THE NAR SETTLEMENT

I wrote this in my April newsletter. I wanted to take a little time after the settlement and gather my thoughts. I think too many (almost all) outlets were too quick to report how it would affect the Real Estate. Here are my thoughts...

On March 15, the National Association of Realtors (NAR) announced an agreement to resolve lawsuits related to broker commissions. Under the terms of the agreement, subject to court approval, NAR will pay $418 million over approximately four years. The settlement also bans NAR from setting compensation rules between seller and buyer agents. It's important to note that our local real estate trade group is the Real Estate Board of New York (REBNY) and I have nothing to do with NAR. Honestly did not know about it until the lawsuits. Most NYC agents aren't NAR members and aren't subject to the group's amended rules. That said, there's already been a ripple effect across the industry. For example, in January, REBNY rolled out new rules that state "offers of compensation to the buyside broker must come directly from the sellers" and not from listing brokers. While they said that, in practice for every deal I have ever done since 2007 this is exactly how it was dispersed at a closing. EVERY SINGLE DEAL!

I/my brokerage that I worked under were never given the buyer's side commission and then we paid them. At the closing the sellers attorney would give out two checks and we always split the commission evenly. That was a requirement under our trade group. I guess in other parts of the country the listing broker would get the fee and divvy it up how they saw fit... That should not happen and I am happy it did not in my deals.

Improved Transparency

There's a lot to shake out in the NAR settlement, but I believe the biggest impact will be in terms of transparency. As Ryan Serhant recently told CNBC's Squawkbox, You know the TV guy who in many ways leads people to have a quite unrealistic view of what brokers do - due to his TV show but he is a very smart guy and has a solid take on this.

The NAR decision said sellers will no longer be obligated to compensate a buyer's agent in a real estate transaction, creating more opportunities for different, transparent business models. The fact is, this was ALWAYS the case but did not seem like it and that is our industry's fault for not making it more clear. You're not obligated to use a real estate agent at all when buying or selling a home. Yet, despite all the recent increases in real estate technology and online resources, most people continue to use real estate professionals because the process remains complicated and high stakes. Especially in NYC where you are dealing with coops, even condos that act like coops and many competitive bidding situations. I was recently part of a deal and the buyers went unrepresented and it was a competitive bidding situation. They made assumptions that were incorrect and ultimately lost the bid by quite a lot. I do believe (I know) if they had worked with a knowledgeable professional buyers' agent they would have had a MUCH better shot at getting the apartment they loved and was truly unique.

Minimal Impact on Pricing

Personally, I don't think commission changes will lead to lower prices. As Compass Chief Evangelist stated recently, "Lower commissions will lower home prices? Pure fiction." I just don't see someone looking at the comps and saying well let's price it for less... In fact if a seller does not pay the buyers broker they have just made the home more expensive for the buyer.

Again, the key is transparency. Sellers should want to know what buyer's agents will be paid, understanding that a well-represented buyer is the key to a successful sale. I think it benefits the seller to still pay the buyers broker... 85-90% of our deals are co-brokes.

No one is going to sell their apartment for less based on commissions. In fact, in areas that have already decoupled commissions, such as the Northwest Multiple Listing Service, there has been a minimal impact on the total commission paid and no impact on home prices. I think this all will play out in time and I am making some guesstimate on how it will.

The Importance of the Buyer's Broker

Every industry needs a shakeup from time to time. The current commission discussion allows reputable, experienced agents to prove their worth (while also shaking out those who can't - there will be definitive contraction in my industry). Buyer's brokers are an indispensable part of the real estate process, especially in New York City, where inventory is tight and processes are complex. Buyer agents help ensure buyers are qualified and prepared, and they are the first to know about available inventory and off-market opportunities. They're skilled negotiators invested in delivering the best possible deal for their clients. Also there is a littany of issues that come up post contract signing and I as a buyer broker have saved so many deals and in some cases saved my clients money.

Transparent commission conversations are helpful. Disparaging the role of buyer's brokers is not.