Navigating the New Normal in Real Estate: Realtor Commission Changes and Marketplace Confusion
/The dust is still settling on the NAR settlement (whereby commissions to a buyer’s broker is no longer advertised in the MLS) and if you want to buy or sell a home in Miami, there is a lot of marketplace confusion out there due to these real estate commission changes. Agents are scrambling to do the newly created paperwork and forms correctly. Sellers are confused about how (or if) they should pay a commission…and to who. Buyers must now sign an agreement with a real estate agent before that Realtor® can do any work on their behalf.
In short, this ‘new normal’ in residential real estate seems to have spawned additional downstream changes and adjustments in its wake. It is a work in progress. Since the mid-August settlement, we Realtors have been navigating several new documents that must be used, only to see them augmented or abandoned just a few days later for yet another revision. I suspect this will continue for the next 6-9 months until we come to an equilibrium.
A Miami Real Estate Agent's Perspective on the 'New Normal'
For my readers, rather than rehashing other news items you’ve probably heard, let’s look at this ‘new normal’ from the perspective of an active Miami real estate agent trying to guide and educate his buyers and sellers how to successfully move forward amidst these Realtor® commission changes.
The Listing Agreement in the Era of Real Estate Commission Changes
First, know that sellers still sign a Listing Agreement (albeit updated in August to reflect how commissions are now handled). This legal document binds a seller to a real estate brokerage in an exclusive contract to sell a property. The agreement says that the brokerage must provide knowledgeable and professional services in exchange for a commission at closing. It no longer requires a seller and listing broker to offer a commission to another brokerage who brings a buyer. Instead, it gives the seller several options: (a) they can still offer a buyer’s broker commission, where the listing broker shares some of their earned commission in a split, (b) the seller can offer a buyer’s broker commission directly from their pocket or (c) they can offer no commission to a buyer’s broker.
Understanding the Sales Contract and Concessions
Some will confuse this as the only three options in creating a successful contract. They would be wrong. It has always been the case that a seller can offer a buyer a concession on the Sales Contract. And it is paramount to understand that a Sales Contract binds only the buyer and the seller to a set of terms and performance metrics. The brokers are not participants in the terms of a Sales Contract.
The Mechanics of a Deal in Today's Market
Let’s back up a moment to make some sense of the mechanics of a deal being made in today’s ‘new normal’ with the real estate commission changes. Now that the National Association of Realtors® (NAR) requires that all real estate professionals and their buyers have an exclusive Buyer’s Broker Agreement in place, the flow of commission payments in a real estate transaction is different.
The Buyer's Broker Agreement and Commission Payments
In the Buyer’s Broker Agreement, a buyer commits to hiring an agent and paying them directly. If you take a step back, this makes all the sense in the world! Each side hires their Realtor® representation and pays them for their services.
Navigating the Real-World Challenges of Commission Payments
No matter how much sense this makes and how good it looks on paper, what is happening at this time in the real world is different. This mostly stems from the fact that many buyers struggle to have enough money for their down payment and closing costs. They cannot possibly pay their agent a commission on top of all the other expenses. It is therefore up to the buyer and the seller during contract negotiations to figure out what makes sense and will affect a successful transaction. In the end, the seller needs to be comfortable with their net proceeds from the home sale and the buyer needs to orchestrate a way to finance a closing, having satisfied the Buyer Broker Agreement commission terms to which they have agreed.
The Role of Concessions in Contract Negotiations
Now that we know the separate legal agreements of the buyer and seller before they are introduced in a transaction, we can see that in most contract negotiations it makes sense to look at concessions as part of the terms of a deal. If the seller wants to give the buyer money to seal the deal, they can (barring some lender restrictions). I am certainly seeing this play out quite often since the settlement went into effect. It all comes down to customizing a unique solution for each unique contract.
Recommendations for Sellers in the 'New Normal'
When I work with a seller, I am recommending that they select NOT to automatically pay the Buyer’s Agent a commission as part of the Listing Agreement. It is far better for them to negotiate what they want to do after looking at the buyer’s initial offer terms. Yes, this will (and has) necessitated more rounds of counteroffers, but this is a very healthy and transparent way of doing things.
Increased Communication and Transparency in Showings
One of the interesting facts about a real estate agent’s ‘new normal’ is that when a buyer wants to see a property, the agent must contact the listing agent not only to coordinate a showing time, but also to ask if there is any offered commission. The buyer’s agent then would report back to the buyer to ensure they want to see the property, now knowing if any commission is covered by the seller. Over the next 6-9 months, this is where most of the buyer and seller confusion will manifest itself.
The Importance of a Skilled Miami Real Estate Agent
As always, every residential real estate transaction is unique. Each deal requires an agent with a calm mind and excellent communication and negotiation skills. If you have questions about any of this, feel free to get in touch with me!
“My wife and I just sold our first home. It was an emotional process as the home was a gift of sorts from my father in law. It was meant to be a five year home. My wife and I felt that Miami wasn’t where we wanted to be anymore. I was wondered about how it would be. I had a lot of guidance from my family and my wife’s family. As this was my first time doing something like this. A tad bit scary to say the least especially when you have three kids depending on you. I say that to truly explain how great Hal was. It was absolutely painless. We had an amazing experience with Hal. He laid out the game plan and executed it. Hal always put what my wife and I wanted first. He also did a great job of using his experience and knowledge to help weed out what wasn’t a real offer. My family and the wife’s agreed that Hal had our best interests at heart. Hal again thank you for everything. Highly recommend.”
