In the 24 hours after news broke of the National Association of Realtors’ (NAR) settlement agreement in the commission lawsuits, Doug Danzey, the leader of the eXp Realty-brokered teamerage The Cobalt Group, said the most pervasive emotion among his agents has been panic.
“I don’t think they really understand what is going on and what is going to be required of them,” Danzey said. “I think a lot of agents just sort of relied on the MLS to dictate what they were going to make. They could look at a listing and know what they were going to get paid if their client’s deal closed, and now that is not going to be how it works.”
While Danzey said the NAR’s decision to settle was not surprising, the quick turnaround for a July implementation date of the new rules definitely gave him a start — and he was not the only one. Jessica Edgerton, chief legal officer at LeadingRE, was also caught off guard by the timing of everything.
“I think the timing was a shock to a lot of folks, but I also understand that this is a very difficult thing to structure, and I commend them for reaching this next phase of the battle,” Edgerton said.
Like Danzey, Edgerton has heard many concerns from agents across the industry, much of which has been centered around the timeline laid out in the settlement.
“There is a little bit of a cramming session right now for agents,” Edgerton said. “I’m encouraging everyone to do as much as possible because this timeline really does accelerate things in a way that I don’t think a lot of folks were anticipating.”
In addition to the timeline, industry leaders like Ryan O’Neill — who leads the RE/MAX Advantage Plus-brokered Minnesota Real Estate Team — say they are dealing with agents who are frustrated by the lack of guidance from industry trade groups on what the settlement really means.
“I am sensing that there is some kind of disappointment that they got the settlement, but then they didn’t give a road map of how this is most likely going to play out,” O’Neill said. “They wish that there was more guidance or framework of what all of this will look like in practice.”
Honing new skills
With the settlement agreement including terms like a mandatory buyer agency agreement and a ban on displaying offers of cooperative compensation via listings on the MLS, it is understandable that some agents would like more guidance from NAR on what these terms will look like in practice.
But regardless of guidance, it is clear that, if approved, NAR’s settlement agreement will be the genesis of many changes for agents and brokers. For Edgerton, one of the largest changes for agents will be the amount of negotiation they will be doing.
“They are going to be going a lot for negotiation,” Edgerton said. “Everyone in the industry has experience with negotiation and is pretty good at it, but there are new and different pathways opening up for negotiation. There is going to be a lot more conversations happening around off-MLS considerations.”
Due to this, Edgerton and other industry leaders believe it is essential for agents to focus on training and education as the mid-July deadline looms just a few months away.
In Orange County, California, Dan Smith — the co-founder of Anvil Real Estate, which is brokered by white label firm Side — said he and his 84 agents began preparing for seismic shifts in the industry in mid-October of last year.
“We’ve spent the last six months wrapping our heads around it all,” Smith said. “We’ve really been laying out the road map for value propositions and creating plans for value proposition presentations. We’ve been learning to use the forms that have always existed, but no one has ever really used, at least in California. So, we’ve been focused on honing our skills on the technical part with the forms, as well as the tactical part.”
Smith said he decided to take a proactive approach because, prior to the settlement, no one knew when changes would be coming. He didn’t want himself and his agents in a place where the day came, and they didn’t know how to prove their value proposition or negotiate their worth with a client.
“We’ve been dipping our toes in on these topics, but since the news broke on Friday, we have restructured our April, May and June training calendars so that we are really dialing in on these things,” Smith said.
New payday model
Industry leaders noted that another major concern for agents is how they are going to get paid, as well as where and how they will find out what they will be paid now that compensation will no longer be allowed to be shown on the MLS.
“It is kind of like, ‘Who moved my cheese?’ — it is a pivot from the norm of forever in real estate,” Smith said. “I’ve been in real estate for 26 years and there have always been sellers that negotiate how much the listing agent gets versus how much the buyer’s agent gets — they have been placing value on our services all along — but now it just won’t be mandatory to make that public on a certain site.”
O’Neill believes that agents will have to be prepared for more discussions about commissions not only with clients but when negotiating offers on a property.
“It is probably going to be similar to commercial real estate where they are going to have to include compensation as part of the transaction negotiations,” he said. “If the seller is willing to have that discussion, then you and your buyer can see what they would be willing to cover.”
More off-MLS listings?
Although real estate professionals are confident that buyer agents will still be able to work with clients to be compensated for their work, there is less certainty about how properties will be listed and whether all properties will still end up on the MLS.
“That is another source of real concern,” Edgerton said. “The fact that we have built up the most unique and powerful system of marketplace for real estate in the world — that is so rich in data and information and pro-consumer — the fact that there is a real danger here that we are going to lose that is awful. I hope and trust that real estate professionals recognize the power of the MLS and continue to leverage it even if the cooperative compensation data field is gone.”
Even though Edgerton hopes that agents continue to put listings on the MLS, leaders like Danzey know that might not be the case. That would make it harder for agents to find all of the available properties for buyers and accurately price listings for sellers.
“It is going to go back to the way it was many, many years ago, when each brokerage had their own three-ring binder with their own listings in it,” Danzey said. “It is really going to go backwards. It doesn’t help anyone and it will make more work for agents.”
In addition to potential difficulties finding comparables when pricing listings, executives at eXp Realty also noted that sellers will now have to note whether or not a comparable included buyer-broker compensation in the price.
“There is going to be a moment in time where the comps the listing agent used to set that price had an offer of compensation. And I would encourage you, when writing an offer, to show that the price was set at $1 million, but all the other comps were paying an average of 2.5% commission to the buyer’s agent, and this seller may not be offering that as part of the concessions,” Leo Pareja, eXp’s chief strategy officer, said during a YouTube livestream on Monday. “You’ll need to make that adjustment and discuss that with your sellers.”
Fair housing risks
Besides challenges in setting list prices, industry leaders are also warning agents about the increased possibility of fair housing violations.
“Buyers’ agents are going to be much more focused on the increased possibility that they will be paid out of pocket, at least in part, by the buyer,” Edgerton said. “I want them focused on unconscious bias training to ensure that their unconscious bias is not a factor in selecting buyers to represent, based on perhaps false perceptions of who could and could not pay out of pocket. If the buyers are part of a protected class, that could really be an issue.”
Edgerton also warned agents to be aware of their unconscious bias when working with sellers and choosing between an unrepresented or represented buyer, as the unrepresented buyer may be part of a protected class.
“There is increased liability, but you are also putting folks who are already at a disadvantage at even more of a disadvantage, which is exactly the opposite of what we want to be doing as real estate professionals,” Edgerton said.
Agent attrition
As industry leaders anticipate an increase in the responsibilities and skills needed to be a successful real estate agent, many are expecting to see a decline in the overall number of agents in the industry.
“Of course, there are more part-time agents or agents whose heart isn’t in the game, or who feel that this isn’t what they signed up for, and they may choose to exit the business, but that is not necessarily a bad thing,” O’Neill said. “The barrier to entry for becoming a real estate agent is so low that it is not surprising that we have so many agents.”
If part-time and more casual agents ultimately decide to leave the industry, Smith sees a massive opening for the agents who have the skills necessary to succeed in this changed marketplace.
“This is their opportunity to possibly literally double market share,” Smith said. “Agents who are truly adding value and can articulate what that value is, and deliver it clearly and powerfully, are going to crush it.”
While there certainly may be both positives and negatives to NAR’s settlement agreement, for now, Danzey said it is important that agents take things one day at a time.
“I just think everyone needs to breath,” Danzey said. “I think we need to make sure buyers and sellers understand our value and the need for representation, and then we will work out how we are going to get compensated.”
