I agree that this is on many sellers’ minds that I’m talking to. They also understand that buyers will want to know this fee and it’s not going to be hidden from them. It will be available in multiple places...whether it’s the marketing...the disclosure package...or the broker’s website. I think we will see some sellers who opt to take this path and it will be interesting to see what happens. The most important time to capture the momentum of the marketplace is in the first few weeks of a home being listed. I think it's very possible that the sellers who make these choices will have homes that do not sell as quickly, resulting in price reductions similar to what we would see on an over-priced listing. I think that buyers are going to write in the fees to be paid by the sellers, anyways, so why would a seller choose to take this risk, having their property sit and potentially suffer less only to pay the fee in the end?
Ultimately, it’s their choice. As is the choice to stage and prepare a home, or the quality of the listing agent that they choose to hire. In San Mateo County, we’ve had a lot of sophisticated sellers who value their time and also value working with a professional. I personally don’t see sellers choosing this path, but it is something that we’ll continue to closely monitor.
Myth number seven:
The settlement offers compensation to sellers who are harmed by realtors.
False. You must be thinking that some sellers and buyers just made a lot of money from this lawsuit. Though a lot of money will be paid out, each plaintiff stands, from what I’ve read, to make around $12, while the attorneys involved will make over $80 million in fees. This is not an altruistic mission by the attorneys to help out buyers and sellers. This is a means for profit for their gain and ultimately, the only real winner here is the attorneys. This is complicated though. The bottom line is that real estate agents are independent contractors who can set their own fees.
As with any industry, there’s differences within the professional ability of different people, with different levels of experience. For example, if you’re remodeling your house, you can choose to work with an average contractor. We did that for one home we still own. We chose the lowest price. It was not a great experience. The workmanship wasn’t the best, we were constantly getting surprised, I had to micromanage and stop by all the time, the project ran way over-budget, and it took twice as long as we thought. You get the point. When we decided to build a new house in a different neighborhood, we chose a different general contractor. He told us he was expensive, and he was referred to us by other friends who we trusted, and though we paid at the top end of the range for a general contractor, the expertise he had, his level of detail and organization, and expectation setting was fantastic, down to weekly meetings on site at the home, where we discussed every issue, and he was worth every penny. We would absolutely work with him again, and I’ve referred him to several friends and clients and they’ve loved him too.
Did I try to negotiate with him? No, I did not. Could I have hired someone to build the second house for a lot less? Yes. Would I have gotten the same results? Absolutely not. There’s a reason why the Four Seasons is always booked, and accommodation at the Holiday Inn is also available. There’s room in the market for both. There are always choices and choices are good. Different people want different things, whether that’s in a general contractor, an attorney, a hotel, or a real estate agent. If you’re the type of person who chooses quality general contractors over the average one, or the Four Seasons over the Holiday Inn, my team might be a good choice for you.
So what’s the best part of this settlement? In my opinion, it’s that buyers’ agents will now be required to present a Buyer Representation Agreement to a prospective client, in the beginning, prior to seeing any homes. I think this is very good because it will now force a conversation, in the beginning, between an agent and their prospective buyer client, about what the scope of their services are, and their fee structure, and then everyone can make a decision that they feel is best for them. I’ve been running my business like this for over fifteen years, where I presented a set of documents to my prospective clients, explain what they are, and how I work, which is pretty basic. These documents, and I’ll explain in a future video, are an Agency Disclosure, Multiple Agency, and a Buyer Representation Agreement. I share what I do with my clients, and what all my clients pay me to engage me if they feel I’m a good fit for them. And then I also discuss other things up front, like what happens if you’re interested in buying a home, where I happen to represent the seller, and how that’s handled ethically, or what happens if you’re interested in purchasing a home that another client of mine is interested in purchasing. An agent should be discussing all of these things, in advance, with their prospective client, prior to formally engaging and signing any type of paperwork. While for many this has been a standard practice, for others it might not have been. So I’m very excited that the settlement now requires something that I’ve been doing for a long time will become a standard practice.
What’s next in all this? I don’t know. But maybe we’ll see some renewed focus on the practice of dual agency. This is when the agent represents the seller and also represents the buyer in the same transaction. You’d think this shouldn’t be allowed, but this is legal in California, which is kind of shocking to me. Who goes to court and is cool with their attorney also representing the opposing party and the judge says “yeah, totally fair for everyone.” “And you know what? You deserve to be paid double.” Or a little less, or whatever it is. Can you believe this is allowed? I’m shocked that many agents, buyers and sellers have been okay with this. In my view, dual agency should be illegal. Because the only person who wins in this scenario is the agent, because they got paid more. I think as a result of the current litigation, we could see an unintended consequence where unsophisticated buyers choose to work with the listing agent because the listing agent offers to represent the buyer as well with lower buy-side fees. Again, the agent wins, and the buyer sacrifices their ability to have their own independent representation with the fiduciary.
If you’re looking for more information about how to successfully buy a home in San Mateo County, check out this video where I’ll tell you what you need to know.
