Real estate broker jobs
A recent antitrust settlement will have a major impact on how residential real estate is bought and sold — and it’s not going to be a good thing. Rick Koehler, President Kohler Financial Group Speaking from Rapid City, South Dakota, he explains why:
Larry Wright: There are new regulations for real estate salespeople. How do they affect home buyers?
Rick Koehler: A few weeks ago, the National Association of Realtors (NAR) settled an antitrust lawsuit for $419 million, which reportedly will cut commissions by 25-50%.
Light: How did this happen?
Kohler: First, a quick look at how a sale through a NAR Realtor works: The seller puts forward a commission (6% is the standard) that is paid to both the seller’s broker and the buyer’s broker, with the offer to the buyer’s agent typically being 2.5% to 3.0%. That information is displayed in the property listing so the buyer’s broker knows how much they will receive.
The plaintiffs argued that when sellers offer low prices to buyers’ agents, the agents are less willing to show properties and that in order to stay competitive, sellers are more likely to offer the “going rate” that the buyers’ agents expect.
Light: So how have things changed?
Kohler: Going forward, NAR will no longer allow sellers to advertise how much they are offering to buyers’ agents, based on the idea that buyers’ agents would not agree to a practice of drawing lots to determine how much they will be paid when a particular property sells.
Instead, the agent signs a contract to work for the buyer and receives a set commission or a percentage of the sales price directly out of the buyer’s pocket. The seller will likely continue to pay the agent 2.5% to 3.0%. Essentially, the courts are trying to shift the burden of paying the buyer’s broker from the seller to the buyer.
Light: Is that good news for sellers?
Kohler: Probably. The problem is that most buyers don’t have the funds to pay an agent out of their own pocket. Current lending practices don’t allow buyer’s agent fees to be added to the price of the home. They must be included in the price of the home and paid from the mortgage proceeds.
The settlement hopes that the changes will lower the working wages of buyer-side brokers. As with many well-intentioned regulations, there will be unintended consequences. Faced with the prospect of doing the same work for a 25% to 75% pay cut, how many buyer-side brokers would continue to show sellers homes to real estate agents looking to sell?
Light: How does being a real estate agent affect you?
Kohler: This only applies to real estate agents who are members of NAR. Non-member agents can advertise what sellers are offering to buyers’ brokers. This gives a competitive advantage to properties listed by non-NAR agents.
Until now, brokers who weren’t NAR members couldn’t list their properties on the NAR-owned Multiple Listing Service, which is like the New York Stock Exchange for real estate. The service provided an efficient marketplace for buying and selling properties and was a major advantage for NAR members. But that’s no longer the case.
Light: What other restrictions are there on real estate agents right now?
Kohler: NAR can no longer prohibit non-members from using the MLS. Does this mean that non-members can list properties on the MLS and advertise how much sellers pay buyers’ brokers? Right now, we don’t know.
But I am almost certain that many real estate agents will cancel their NAR memberships, in part as a reaction to the rising membership fees required to pay for the $419 million settlement. As one real estate agent put it, “This probably means the end of NAR as we knew it.”
Light: Why is that bad?
Kohler: If NAR were to disband, its robust education, ethics code and MLS platform would disappear as well — potentially setting back the real estate buying and selling process by 50 years.
