Tag: commissions

A couple posted on Reddit with a question from their search for a Pasadena-area home. They “love” their broker, they wrote.

Still, they hope to negotiate her commission under the new NAR rules, and asked fellow Redditors if it was true they must sign papers before seeing a single property. 

Enter a myriad of responses and opinions that make clear confusion still abounds on the eve of the National Association of Realtors’ deadline for new rules stemming from the Sitzer-Burnett class action lawsuit in Missouri federal court.

“If you ask the average person what the MLS stands for, they’re going to say, ‘Major League Soccer,’” said The Agency’s Jon Grauman. “Most people don’t understand the terms and nomenclature of real estate. Why would they? It’s not part of their daily lives.”

But the stakes are becoming clearer. The California Regional Multiple Listing Service released an updated fine schedule for the new rules, including a $2,500 penalty for disclosing listing or buyer agent commissions and $2,500 for showing a property without a signed buyer agreement. Agents receive no warning for either infraction, just the bill.

There’s no excuse for agents who are still confused, said Anthony Marguleas, the founder of Pacific Palisades-based boutique brokerage Amalfi Estates.

“The lawsuit started in 2019, so we’ve technically had five years to get ready for this,” Marguleas said. “The people that aren’t ready, it’s pretty surprising. There have been hundreds and hundreds of emails and trainings over the last six months.”  

Marguleas said some of the discourse he’s seen in online industry forums has baffled him. 

“It’s pretty shocking how unprepared certain agents are,” Marguleas. “They still put in the private remarks, ‘Call me to discuss commission,’ which you’re not allowed to do.”

Stating the obvious

The Agency’s Ben Belack headed the brokerage’s sales meeting held days ahead of the deadline to discuss the new rules with his colleagues.

While he believes the brokerage’s agents understand the changes, the challenge is wrapping their minds around new conversations and clarifying client questions.

“Before, we had a standard of compensation. Now, we’re going to have a standard of behavior,” Belack said.

A common refrain around how brokers will adapt to increased negotiation and competition has been proving the value of agents’ work. Grauman said for most, that could feel like stating the obvious. 

“Our job as brokers right now is to educate, not defend. There’s nothing for us to defend,” Grauman said. “We just need to educate consumers on what’s the new world order. These are not changes to the law; they are changes to the internal way we conduct our business.” 

More turns ahead 

Ask anyone to forecast the state of the industry post-Aug. 17, and the responses reveal more questions than anything else.  

“Have you looked at how this is meant to be policed?” Grauman said. “They’re going to look to agents to essentially tattle on each other if someone is not abiding by the rules.”

One thing many agents have concluded: more litigation is likely.

“The lawsuit that started all of this had nothing to do with buyers; it was only sellers. So there’s dozens of additional lawsuits,” Marguleas said.

Days before the deadline, a group of Signature Sotheby’s International Realty agents filed an antitrust lawsuit in Michigan district court against the National Association of Realtors, the Michigan Association of Realtors and other industry groups. The lawsuit challenges those group’s requirement of membership and seeks class action status, according to court documents.  

Belack views ramifications of the Sitzer/Burnett settlements as not just limited to altering the way the NAR membership operates. Instead, it also stands to shake up how the trade organization itself operates. 

“Before, it was the sellers as the plaintiffs in the class action,” Belack said. “Now, it’s [NAR’s] membership. Did we ever think agents were going to sue NAR? Well, here it is.”

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After much ado, residential agents have some clarity about a sales process that complies with the National Association of Realtors court settlement.

With the Aug. 17 deadline looming for the rollout of new rules resulting from NAR’s $418 million settlement of an antitrust case earlier this year, the California Association of Realtors last week released updated disclosure forms for agents.  

Earlier versions were not without drama. The Consumer Federation of America’s June critique found they were too difficult to understand. CAR suggested the consumer group spent too much time on “grammar, formatting and design” of old drafts. Meanwhile, a Department of Justice inquiry further delayed the forms’ release.

In the NAR case, the court found that having a seller pay a commission to the buyer’s agent created a conflict of interest and amounted to collusion. NAR agreed to prohibit listing brokers from offering commissions to buyer’s agents through the Multiple Listing Service, and to require buyer’s agents to obtain written compensation agreements before taking them on home tours. The new forms are designed to address these issues. 

With the documents now out, and the disclosures packet four pages longer than the previous one, Nourmand & Associates President Michael Nourmand went over the forms and explained the changes to TRD.

What changed?

• Big change: No more box designating a fee for the buyer’s agent. Instead, there’s a box specifying if a buyer is unrepresented, the seller is to pay the buyer’s agent a specific amount.

• Nourmand’s take: “I believe that buyers are going to ask the seller to pay their agent and it’s now going to be reflected in the price. I think now it’s part of the negotiation on price because it’s an expense.”

• Big change: The fee in the Buyer Representation and Broker Compensation Form overrides the fee agreement in the residential purchase agreement.

• Nourmand’s take: “If in my BRBC I say to the buyer ‘You only have to pay me 2 percent’ and I write an offer and in the purchase agreement the seller agrees to pay me 2.5 percent, I’m getting paid 2 percent because the BRBC overrides it. …  That’s something very important because I know in a matter of months, somebody’s going to walk into my office very upset that they didn’t sign a full fee on the BRBC.”

• Big change: Many in the industry say the California residential market’s largest headwind now and in the future is housing affordability. But if sellers don’t pay the buyer’s agent, it raises the possibility of buyers bringing more money to the deal.

A few ideas of possible workarounds have been floated, such as lenders potentially approving a buyer credit that could be used to pay the buyer’s agent, he pointed out. However, time will tell if that becomes a viable option.

Nourmand’s take: “Normally, when people buy a place, they’re cobbling money together. … Sometimes, they’re getting money from family, so it’s not the best time for them to write a check to an agent.”

 Ready?

Take a look through The Real Deal’s post-settlement reporting and one thing is clear: management at some of the largest brokerages say they’re ready for Aug. 17. Some with boots on the ground feel less confident.  

“It’s going to take some time. This is educating buyers, educating other agents. I get calls from other agents who work at other companies to ask me questions about how it works and what I think is going to happen,” Nourmand said. “Obviously they’re my colleagues so I answer them, but to me that also clearly demonstrates they’re not getting it from their leadership.”

When asked what types of brokerages those agents who called are hailing from, Nourmand described them as being mostly from big boxes not headquartered locally.

Nourmand views that as a competitive advantage of boutique brokerages. Agents at smaller firms may have easier access to managers to get clarity on the new rules.

“The advantage that boutiques have is I see my people,” he said. “I see my agents on a regular basis.”

What to do?

Nourmand outlined some steps he has taken to clarify the buying process for agents and clients.

•  Change the website, again: Last month the agency sought to get ahead of the new NAR settlement rules by displaying the buyer agent commission on all Nourmand website listings.

  That will now be updated to remove the “buyer agent compensation” line. It will be replaced with “seller concession” and specify either “yes” or “no.”

• New buyer presentation: This is given to buyers to review the services Nourmand & Associates provides.

  It’s an educational play for buyers who think their agents’ sole job is showing them houses, while also offering the formal meetings that have historically happened mostly on the sell side.

  “This is to explain that if you think I can beat a machine, that’s impossible. Even if I sat on my computer refreshing the screen, that’s the worst use of time. Yes, we will show you properties on the market and schedule showings and tell you about stuff that’s off market and coming soon, but here are the other services we do,” Nourmand said.

• Final thought: “There’s a lot of moving parts [in getting a deal done] and I think that’s what’s really frustrated Wall Street and Silicon Valley is how do you disrupt human emotion?” Nourmand added. “One of the core things we do is keep the buyer and seller apart because they would kill each other. How do you have a standardized way to deal with that? … It’s a lot of soft skills that people don’t understand.”

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