Ep024: NAR Settlement Update

Chris: Hi all, Chris McAllister here with the Connect Practice Track Grow podcast, where it’s my job to make your business better and your life easier. I’m here today to bring us all up to date on the National Association of Realtors settlement that was announced on March 15th and, I have to be honest, I’m as shocked as you are, and we did five podcast episodes relating to the lawsuit that NAR actually lost last year. So I didn’t think it would come to this, but it did. So here we are, so I feel like that I kind of raced through the five stages of grief these last few days, but I am thankful that I feel like I did to some degree get ahead of this. But definitely anger, denial, bargaining, depression, and I don’t even know if I’m all the way at acceptance yet. But we’ve got to move forward and honestly, based on what I’m seeing on the internet and social media, many of our fellow realtors are still in the early stages of the grief process. There’s a tremendous amount of anger and fear out there and that’s understandable, but my hope today is not to dwell on what happened and not to rant and rave too much, although I’m sure there will be some passion come through. But I want to take the temperature down a bit and focus on what we do know. So the ultimate reason for the lawsuit was there was a consensus among the plaintiffs that the commission they agreed to pay their agents brokerages to sell their homes was too high. And the essence of the result of this the fallout from losing that lawsuit is decoupling. And decoupling means that, going forward, buyers will be responsible for paying their own agents if they choose to hire one and sellers will be responsible for paying their own agents should they choose to hire one. So that’s the essence of decoupling. Instead of having buyer agent fees and seller agent fees all wrapped up into one neat little bundle, they’ve been separated, and the term that I guess the lawyers use in this, or the business people use in this, is decoupling.

So here’s what I want to talk about today. I want to just have a quick discussion of the fallout. I want to talk about what we know, or at least think we know for sure, because it’s changing every single day. I want to touch on the fact that listings matter now more than ever. I want to make the case for buyer agents. I also want to make the case and get you guys thinking that it’s the list side. In my opinion, that’s really ripe for disruption these days. Market making is the new value add. You’ve heard me preach about market making for quite a while now, and we’re going to do a little bit more of that today. I also think real estate consulting will be the new norm. I want to kind of go through briefly some of the marketing initiatives that we’re thinking about launching here as we get past July, and then a few wrap-up remarks.

So first, the fallout. Honestly, I think this is the worst thing that could have happened to NAR. Nar headcount could drop by as much as 50% and the overall commission pool in the United States is forecasted to drop by at least 30%, and all this could happen by the end of 2025. Now, this doesn’t mean that we are all going to get a 30% pay cut, but it very well could mean, and probably will be, that at least 30% of us will be out of a job or at least no longer holding a real estate license. But the other thing this means is that I would say the top 20% of us, maybe even the top 30 or 40%, are going to see pay increases and I would say the top 10, 15, 20% are going to see massive pay increases. The new professionals among us are going to be are going to see massive pay increases. The new professionals among us are going to do incredibly well and they’re going to do just fine. The folks among us that hold a license that do a deal or two at best every year. We’re going to see them drop out and I think most of us would agree that’s not necessarily a bad thing.

I think you can also expect to see the major legacy franchises do all they can to protect their headcount, whether their agents close any deals or not. You know the major franchises, whether it’s Remax or Caldwell, et cetera, anywhere. You know their business model, just like any of ours. Business model is dependent on headcount and as many agents as they can possibly put in place that are paying franchise fees and dues. The other thing from just a newsworthy update Home Services of America has still not settled and, as you know, anywhere which includes Caldwell, banker and Remax did settle prior to the lawsuit last year and then Keller Williams settled just a few weeks ago. I’m not sure why Home Services of America has yet to settle. I think it’s interesting that they’re continuing to fight on or negotiate as far as we know, but that’s where we are today.

I do think that it’s only natural that you’re going to hear from some of the bigger franchises that everything’s going to be okay, not to worry, business as usual, and I honestly think that’s a natural response to trying to protect what they already have, because they stand to lose a lot. I also expect to see a plethora of new fee structures for both buyers and sellers. For instance, fixed fees and billable hour schemes will become more prevalent. We’re also going to see a lot of brokerages. You know try to race each other to the bottom to see how little they can charge buyers and sellers for their services. I also think there’ll be new companies that are going to enter the space and try to capitalize on the disruption, and we have no idea what those could look like. But I think we have to expect some pretty interesting things developing over the next few months. The other thing, you know, watch out for Zillow. You know their business model, I think, has been completely disrupted here, so it’ll be interesting to see what they do going forward and what kind of new businesses they decide to get into.

So here’s what we know for sure. First of all, there’s just been an update that I discovered yesterday afternoon. So today is March 27th, it’s a Wednesday. On Friday, late Friday, nar put out a new update in the form of a PDF. So on March 22nd they put up a new update and we’re going to put that link in the show notes for you so you can find it there. But it clarifies several things that I’ve been speculating about. But here’s the gist right. So there is no longer a blanket offer of compensation. So we all know that.

But and this wasn’t clear to me at the beginning NAR is proposing an off-MLS operative compensation strategy. I’m really struggling with how this is going to work. I just can’t fathom that there’s not issues, potentially antitrust issues and all kinds of anti-competitive things that could come up when you’ve got, you know, buyer agents on one side negotiating and you’ve got, you know, buyer agents on one side negotiating, multiple buyers agents negotiating separately with a listing agent over whether or not there’s any cooperative cooperation involved. So it’ll be interesting to see how that plays out practically as we go forward. But according to the terms of the settlement and this is yet to be ratified that won’t be. That won’t happen until July, and I think that’s the Department of Justice that has to agree to these terms. But there’s no blanket offer of compensation. It won’t be listed in the MLS, but NAR is saying explicitly as of Friday that you know you can still pick up the phone and call a listing agent and say you know my buyer needs to cover their fees.

The other thing that is spelled out in this update that I’ve heard other people speculating about and talking about is sellers will be able sellers not listing agents, but sellers will be able to offer concessions via the MLS that can be used for things like buyer’s closing costs, prepaid buy downs and buyer broker fees. So keep in mind, going forward in July, to get paid as a buyer agent, you must get an exclusive buyer agency and compensation agreement signed before you show a house. So that’s coming and, as I said before, I’ve never been one to utilize an exclusive buyer agency agreement. But that’s going to change and we talked about that yesterday with our agents at Roost and a few of us are going to a buyer agent class actually at the Dayton Board of Realtors tomorrow, thursday, to try to get into the nuts and bolts of how these things are being used. Try to get into the nuts and bolts of how these things are being used.

An exclusive buyer agency agreement can be set up to pay all of your fee, but it can also be set up, as I understand it, so that the difference between whatever fee the buyer agrees to pay you and whatever the seller is offering in terms of an offer of compensation or a referral fee or closing costs which is really how it’s going to come down to is these seller pay closing costs that can be used to offset what the buyer owes us, right? So if you sign a buyer agency agreement and let’s say that they agree to pay you 3% the equivalent of 3% of the value of whatever home they purchase, and you have a seller, the house they want, the seller’s willing to pay 2%, then instead of the buyer having to come up with the 3%, they would only have to come up with the 1%. But again, we’re not going to know what these details are going to look like until we actually get to see contracts and this whole thing has been ratified. I think one thing to keep in mind is you know we’re going to treat buyers much as we do sellers, you know, with exclusive right to represent agreements which are, in effect, employment contracts, and that’s similar to how we’ve always used exclusive right to sell agreements with our listing clients. I also understand that you’re not going to be able to collect more from your buyer than the amount specified in your buyer agency agreement. So if you’re in a situation where you know your buyer has agreed to pay you 3% for your services and, lo and behold, the seller is willing to co-op, for as I understand it, we don’t get to keep the extra 1%. We can always come down, but as I understand it, we can’t go up. That employment contract is what will dictate our compensation from buyers going forward.

The other thing about this published concession you know, just as we have to. Let’s say, you have a listing and in the listing it says that all the appliances are being offered with the purchase price of the house. Well, after negotiations, that you still have to write into the contract that the appliances are going to convey with the house. Well, it’s very similar to this published line item for seller-paid closing costs and prepaids that may or may not include a buyer agency fee. We’re also going to be. You know we’re going to have to choose to treat different buyers differently. You know we have no idea what sign calls or open house sign-ins are going to look like you know, versus a referral from somebody you know. A referral from somebody that you value, a relationship that you value and you’re going to want to spend time with that person, that’s very different. I think there’s going to be something that sort of seems like a limited engagement, sort of a first date, maybe a second date, buyer presentation and, you know, maybe a third date is when they actually sign the contract to pay you.

We talk a lot about one-time showings when we’re, you know, dealing with FISBOs, and I think we have to think of a new definition of a one-time showing. It’s no longer about going to the seller or the listing agent and say, hey, I’m sorry, a FISBO without a listing agent, and saying, hey, will you agree to a one-time showing? You know, if we can sell it to this buyer, will you pay me 3%? I’ll send you over a contract. One-time showing now is going to be if a buyer wants to see a house and you’re not going to choose to represent them for the long term, then you’re going to be asking for a one-time showing and a fee from that buyer if you do get them under contract. That one-time showing, you know, it’s a contract for the buyer to pay you, whatever the published concession is, or whatever you, to cover what they agree to pay you or whatever you, as the buyer agent, feel you deserves.

There will not. You will not be able to, none of us will be able to show a house without one of these buyer agency agreements, which again is in effect an employment contract. And that’s no different than many of our states now, including Ohio, where you know we don’t show a house without talking about agency and providing the buyer a brochure, agency disclosure. And again, nothing changes at this point until July it looks like mid-July. We still have a few weeks to get our policies and procedures in order. And you know, the other thing that came up is we have no idea how this is going to shake out with FHA, va, usda. Even Fannie and Freddie may have some thoughts on this. You know, right now there’s a limit on how much closing costs a seller can pay on behalf of a buyer. So if this is going to start to include buyer agent fees, then that number is going to have to go up.

I also want to remind everybody we are all still members of NAR and we are pledged to abide by their rules everybody. We are all still members of NAR and we are pledged to abide by their rules. We’re still members I think anybody listening to this is probably a realtor and you paid your dues early this year. And also keep in mind that you know it is the state that we are licensed in that dictates whether or not we get to practice at all. So bear in mind so many things that we sort of credit NAR with are actually dictated by the states in which we do business. So we are still members of NAR. We still agree to abide by their rules. But I also want you to keep in mind it’s the state that you work in that grants the privilege as to whether or not that we get to work in real estate not Okay.

Next thing I want to talk about is listings matter now more than ever. Obviously, listings have always been and always will be the lead drivers for real estate professionals. Listings are how the best of the business get the attention of new clients. My advice is, you know, focus on your listing multiplier index. You know, look for new, some unique ways to market your services. If you’re not familiar with Dean Jackson and the listing agent lifestyle podcast. I urge you to check that out. We’ll put that link in the show notes as well. But he’s got some great marketing ideas. Like you know, how to sell your home for top dollar fast Facebook posts, instant open houses. You know, I think anything you can do to turn any listing that you get into the next listing and to attract buyers is has always been the right thing to do. It will continue to be the right thing to do, only more so. And again, we all lost some of that practice, a lot of that habit, through COVID. So how to sell your home for top dollar fast, instant open houses, new listing and just sold postcards. And if you’re listening to this Connect Practice, track and Grow, you obviously are in this for the long game. You’re all about relationships and you’re all about building out your database. And those of us who have been doing this for our entire careers or the better part of our careers, I have to tell you we’re all going to be just fine. It just means that we were doing the right thing. We’re going to continue to do the right thing, and those folks with a more transaction-based mindset that you know got their license to hopefully make a quick, easy buck. They will be gone sooner rather than later.

I also want to make the case for buyer’s agents. This whole idea that buyer agents get paid too much or they don’t deserve anything, in my opinion, is just crap. Buyer agents are critical and they deserve every dollar they make. Working with the buyer that’s the part of the equation that can’t be automated. You can’t digitize putting mom and dad at ease when it comes to their kids buying their first home. You can’t digitize helping Nana manage, expand or liquidate her investment holdings that personal one-on-one relationship, that belly-to-belly interaction it can’t be digitized. And if we think that’s going to go by the wayside and people are going to continue to buy homes at the rate they’ve done for the past few years, we’re kidding ourselves. But I also want to say, though you know, buyer’s agent’s jobs would be a hell of a lot easier if they weren’t, in many cases, taking up the listing agent’s slack. And what do I mean by that? Well, I believe it’s the list side of this equation that is really ripe for disruption.

I want to start with this idea that every seller is a FSBO. Right, at some point. Everybody who owns a home is going to sell it, and it’s a choice between whether they’re going to go it alone or whether they’re going to hire somebody to help them. But think about that FSBO is an NAR term. It has always been the seller’s choice whether to go it alone or hire somebody. And, of course, people could always list their home on Zillow and offer a co-op there if they wanted to. But every single seller is an opportunity. Every single seller is a visbo in one sense or the other. So I think that’s an interesting mindset to adopt and think about going forward.

Every new business model and initiative that I think will actually get traction going forward, it will be listing and or listing agent-centered. You know, I think that you know we’ve already seen automation and AI influence with Zillow and Zestimates, and you know I think we have to be honest Zestimates are pretty damn good these days and they’ll continue to get better. You know, as their algorithm figures out how to factor in condition and location, especially within a subdivision or a neighborhood. You know, think about it. There’s so many opportunities now to get a price on a home. It’s foolish to think that we have some special expertise in pricing a home because we have a license. What we do have is eyes on the ground right. We are there, we can see the condition internally, externally, outside, inside, and we know if that home happens to be sitting on the major, still within the subdivision, but actually sits on the major thoroughfare not necessarily within the subdivision, but there’s fewer variables for us as real estate professionals to worry about in the age of AI and, quite frankly, zillow. So again, we’ve already been automated there to a substantial degree.

But one obvious opportunity to me is to make the whole listing, marketing and disclosure side of the equation more predictable. And that word predictable is what I’m really obsessed with these days. You know, one of the problems with the current real estate brokerage model is that with so many individual practitioners, there’s little standardized experience for sellers from one agent to the next. And I think we need to look at all aspects of the home selling and buying experience with fresh eyes and identify the bottlenecks throughout the listing, marketing, negotiation, contingency and closing. And again, I think it’s this part of the process that I think is right for wholesale transformation. It’s not that belly-to-belly, relationship-focused coaching, counseling, responsibility that you know the buyer agent has traditionally performed. And again, market making is the new value add.

Let’s face it, sellers hire us to sell their homes. They don’t hire us to stick a sign in the yard and wait for another agent or another company to do it. And this isn’t about agency. This is about doing the job they hired us to do. You know, I think that and I’m guilty of this Maybe it’s just me, but I think with buyer, seller, agency and the fear of doing something wrong, you know, I think many of us have been absolutely skittish about selling our own listings and you hear major players all the time saying that they refuse to sell their own listings. They’ll refer that out, you know, just because they don’t want to get sued or they’re afraid they’ll make a mistake or something.

And I really believe that the new real estate professional, somebody who is well-versed in their practice, confident in their abilities, understands the contracts they should be selling their own listings whenever, if they can, not because they’re greedy, but because that’s what the seller expects. That’s what they hired us to do. That value of a real estate professional with local expertise, hyper-local expertise and a market-specific database of buyers will become more valuable than ever before. Even market-making can’t be digitized, but I think there are some ways that AI, with CRMs and so forth, can help us out. But I’ll tell you right now and this is going to be absolutely more true going forward is the absolute best way to win a listing contract is to be able to honestly look the seller in the eye and say I may already have a buyer for your home and show them your database and how you go about building that database of legitimate buyers. Okay, I also think that real estate consulting will be the new norm, right? I think the distinction between listing agents and selling agents will start to disappear. I think that you know, just like the whole buyer agent function, real estate consulting includes that and cannot be digitized. And I’m really been thinking about this a lot as our company. You know, in our marketing going forward, we’re going to refer less and less to quote listing agents or buyer agents and we will transition to using the term real estate consultant. So there’s a lot going on. I hope this helps you. You know, think about what’s happened and what will happen and get a handle on the things that we do know and hopefully take down the temperature a notch.

A couple of things that, as we get ready to close out here, that we’re going to be focusing on I’m personally focused on with our company is the initiative. Have I earned a five-star review today? We have really building out a strategy for earning five-star reviews. We’re focused on Google first. I think if you take care of Google, the rest will take care of themselves. So have I earned a five-star review today?

Thinking about new buyer messaging, I think one of the things that comes to mind is buy with confidence. Our compensation is aligned with you, right? Our compensation going forward is aligned with your interest, not the seller’s interest. We’re getting paid now right, in line with our agency obligation, so I think that’s a message that will resonate with buyers. You know where we find a way to anticipate anything that could slow down or derail a home sale after it goes under contract.

And I keep coming back to this idea of the certified pre-owned home getting listing strategies. You know what would it look like to dominate all the listings in a given neighborhood or a given niche. You know just like we’re working on the Space Coast with the beachfront condos. I’m going to go out on a limb and say we probably know more about people who intend to buy a condo on the beach on the Space Coast than anybody else at this point. We have hundreds of people who have opted in to download our price guide, and you know we’ve got three 400 people every single week opening the market updates we’re sending out. So what do these new getting listing strategies look like? And then and again, if you want to learn more about some really unique things that will set you apart in the market, I really recommend that you check out Listing Agent Lifestyle and Dean’s podcast, dean Jackson’s podcast.

The other thing, too is I think we’ve got to really zero in on the buyers that we want to work with and to that end, I think we need specific marketing messages for first-time buyers, move-up buyers, empty nesters, second home buyers and investors. Think about it If you’re working on the beach in Florida and you’re selling second homes to people from Ohio, I think that’s a niche where those folks from Ohio they may not be happy, but I think they’re going to see the value in hiring a buyer agent to take care of their out-of-town interests. So I think there’s opportunity there for sure, but we’ve got to break out those people who are in the market, whether they’re first-time buyers, move up, empty nesters, et cetera. I think there’s huge opportunity there as we really drill down. I think the other thing to think about is buyer and seller education classes. Maybe it’s time we go back to the local library on Thursday nights at Chief’s Chunks and Fruit Punch and, you know, invite the public and explain to people what’s changed and what hasn’t changed and what we can do for them going forward. So those are a few things that you know I think we got to think about. That are positive ways forward.

So, in conclusion, I just want to remind everybody things are changing, no question about it, but we don’t work for free.

We are professionals after all, and there are going to be buyers who will not be able to afford representation, even if they want it.

By the same token, there’s going to be buyers that are going to go straight to the listing agent because the idea of having to pay out of pocket is just not going to sit well with them.

I do also expect new regulation to come down the pike allowing new types of buyer closing costs to be included as seller pay costs or even rolled into mortgages, especially for first-time buyers. And I want to specify again you know we work by referral and that means we still don’t work for people or with people who don’t appreciate the value we bring to the profession and I think we’ve got to keep that top of mind. We work with people who already know, like and trust us, and I think the right marketing and the right messaging and the right mindsets can accelerate that trust building Real estate consultants. Now we’re the new real estate professionals and I want you to hopefully find some positives in this. If it’s not, if it doesn’t feel like a positive yet, at least start to see a way forward that you can latch on to. But we are the new real estate professionals. This is our time and again connect, practice, track and grow. Thank you all very much.