Truth About the NAR Settlement - Change is Good But Beware Misconceptions

The Truth About the NAR Settlement:
Change is Good for the Industry, But Beware of Misconceptions

By: Danny Perez, Founder & CEO of M&D Real Estate

So, there’s been a lot of talk going on, a lot of news out there about real estate over the last week regarding the NAR settlement, and so at M&D Real Estate, we want to address the topic head on. 


First off, we are actually excited about the change that is going to be coming through the National Association of Realtors settlement and the changes that have been proposed to take effect mid-July. 


We are agents of change, and this is going to be a change coming to our industry. It’s going to shake it up and to a degree, it was needed. There are some cons, however, that I want to address, too.

NAR Ruling and Changes to Come

Watch Danny Perez Discuss the NAR Settlement:

So, What Does the National Association of Realtors (NAR) Settlement Mean?

The changes are that no longer are you going to be able to post a buyer’s agent commission on MLS any longer. So, you can’t advertise it to other agents. You, the homeowner, never saw it as a consumer before, but know that agents wouldn’t be able to advertise it any longer.

And also, the other change is that a buyer rep (buyer agreement contract) is going to be required before we can show any houses to you as real estate agents.

Let’s discuss the first change, which is the biggest one, regarding no longer advertising buyer’s agent commissions in the MLS. Agents are freaked out about this. But, here at M&D Real Estate, we also do a lot of commercial business. So, it’s actually business as usual for us in commercial and will be in residential now, too.

There is no platform—not Loopnet, Costar, Crexi, or any of the platforms out there where you will find commercial real estate advertising commissions. You don’t see what the buyer’s agent is going to get paid, and that’s how it has always been in commercial real estate.

So, what happens is you just negotiate that through the offer. And so that’s what’s going to happen in residential real estate going forward is the negotiation is going to come through the offer of the contract at the time of the offer. That is going to be very unique and different for the residential real estate industry.

Negotiations on Commissions Will Happen in Buyer Offer

And it’s going to shake it up to the point where quality is truly going to matter because, all of a sudden, you have to have a value proposition. You can’t just open doors and expect to get paid and that people will pay for representation. What will be required now is good representation.

And good representation is not just opening doors. It’s negotiating hard on the contracts properly and being there all the way to close, making sure you’re there and buying a good asset for your client, the largest asset that many people are ever going to buy most likely.

So, the biggest thing is that a lot of promotions are going to go out there and we’re going to see agents advertising ridiculously and variously low amounts and discounts for the buyer’s agent commission. That’s going to happen.

And then, you’re also going to get what you pay for. And I really am concerned that there’s going to be a lot of lawsuits that come out of that action when everybody starts going fastest to 0 on the buyer representative side because you’re going to get what you pay for ultimately.

Lawsuits over NAR Ruling Due to No Representation

There’s a lot of work, a ton of work, and there’s a ton of knowledge that goes into truly being a good buyer’s agent. Agents that have decades of experience even make mistakes on the buy side. 

So now, can a buyer represent themselves? Yes, absolutely. A buyer can represent themselves. But most of the time, it’s 5%, maybe 10% of the population that really can represent themselves, just like in the commercial side. People want and need representation.

Just like you don’t go into a court of law and say, “Hey, I’m going to represent myself.” You want to have good representation when you buy a home, somebody who is going to be fighting on your behalf. And that’s going to be the important part.

I really feel like it’s going to shift our industry to quality and that’s what people are going to look for in their agent versus just a friend or somebody to open a door. And it’s going to begin to make a difference in our industry.

NAR Ruling to Shift Industry to Quality Real Estate Agents

So, that’s what M&D Real Estate is excited about in this and embracing as a change.

But, there are three major misconceptions that I see coming out of this.

Misconception #1: The Seller Pays 100% of Commissions

First, the seller does not pay 100% of the Commission, and I completely understand why that is a misconception. I, myself, have even looked into this. I googled and searched on commissions and how they’re structured.

Every piece of material out there says sellers pay the commission for the transaction. Well, technically they do at closing. You see, on the seller side, the seller has it on their statement. But the reality is that the buyer is actually paying for the property, and it’s just coming out of their side of the contract.

So, in other words, if the buyer has to buy the property and pay for the commission, all that does is bring down the price of the home since the commission is coming out of pocket from the buyer but does not lower the price a buyer has to pay. Since we’ve been doing transactions in real estate, the buyers have been paying for their portion, their share of the commissions.

They’re the ones that bring the money to the table. But we as an industry have not communicated that well. We’ve actually communicated just the opposite just to win buyers if we’re being transparent.
“Hey Mr. Buyer, you don’t have to pay anything for me to represent you.”

Well, you know that was a kind of customary thing and that’s gone. The buyer does have to pay some, always has paid some, and it’s just going to be more transparent now. So, that’s a good thing that’s come out of this and cleared up the misconception.

Buyer Agent Commissions Will Be More Transparent Now

Misconception #2: Commissions Drive the Market

Secondly, another misconception is that commissions drive the market.

What you must understand about markets is that markets are not driven by anything other than a ready, willing, and able buyer. I don’t care what market it is. Whatever that ready, willing, and able buyer is willing to pay for a property, that’s the market price.

Now, there’s different markets like we saw a couple years ago where we had multiple offers and buyers were paying way over list price. At that time, we were seeing commissions coming down just naturally because the market was dictating it and that’s what markets do.

In the event that everyone was choosing to not be represented and to make the purchase 100% by themselves that would naturally bring down prices, but the reality is that 90-95% of people want and need representation for what is most individual’s largest asset purchase.

A ready, willing, able buyer is what drives price. Commissions are a factor in the price. Hopefully that helps you understand the second misconception.

A Ready Willing Able Buyer is What Drives Price

Misconception #3: Commissions are Dead

The final and third misconception is that commissions are going to be dead. You know, many news outlets out there, they love to put this out there because it’s clickbait.

Nobody likes to pay a commission.

But I don’t care if it’s real estate, stocks, or whatever industry, nobody likes to pay commissions or the middle man. It is just part of business the brokering side and having experts at your side when it comes to those types of major purchases and decisions.

And so, the news loves to say they’re dead. Basically, I believe that’s all the clickbait that’s out there. 

The new rules that come out don’t change the commissions. There’s nothing changing the commissions, it’s just changing how they’re displayed and the market will dictate what commissions do.

Hopefully my explanations for these three misconceptions clear things up for you.

Final Thoughts on NAR Settlement & What's to Come

Finally, here are my actual worries about the change. I would say my cons on the change in how it affects the consumer is that I’m worried it is going to falsely empower the consumer to believe that, “Hey, I can go represent myself. I’m just going to call the listing agent by myself and I’m going to represent myself or I’m going to just go through him…”

This is probably what you’re going to be thinking as a consumer.

And we see more of this in commercial where you’re going to just go straight to that listing agent who is thinking, “I don’t need a buyer’s agent.”

That’s what I’m worried about, and I think it will happen, especially with the news that’s going out. And, the unfortunate thing is that this is the largest asset that that you’re going to buy as a consumer most likely. And there’s representation needed – GOOD representation.

Home Buyers Still Need Good Representation on Buyer Agent

It’s just like going into the court of law. Again, you want representation.

You want to have somebody in your corner and what’s going to happen, is that they’re going to buy the house. And there is going to be missteps and then, they’re going to start filing lawsuits because there’s so many laws that protect the consumer out there.

Attorneys are going to eat it up, just like they’re eating up the technicality that they found and have sued all these real estate agencies over. So, they’re going to be pursuing lawsuits against sellers at that time because as a real estate agent, we’re allowed to do dual agency which means represent both sides.

But like here at M&D Real Estate, we don’t do dual agency where we represent both parties and most real estate firms don’t. So, the agent is going to only be representing the seller and that consumer is not going to be protected through that.

So, I think we’ll see a lot of that coming out of this and then, the shift will come back to what I started with.. The buyer’s are going to be looking for quality representation and those that are doing well and doing the system’s right to protect the consumer will thrive with the new rules and that’s why we’re excited here about the change because we see ourselves as agents of change in this industry. And we don’t see this as bad news.


NAR Ruling Will Mean More Quality Agents for Home Buyers and Sellers

We’re not mad or upset. 


It’s a pivot, but we’re looking forward to the future and excited about the future.

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