Saturday, June 15, 2024

News and Ideas Worth Sharing

HomeReal EstateMarket PerspectivesProposed settlement by...

Proposed settlement by the National Association of Realtors: how will it impact Berkshire real estate sales?

An analysis of anticipated changes in Realtor® practices in Berkshire County

Editor’s note: The author is Chief Executive Officer of Berkshire Realtors® which operates the local Multiple Listing Services (MLS). She wrote this article in response to an Edge request for information on how a proposed settlement by the National Association of Realtors might impact the real estate market in the Berkshires.

On March 15th, 2024, the National Association of Realtors (NAR) announced a proposed settlement agreement to end litigation claims brought on behalf of home sellers related to broker commissions and to the NAR-mandated real estate polices for Realtor-owned Multiple Listing Services (MLS).

Sandra Carroll, Chief Executive Officer of Berkshire Realtors

The proposed settlement would impact all local Realtors, as they are members of the Berkshire and National Associations of Realtors and use the Berkshire MLS.  This will require changes moving forward, if approved. NAR has not admitted any wrongdoing but has agreed to settle these and any copycat claims by paying $418 million in damages and by eliminating its rules requiring offers of compensation in the MLS.

While the settlement is subject to court approval, local Realtors® will continue to offer professional real estate services but things could change for both buyers and sellers after July if this settlement is approved.

Quick Glance: If approved , both buyers and the sellers retain the right to Realtor® representation. And all parties will continue to be able to negotiate compensation with the Realtor® they hired to represent them. Two major changes will take place locally:

  • buyer agent compensation won’t be a field in the Berkshire MLS database and
  • buyer agreements will be mandatory before seeing a property.

Both are seemingly simple changes that are complex to put in practice, since real estate transactions have always included an offer of compensation in the MLS made to agents working with the buyer for efforts in a successful sale.

Nicholas Geranios, president of Berkshire Realtors

“We knew changes were coming; we just didn’t know the timing, so it was a little surprising,” Nicholas Geranios, president of Berkshire Realtors, said. “Right now, we have a field in our MLS database of properties that says I’m willing to cooperate with the person who brings the buyer for x percent or a certain dollar amount. In this new settlement, this field will go away.” Despite this, the settlement allows many ways for buyer’s agents to represent clients and get paid for their services.

  • For Berkshire sellers, having a very upfront conversation about the compensation they will pay to their agent and offer to cooperating brokers at the time of listing their property is not new. It’s a blank line that every agent talks about and negotiates with the seller before listing a property for sale.  In many other parts of the country, it’s a new practice.
  •  For Berkshire buyers, they can expect to see changes from an informal, verbal agreement to show property to a more formal, transparent outline of services promised by an agent, including the negotiation of compensation rates and ways  they can be compensated for their work on a successful sale.

“The settlement has unanswered questions right now.  We have concerns about some of our first-time home buyers and veteran VA mortgage buyers having access to representation with compensation established as part of a purchase agreement, but we’re working with our industry partners to try to make sure every single person can have access to representation. We can’t go backwards thirty years to the days when buyers had no one putting their interests first,” Geranios said.

“The policy changes could make it easier for home buyers to negotiate fees with their own agents, but we worry that it could lead to more buyers choosing to go unrepresented.

You need to have an advocate in your corner, whether you’re the seller or the buyer. Can you do this on your own? Absolutely. Should you? It’s a complex transaction with legal, financial and environmental impacts that Realtors® are trained to guide you through, working for your best interest. Unless you’re well-versed in negotiations, contracts and property law, representation is important.” 

Deep dive: A look at the selling side

Currently, when Sellers hire their Realtor® and prepare to submit their property to the MLS, they enter into an exclusive right-to-sell agreement that establishes (1) the listing broker’s compensation, and (2) an offer of compensation the listing broker can make to prospective buyer brokers.

Listing brokers collect the total compensation due at the time of sale and pay the buyer’s broker the portion offered in the MLS and as agreed to by the seller in the exclusive right-to-sell agreement, if applicable.

  • FACT: In the Berkshire right-to-sell contract, compensation fields are represented by blank lines __________ and negotiated at the time of signing between the listing office and the seller to put their property on the market.
  • FACT: Most sellers interview more than one agent before hiring one to sell their property and they receive an accounting of services to be provided, a property discussion about condition, price, and brokerage fees and terms, as well as strategy for attracting the largest pool of buyers.  Sellers negotiate and chose the best fit for them.
  • FACT: Sellers and their Realtors® have long recognized that the offer of buyer broker’s compensation is a factor in attracting the largest pool of buyers.
  • FACT: When listing brokers sign with a seller to represent them in their selling journey, all compensation is fully negotiated, both for the seller’s representation and a potential buyer’s agent fees offered.

What is changing on the selling side:

If the settlement is approved, all of the above can stay the same, EXCEPT that Realtors® will no longer use the MLS database system to offer compensation to buyer’s brokers from their firm. However, the proposed settlement allows agents to continue to communicate buyer compensation offered by their firm, but outside of MLS.

Buyers can ask sellers to pay their agent’s fee as part of the purchase and sale negotiation.

Sellers MAY now offer to share concessions in the MLS if they wish to convey to prospective buyers that they will be willing to pay a set amount of buyer’s closing costs. Both the seller and buyer would agree to any concessions in writing at the time of executing a purchase agreement.

Seller’s concessions may be limited based on the buyer’s mortgage loan. It could vary by buyer and negatively impact veterans with VA loans and some FHA loans with low limits.

Allowing the listing agent to collect the fee from the seller and pay the buyer’s agent as typically done today is still a viable option.

A look at the buying side:

Currently, buyers work with real estate agents in many capacities when first seeking a property.  They might hire and work with one exclusive agent, work informally with various agents to see property, use an online referral system to set up showings on their behalf with buyer’s brokers they have never met, or they might make appointments directly with the listing broker who represents the seller.

When working with buyers, several firms offer buyer agreements to outline a formal relationship, and the local Berkshire agreement mimics the seller’s right to sell with promises made by all parties and a section where compensation is negotiated and agreed upon.  Since the recent lawsuits, there have been efforts to encourage all agents to adopt and use written agreements with their buyer clients to ensure full transparency regarding compensation and the services offered.

Currently, if compensation offered to buyer brokers in the MLS meets their requirements, the agent relies on payment at time of sale.  The buyer broker could always renegotiate with the listing broker or the buyer with the seller prior to an offer.

  • FACT: Buyer representatives are critically important professionals to assist buyers, as are closing attorneys and lenders and inspectors. All have a right to be compensated for professional services rendered.
  • FACT:  There are several ways for buyer brokers to receive negotiated compensation, such as;
    • Fixed fee compensation paid by the buyer;
    • Buyer requests Seller pay buyer broker fee as a condition of contract
    • Concessions as part of a purchase agreement where the seller agrees to pay buyer’s brokers costs from the proceeds of the transaction;
    • As a portion of the listing broker’s compensation.

The settlement does not change these options.

  • FACT: The buyer broker compensation fields in the standard Berkshire buyer representation agreement are blank and completely negotiable. All forms of compensation are laid out and the buyer and agent agree on the methods of seeking compensation.

What is changing on the buying side:

The proposed settlement does PROHIBIT the listing broker from offering the buyer broker compensation in the MLS, but they may continue to do so outside of the MLS.

The proposed settlement requires Realtors® to enter into written representation agreements with buyers before showing them property. These agreements can help consumers understand exactly what services and value will be provided, and for how much. The agreements can be exclusive or non-excusive and can be for short or long durations – it remains negotiable.

Many fear the proposed changes will lead to buyers opting to purchase without representation. Agents will be actively working for solutions to making sure all parties to a transaction are able to access all professional consultations needed to successfully enter into such a large financial obligation. The process is laden with financial, lending, legal, environmental, physical and transaction management obligations that a professional is well versed in handling in the best interest of their buyer client. It’s a serious role that is an important part of the real estate market.

Final thoughts from the Berkshire County Board of Realtors®

Ultimately, we believe this was the best outcome NAR could achieve in the given circumstances and we believe that professional, engaged Realtors® in Berkshire County will continue to learn and evolve for the best interest of their clients.

We continue to believe that cooperative compensation and NAR’s current policies benefit buyers and sellers. They promote access to property ownership, particularly for lower- and middle-income buyers who can have a difficult-enough time saving for a down payment and allow for full negotiations of fees charged.

Transactions will continue to be subject to negotiations from the buyers and sellers, as always. We have a dynamic and strong association and engaged Realtors®, that together with the legal and lending community will work tirelessly to ensure that the best interests of both buyer and seller clients are at the forefront of their work in transacting real estate in Berkshire County.

 

 

Get Daily Updates From The Berkshire Edge!

spot_img

The Edge Is Free To Read.

But Not To Produce.

Continue reading

A 3-bed, 3-bath condo in the heart of the Berkshires!

Embrace hassle-free living at its finest in this condo offered by Kate Lascar of Berkshire Property Agents.

Berkshire region real estate sales

Weekly real estate transactions for Berkshire County in Massachusetts, Litchfield County in Connecticut, and Columbia County in New York.

THE SELF-TAUGHT GARDENER: Signs of life

Virginia bluebells and hellebores are the Punxsutawney Phil of plants. Their emergence reminds me that spring is on its way. I find comfort in these signs of spring, but also fret about the winter tasks still left undone

The Edge Is Free To Read.

But Not To Produce.