MYTHS DEBUNKED - National Association of Realtors Settlement

National Association of Realtors Settlement Myths

The National Association of Realtors settled in a class action lawsuit. Once approved, the settlement will take effect in July. There have been declarations in the media about what the outcome of this settlement will be. The media has had a consistent drum beat that transacting real estate will become almost free, it will protect consumers and make homeownership affordable again. 

This lawsuit does not do this. Let’s break down what they are saying and shine a little truth on the matter. Because the bad information is only adding to the market confusion. 

My name is Jeff Chubb and I am a retired investment banker turned real estate agent that has sold more than a 1,000 homes. If you have real estate questions, then know that I am here to help. 

Let’s go over 6 media declarations and clear the air. 

The Settlement forces brokers to reduce their compensation. 

False. The settlement in no way establishes a standard or limitation on Realtors for what they charge, nor the services that they elect to deliver. Those fees have always been negotiable and there has never been any collective bargaining. 

I do think there will be more negotiation in fees and ultimately the fees will decrease in the beginning, but as more and more agents leave the industry then you will start to see the average fee increase. 

The Settlement will, for the first time, allow sellers to no longer pay compensation for an agent bringing the buyer. 

This one is false as well. There has never actually been an obligation for a seller to pay a buyer agent. I guess that’s not a 100% true. I guess a seller needed to put $1 in the MLS. So I guess they did have to pay something, unless of course they decided to go For Sale By Owner. Is it possible to say this was 99% false and 1 percent true? 

The settlement prohibits sellers from paying a commission to a buyer’s agent and relieves sellers of the financial burden. 

False. A big false. I think this is one of the biggest false flags out there. The mandate restricts properties from displaying a buyer agent commission in the MLS. The practice hasn’t been restricted in any other way. As part of a good marketing strategy, a seller can still elect to pay buyer agent compensation to differentiate their property from the competition. 

Yes, seller’s can also initially say they are not offering compensation, but that doesn’t mean that they can avoid the economics of buyers writing into any offer a contingency having the seller cover the buyer agent cost or any other buyer concessions. 

The Settlement will serve to meaningfully lower prices and make homeownership affordable again. 

Again, this one is false. The people who are saying this seem to not understand simple economics. Let’s just say that the 2 to 3% buyer agent fee was eliminated. Which it doesn’t work like that, but let’s just say it was. Are we really saying that lowering prices by 2 to 3 percent will make houses affordable again? 

Values in real estate are determined by simple supply and demand. The broker or the middle man has nothing to do with prices. They just facilitate the transaction. So let’s just say that real estate fees are reduced by 1% because of the compression in the marketplace. That $500,000 house will now cost $495,000. That impact is marginal at best, but do you really think the seller now believes their house is worth less and will happily give the difference to the buyer?

We see this all of the time in For Sale by Owners. The seller tries selling their property wanting to save the 5% fee, but the issue is that the buyer who wants to buy says “well, seller. You aren’t paying the Realtor fee so therefore I want 5% off of your asking price”. 

The settlement is a win for buyers who will now be able to negotiate the fee for representation. 

This is questionable, at best. Yes, buyers will now be able to negotiate the fee for representation. But I don’t think that most buyers believe that they being able to negotiate the fee, and then having to pay the fee is necessarily better. 

So yes, they can negotiate the fee. That’s a win. But no agent is going to work for free. And you will get the quality of representation that you pay for. Think lawyer style. You can’t afford an attorney, then you get the washed up or fresh out of law school screw up public defender. The rich get the kick ass high powered and expensive attorney. First time home buyers and really all low down payment buyers will get the lesser representation. Shoot, they may not get any reputation in the transaction while the higher end will get the best of the best. 

The Settlement will result in significant restitution to consumers who were “harmed” over recent years in their transactions by Realtors. 

False. The settlement is a big one! But when it is divided up by the number of potentially qualifying customers, then it works out to about $10 per person. The ones that really benefited from all of this are the attorneys who look to be taking home over $80 million in fees. 

Changes are coming to the industry. How big of changes are yet to be seen. 

I’ve put myself on the record that I think in the end that the consumer is going to lose… Well the consumers and probably half the current amount of real estate agents. 

Again, it’s Jeffrey Chubb. Please let me know if you have any questions and if I can be of help. Whether you are looking to buy or sell a property here in Massachusetts or anywhere else in the country then it would be a true pleasure to talk. 

Go to YouTubeRealEstateAgent.com or find all of my contact info in the description below. 

Until next time. 

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