THE SCOOP | Have you heard the news?
HAVE YOU HEARD THE NEWS?
ICYMI the real estate industry response to the $418 MILLION lawsuit settlement by the National Association of REALTORS (NAR) will be effective starting mid-August 2024.
Stay tuned for more updates on this and other industry news!
What to expect as a consumer
In order to utilize a REALTOR, you must officially hire them by signing a Listing Agreement and/or Buyer Agency Representation form. This includes requesting to see homes, inquire or research a property for sale, and/or negotiating a transaction. Delaware and NAR legally define REALTORS responsibilities to a member of the public vs. an official client.
The term 'COMMISSION' will be replaced with 'CONCESSION' on Bright MLS and a separate disclosure form must now be signed by clients. Buyer's agent compensation will need to be formally documented in the Agreement of Sale.
FHA, VA, and USDA previously limited the max concessions a buyer can receive; however, the regulations regarding including buyer agent compensation has been updated.
My Thoughts
You get what you pay for.
Forget real estate for a second, why do stores offer discounts on clearance and sale items? They can no longer get market value for the desired item.
The same goes for professionals that offer discount rates for their services. One does not pay a REALTOR for things to go right, you pay us to protect you from the law when things go bad.
I would rather reduce my own income to benefit my seller in need of proceeds than negotiate to offer less money to the buyer agent. Every seller was a buyer at one time so it is better to do good business. A reduced commission on a house that does not sell is still $0 earned.
I highly recommend seller's be mindful closing a transaction actually costs all parties at least 8%-20% depending on how much the buyer puts down. Currently, buyers tend to pay for deed prep, lender fees, sometimes their own and the seller’s transfer taxes, as well as due diligence inspections and additional monies out of pocket.
In Delaware, we have bigger problems - we have the highest TRANSFER TAX nationwide at 4%.Sellers and buyers should be complaining to their representatives and participating in local elections to help lobby against lowering these fees.
Buyer's of new construction tend to be charged the full 4% while traditional sales split this fee 50/50 between buyer and seller.
The State charges consumers to transact then again for income taxes and again for local property taxes - we continue to pay without complaint.
REALTOR® vs Real Estate Agent
As a Licensed Delaware REALTOR, I cannot do what others may do. I could face financial and professional consequences if me or my brokerage had been a party to the activities related to the NAR lawsuit settlement.
Agency is the practice of representing a client in a real estate transaction. In the early 1990s, buyer agency was passed to exist exclusively by offering agency to buyers who become clients. However, be mindful there are a few facts specific to Delaware to keep in mind:
1. Delaware has 'presumed agency' - indicated in the Consumer Information Statement (CIS) required by law. This is in the signature line of some of my e-mails, there is a link referenced in the Introductory and/or Buyer Strategy Session call, and clients sign along with the Buyer Agency documents upon choosing to hire me.
2. The phases of client representation are: New Lead/Prospect, Customer, and Client. Once you are a client, by statute under Delaware Law, I serve as your DESIGNATED AGENT to operate and negotiate on your behalf. Prior to this point, every member of the public is a Customer and as a licensed REALTOR - I am bound by the National Association of REALTORS (NAR) Code of Ethics.
3. Not every real estate agent or salesperson is a REALTOR. Only those licensed members of NAR can use the copyrighted term REALTOR. This may exclude new construction sales representatives, list only sales representatives, etc.
The DELAWARE Way
As for Delaware, we have statutory agency - meaning our duties are defined by Delaware Law and any change would require a vote by the legislative representatives.
Consumer Information Statement (CIS) explains Agency law in Delaware. Real estate salespersons, associate brokers, and brokers are required to provide this at the earlier of your first scheduled appointment, the first showing of a property, or making an offer. Consumers are encouraged to read before listing your home for sale or before viewing homes, but definitely PRIOR to signing Agreement of Sale or any brokerage agreement.
Once a member of the public makes contact with a REALTOR, they have presumed agency as a customer. As a customer, the real estate licensee owes the the following duties:
Loyalty to the buyer by acting in the buyer's best interest.
Confidentiality by not disclosing facts that could influence the buyers ability to negotiate the best terms.
Disclosure to other parties in the transaction that the licensee has been engaged as a buyer's agent.
Once hired, the agent acts as a fiduciary for the client ... also known as the DESIGNATED AGENT. The representation agreement will essentially continue to function like an invoice as a promise to pay should the seller not offer compensation.
At closing there is a line item to pay the title company for a one-time policy to protect from future claims or liens against the property. As REALTORS, we operate on the clients behalf with the brokerage’s Errors and Omissions coverage. However, we bear the risk of future claims against:
Delaware Guaranty Fund: The Real Estate Guaranty Fund, administered by the Department of Consumer Protection, can reimburse consumers who suffer financial losses in unscrupulous real estate transactions.
NAR Code of Ethics: Adopted in 1913 to ensure that consumers are served by requiring REALTORS® to cooperate with each other in furthering clients' best interests.
Grievance complaints at the local association - mine is Kent County Association of REALTORS (KCAR)
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UNDERSTANDING THE NAR $418M SETTLEMENT
The settlement has been a topic of conversation in the real estate industry. NAR provides oversight of all licensed REALTOR Associations; however, there are several Multiple Listing Services (MLSs) affiliated with NAR. Not every real estate sales person with a listing on MLS is a member of NAR (example: new construction).
It's important to note that the rules resulting from the settlement are not effective immediately and NOT all brokerages are impacted.
Prior to this case, written Buyer representation agreements were already mandatory in 18 states and has always been a choice for REALTORS.
REALTOR® is trademarked for identify members of the National Association of REALTORS.
A real estate agent is NOT automatically a REALTOR unless they are a member of NAR. And real estate agents can advertise properties for sale a Multiple Listing Service (MLS) - currently totaling 600-800 MLSs, organized by region.
Our is Bright MLS - which covers PA, MD, DE, VA, and Southern NJ and stands second behind the California-Regional MLS (currently hosts approximately 110,000 real estate professionals).
Here's what you need to know… View 62-second Summary Video
BACKGROUND
An antitrust class action lawsuit against Anywhere Realty, Re/Max, AND the National Association of Realtors (NAR) focused on broker fees, specifically the seller’s payment to buyer’s agents.
NAR rules require sellers to pay a fee, split between the seller's and buyer's agents. While the fee could be as low as $0, research shows it remains largely uniform.
Anywhere Realty and Re/Max settled the lawsuits by scaling back their relationship with the NAR and paying $139 million in damages.
A CLOSER LOOK
Antitrust refers to COMPETITION LAW - the regulation of the concentration of economic power, particularly in regard to monopolies and other anticompetitive practices. Antitrust laws exist as both federal statutes and state statutes.
WHAT HAPPENED
Plaintiffs represented over 260,000 home sellers from Missouri, Kansas, and Illinois - arguing the current system keeps home prices artificially high.
Starting mid-July 2024, the penalty imposed on NAR will be paid out to plaintiffs over a period of four (4) years AND Buyer Agency documents, subject to court approval, will go from optional to mandatory.
THE DECISION IN ENGLISH
MLS will no longer have a section to input Buyer Agent Commission, but a written agreement to offer compensation is allowed and it can be posted on other websites. REALTORS can offer commissions via advertised seller concessions.
NAR never required a mandatory price for commission - just that it must be as little as $0.
Any buyer knows at closing there is a line item to pay the title company for a one-time policy to protect from future claims or liens against the property. As REALTORS, we operate on the clients behalf with the brokerage’s Errors and Omissions coverage. However, we bear the risk of future claims against:
Delaware Guaranty Fund: The Real Estate Guaranty Fund, administered by the Department of Consumer Protection, can reimburse consumers who suffer financial losses in unscrupulous real estate transactions.
NAR Code of Ethics: Adopted in 1913 to ensure that consumers are served by requiring REALTORS® to cooperate with each other in furthering clients' best interests.
Grievance complaints at the local association - mine is Kent County Association of REALTORS (KCAR)
RESOURCES
DE Code Title 24, Chapter 29. Subchapter I. General Provisions § 2922
FREQUENTLY ASKED QUESTIONS (FAQs)
Q: Do agents get all the commission?
USUALLY NO - Technically listings are represented by the brokerage, not the individual agent. For instance, if the agent changes brokerages, the seller must request it be moved with the agent. In addition, the signed listing agreement dictates if and how much the buyer's agent will be compensated. Some brokerages and teams have a cap on the portion of commissions they take require an agent to pay per sale.
In the end, most agents walk way with about 1/4 of the total commission unless they have capped.
Example of 60/40 Commission Split
NOTE: If the buyer wished to buy a home that the company or REALTOR has listed for sale, then the buyers would have to agree to some form of dual agency in the event. If the buyer does not enter into this agreement, they can remain a customer of the brokerage with a sub-agent handling representation.
Q: Buyers can absorb the commission expense into their loan?
FALSE - These rules will have to be updated by the loan program. VA Loans do NOT allow buyers to pay the following fees: Real estate broker or agent, application, attorney fees, appraisal requested by lender or seller for reconsideration of value, etc. HUD and Fannie and Freddie will have to modify loan underwriting requirements to allow this for compliance.
Q: Will standard commissions will go away?
CLARIFICATION - There is no standard commission, actual paid commissions range as low as 1% (if not zero) and as high as 8%.
REALTORS are independent contractors and as a small business owner, we can charge a flat fee, commission based on percentage, itemized invoicing, and transaction related fees. Many brokerages choose the commission model for simplicity.
Q: We can’t see if buyer agent compensation is being offered?
FALSE - The public CAN see when they view using a sanctioned property search portal like MLS Touch App and the brokerages IDX portal with their REALTOR. REALTORS are not allowed to withhold providing viable properties based on their compensation.
Q: Sellers are NOT REQUIRED to pay buyer agents?
TRUE - Sellers NEVER had to pay a minimum buyer agents as commission was always negotiable. Remember, NAR always said the fee could be as low as $0; however, brokerages can have their own requirements and allowances.
In fact, some prominent builders pay between 0% - 2% to buyer agents. However,
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