Ever since a Kansas City jury voted in October in favor of a group of Missouri homeowners in an antitrust lawsuit against the National Association of Realtors and seven large brokerages, there have been rumblings of real estate apocalypse.
The somewhat gleeful media chatter increased in March, when the NAR settled the suit, with predictions of plummeting commissions and a mass exodus of agents from the real estate business.
Buzz MacWilliam, owner/broker of AMAC Alex MacWilliam Inc., the oldest and one of the largest brokerages on the island, says, “not so much.
“Progress is good. Being stagnant, doing the same old thing we have been doing for 20 years, is never in anybody’s best interest,” MacWilliam told Vero Beach 32963 last week, a month before lawsuit-related changes in the industry were set to go live.
“We are figuring out what our company polices will be moving forward and educating our agents to make sure they comply with all the new rules and requirements that go into effect on Aug. 17,” MacWilliam continued.
“If you provide a valuable service, professionally and efficiently, to buyers and sellers, they are going to continue to want to use a good realtor.”
“We believe the changes mandated by the lawsuit settlement will benefit the industry, long term,” added AMAC sales manager Kyle Von Kohorn. “I have faith that our industry will adapt to these changes just as it has to many other major changes over the years.”
Filed in Federal Court in 2019, the class action lawsuit commonly called Sitzer-Burnett, accused the NAR and brokerages of colluding to set and maintain real estate commissions of 6 percent per transaction, harming the public.
The chief focus of the complaint was the well-established practice of listing the compensation offered to buyers’ agents on realtor-controlled multiple listing services when properties came on the market.
Plaintiffs alleged this was akin to price fixing and on Halloween the jury agreed, finding the NAR and brokerages liable and awarding $1.78 billion in damages. Because violations of federal antitrust laws were at issue, the judge had the option of tripling the damages to $534 billion.
The NAR said the decision was faulty and vowed to appeal, but 20-some copycat lawsuits were immediately filed around the country for astronomical sums, including one in Florida, and the NAR settled the case without admitting wrongdoing in March for $418 million to be paid over four years.
The settlement released more than a million realtors and most brokerages from liability in Sitzer-Burnett and all the pending lawsuits. All the brokerages named in the suit also settled, some before and some after the NAR settlement.
After all the hubbub, there will be just two main changes on Aug. 17: No offers of compensation for buyer’s agents will appear on the MLS, and agents will have to sign a buyer/broker agreement with buyers they represent before showing them a house, live or online.
Alarmists have feverishly speculated that real estate commissions will be cut in half, since sellers will no longer be “required” to offer buyer’s agents 2 ½ or 3 percent of the selling price as a commission when a property changes hands.
MacWilliam and Von Kohorn disagree.
“It’s hard to have a crystal ball, but we don’t think this will reduce the amount of commissions,” said Von Kohorn.
“The market is the market,” said MacWilliam. “Sellers want to sell, and buyers want to buy and that isn’t going to change.
“The only thing that’s different is that we will now have a contract with buyers we represent just like we’ve always had a listing agreement with sellers.
“The buyer/broker agreement the Florida Association of Realtors has provided specifies everything that both parties are responsible for, including the amount we will be paid.”
MacWilliam believes most sellers will continue to offer some compensation to buyer’s agents because the offer makes their house more attractive to buyers, who don’t have to come up with extra cash to pay their agent’s commission.
Other island brokers agree.
“You as a seller probably still want to offer some kind of credit to the buyer for commission,” said Douglas Elliman broker associate Sally Daley. “Given today’s balanced market conditions, I think about 85 percent of sellers will offer some kind of compensation to the buyer [to get a favorable deal done]. A return to a seller’s market could reduce that percentage.”
If the Aug. 17 date holds for implementing the new NAR regulations agreed to in the settlement, there will be three main possible commission scenarios in a transaction from that day forward.
The seller could offer upfront to pay the buyer’s agent a standard commission to attract wider interest; the buyer could pay their own agent’s commission if the seller won’t; or they could split the difference.
“If a seller offers to pay 2 percent to the buyer’s agent and our buyer/broker agreement specifies that we get paid 3 percent, then the buyer would have to pay us one percent to make up the difference,” said MacWilliam.
Beyond what is specified in seller’s and buyer’s contracts with their agents, the matter will be subject to negotiation just like every other aspect of a real estate transaction.
If a deal is hanging in the balance, and the buyer offers full price with the caveat that the seller pays all commissions, the seller might well agree to a contract addendum.
“Real estate commissions have always been negotiable,” Von Kohorn. “So that hasn’t really changed. Even though offers of compensation were listed in the MLS they were not set in stone and were often negotiated.”
Real estate prognosticators have speculated since October that because compensation for buyer’s agents won’t be listed on the MLS anymore buyer’s agents won’t get paid, but Island brokers don’t see it that way.
Buying a house, whether for $500,000 or $5 million, is a complex and often momentous undertaking that the average person is not well equipped to handle on their own.
After the settlement, the NAR published a list of 179 tasks agents do for clients buying or selling a home. Shortly afterwards, the organization published a follow-up list of “105 more ways agents are worth every penny,” focusing specifically on services provided to buyers, from first meeting to reviewing closing documents.
While those lists are obviously self-serving, they are also mostly accurate.
“I think the changes will increase transparency and communication in the market,” said Von Kohorn. “I’m looking forward to the initial conversations that are going to take place with our buyers to educate them about the real estate process.
“I think that for a while, there was a growing divide between brokerages and consumers about how real estate works, what we do and how we are compensated.
“Why are we worth what we are worth? How valuable is the professional experience, insight and knowledge we bring? That is a big part of this discussion.”
MacWilliam said there will be conversations with the brokerage’s sellers in coming days, as well.
“It is our job as listing agents and brokers to be able to articulate when we meet with a seller the benefits of offering buyer brokerage compensation,” Von Kohorn agreed.
“Some sellers will decide it is not in their best interest after we have that conversation and that is OK. It is a business decision for the seller at the end of the day.
“At the end of the day, who is paying the commission, whether it is sliced this way or that, it is still coming out of the purchase price.”
“To simplify it, in my mind, the buyer has always basically paid the commission” [because they are the one bringing the money to the table],” said MacWilliam.
“If you buy a house for $500,000, that is what the seller agreed to take and the buyer agreed to pay, and the seller, who receives the money from the buyer, is simply remitting part of the money back to us as our commission.
“Everything is an individual negotiation. Both sides can pull out their calculators and see what their closing costs are going to be and figure out how much the buyer needs to bring to the table, cash at closing.”
Speculation has also suggested the industry compensation model will change, with buyers picking services from an ala carte price list and paying their agent a partial commission, or agents being paid by the hour.
“The hourly rate seems like a bad idea to me,” said Von Kohorn. “Now there is no incentive to actually get the deal closed. It could become a thing of let’s go see the next property and the one after that.
“The way the industry has been set up with percentage commissions has been working for a long time.”
MacWilliam dismisses the a la carte approach as unworkable.
“There are brokerage models that do that, but AMAC is a full-service brokerage. If you hire us, we will handle everything from A to Z. It is too complex a process to effectively do just pieces. You must be in it from day one to understand the transaction and guide it.
“Think about it – we start with qualifying the buyer and finding out what type of property they want to buy. What is the price range? What are the neighborhood characteristics you want? What household characteristics do you want in your new home?
“Once we figure some of that out, we drive around and show buyers 20 houses for two weeks and then, when they finally find one they like, we prepare a sales contract.
“Are you doing cash or financing? How much cash do you need down? Who is your lender?
And then it is time to inspect the house and negotiate resolutions to problems found in the inspection. Then we are going back to the lender and getting the appraiser in to do his work.
And on and on to final negotiations and closing.
“There are too many moving parts to pick and choose, to be hired to do C and F but not D and E. We are on the phone constantly with mortgage brokers, banks, inspectors, appraisers, agents, clients, title companies and whoever else. There is a lot to it!”
“Our model is to provide the best and highest-quality professional services and we have a compensation policy that matches what we provide,” said Von Kohorn.
“Market forces dictate what the market will pay for a set of services,” he added. “Whether it is CPA services, attorney services, car dealership fees, or any others. If someone is charging too much, that company or that rate won’t survive in the market.
“The beauty of being an independent firm is we can establish and adjust our policies as needed to adapt and grow with the market.”
“We are a traditional brokerage firm that provides full service to our clients, and we charge accordingly for that,” MacWilliam said. “We anticipate the market will continue to respect and value the services we provide.”
MacWilliam and Von Kohorn are not Pollyannish about the changes underway in their industry.
Even though the matter is simple in one sense – no more offers of compensation for buyer brokers on the MLS and a new contract to formalize relations between buyers and their agents – there are ramifications and reverberations, and the ultimate outcome remains unknown.
“It is a very, very, deep and multifaceted situation we are dealing with,” Von Kohorn said.
On a practical level, the uncertainty after the October verdict and impending changes set in motion by the settlement have made the industry uneasy and created additional work for brokerages.
But area buyers and sellers don’t seem too concerned about the contretemps and upcoming changes.
MacWilliam said few of his company’s established clients have raised the issue and he hasn’t heard much talk about it around town.
And the uncertainty has not hurt business.
“I am very pleased with business in the first half of the year,” said MacWilliam, despite the transition headaches he has been dealing with.
“Our number of transactions was down 2 percent in the first six months of the year, but our sales volume was up 26 percent, due to higher prices.”