It has been nearly two months since the nationwide implementation of the business practice changes outlined in the National Association of Realtors’ commission lawsuit settlement agreement. Brokers and industry leaders say things are still a little chaotic, but they aren’t nearly as bad as some feared.
“This has felt a lot more like Y2K versus some other stuff that we were warned about but were not prepared for, which is what I wanted,” said Leo Pareja, the CEO of eXp Realty. “My view was that I’d rather be overprepared and everybody go, ‘This isn’t as big of a deal as we thought,’ than be underprepared and not having paperwork, and just being stuck and stressed out.”
Although the world didn’t end for the real estate industry on Aug. 17, that doesn’t mean it has been smooth sailing. Confusion and chaos are fairly frequent visitors in many transactions, which industry leaders believe is to be expected. This is especially true when various MLSs, brokerages and agents are taking their own approaches to dealing with the business practice changes.
As Sharran Srivatsaa, the president of The Real Brokerage, sees it, there are two primary agent camps right now.
“Camp one is agents who are looking to continue running their business in the old way, but still trying to check the boxes they need to, to stay in compliance with the rules. And then the other group is taking the new rules and completely adapting and morphing their business to these new rules,” Srivatsaa said. “They literally burned the bridge between where they are and the legacy way of doing things.”
At Real, while Srivatsaa feels things are running smoothly, he noted that when his agents do run into challenges in a transaction, it is when agents from the separate camps meet on opposite sides of a deal.
“Frustration happens when one agent who is doing things the legacy way calls up the listing broker and asks what they are doing for cooperative compensation, and the listing broker tells them they aren’t, but their seller is willing to consider all offers, so ask for the compensation in the offer,” Srivatsaa said. “Some of them are throwing hissy fits with this.”
While agents may be frustrated when they transact with others who are handling the changes in a different way, brokerage leaders say this frustration isn’t necessarily a bad thing. It is actually forcing agents to improve their communication.
“There have certainly been some bumps and bruises, but it has been amazing to see the Realtor community come together, Realtors asking each other questions about best practices and really having open communication about compensation throughout the negotiation process on a transaction,” said Christiana Pappas, the president of Florida-based brokerage The Keyes Co.
In addition to communicating more openly during deals, brokerage leaders say agents and other brokers are also more willing to share tips and strategies, as they know they are all learning how to deal with the changes together.
“Today as an agent you are on the buy side, and tomorrow you might be on the sell side. That’s the commonality of being a broker, and so I do think there is a lot more sharing and a lot more discussions, because this is new for everyone,” said Samantha Giuggio, chief operations officer at Fathom Realty.
“There are going to be a lot of different ways to be successful with these changes moving forward, so I absolutely think that the collaborative piece of the industry is gaining strength and causing agents to communicate better.“
Consumer reaction
There is little doubt that the revised business practices have changed things for agents, but they have also impacted consumers. Approaching the Aug. 17 deadline, much of the industry concern was over how home buyers and sellers would react. Would sellers suddenly stop offering buyer’s agent compensation? Would buyers refuse to sign buyer agency agreements and ultimately decide to go unrepresented?
Thus far, brokers and executives say the general answer to both questions is no.
“I’ve seen a lot of healthy communication about compensation, and I would say that overall, when sellers receive the net price that they want, then they are willing to pay buyer’s brokers. But if they aren’t, then the buyer is more likely to come out of pocket,” Pappas said.
“Sometimes we are seeing deals where the seller pays, sometimes it is the buyer and sometimes it a combination of both. We are seeing all sorts of variations, and it really is a function of supply and demand. In the markets where we have high supply, we typically see more sellers offering compensation. And when you have low supply and high demand, the buyers are having to come out of pocket more.”
Although agents have run across sellers reluctant to offer buyer agent compensation, this often comes down to how agents are educating and communicating with their clients, said Alex Mihai, general counsel at Realty ONE Group.
“On the listing side, we really prepare them and let them know right away that if someone is going to make an offer on their home, it very well may be that the buyer will seek some sort of concession from them to pay their buyer’s agent’s commission or possibly any other reason too,” Mihai said.
“If the sellers are prepared for these asks, we have found that most of them are willing to consider them because the most important thing to them is to get their home sold.”
Brokerage leaders say agents are seeing similar reactions among buyers, who in many markets are being asked to sign buyer agency agreements for the first time.
“Agents at my firm have not been having much trouble,” said Melissa Sofia, the leader of The Avenue Home Collective, a Side-backed firm in San Diego. “I think a lot of it is what kind of energy an agent is bringing to that conversation with the buyer. If they are scared and nervous about getting the agreement signed, then the buyer is going to come back scared and unsure of whether they should sign an agreement with you.
“It is our responsibility as agents to explain to them what they are signing and how compensation is going to be handled so they know what they are getting into.”
For agents who do come across buyers who are hesitant to sign an agreement, many brokerages have created their own forms to accommodate for the wide variety of buyer and agent needs.
“We need to have a written agreement signed before we show a home, but no one says it has to be a full-blown buyer representation agreement,” Srivatsaa said. “If you get a lead off of Zillow and they want to go and see a house, you have no time to build that relationship with them, so that is why we created these touring agreements that are non-exclusive, low stakes, but keep agents in compliance with the rules. Our agents know that no matter the situation they are in, we have an agreement that will work for them and their buyer.”
Despite the extra steps and potential for consumer pushback, agents and brokerage leaders are generally pleased with the requirement for buyer agency agreements.
“We believe that our Realtor members have adjusted to articulate the process and share their value propositions clearly before showing homes,” said Michael Maerten, chairman of the board of directors for Pennsylvania-based Tri-County Suburban Realtors. “While this adds some friction for consumers, it ultimately is in the best interest of transparency.”
According to Maerten, most agents in Pennsylvania had been using buyer agency agreements prior to the requirement going into effect, but they typically did not get them signed until the buyer and agent had a well-established relationship.
Best practices blossom
Despite the chaos that still envelops the industry on occasion, leaders are confident best practices will eventually emerge. Although Pareja feels the industry is still in the midst of what he coined “the messy middle,” he does believe one best practice is already clear.
“I think by far the best practice is to lead with education,” Pareja said. “Make sure the sellers understand that they have all of these options. If you look at the plaintiffs’ attorneys [and their arguments from the commission lawsuits] … sellers need to understand that there is more than one way of doing things and they are not required to do it any single way. And most importantly, that both buyers and sellers know they have a seat at the table in the decision-making process.”
But as the industry waits for more best practices to emerge from the messy middle, most people are just grateful that the industry has adjusted as well it has.
“I’d like to applaud everybody,” said Chad Jacobson, CEO of New Hampshire-based PrimeMLS. “This has been a massive, seismic change to the rule. And sure, there have been some outliers that are wondering what on earth we are talking about — despite all of our communication efforts — but for the most part, we have seen tremendous compliance with these new rules and so quickly as well.”
