The National Association of Realtors Settlement

By   |     |  Hudson Valley Real Estate Market

Real estate in the Hudson Valley was a rollercoaster ride even before the pandemic drove home prices through the roof. However, rumors of a shakeup in how houses are bought and sold are flying after a recent settlement involving the National Association of Realtors (NAR). How will it directly affect Hudson Valley buyers and sellers? It’s too soon to tell, according to some local experts.

“I think the issue is somewhat clouded by media misinterpretation and some sensationalism,” says Candida Ellis, the current president of the Hudson Valley Catskill Region Multiple Listing Service (MLS). “[The complaint] didn’t really apply to how we do business in New York.”

The NAR settled an antitrust lawsuit in March that accused the trade organization of artificially inflating realtor commissions, which—the suit alleged—in turn inflated home prices. While insisting they did nothing wrong, the NAR agreed to settle for $418 million and change how they do business. Two of those changes stand out, according to Ellis: cooperative compensation advertisement, and written buyer agreements.

When a house is sold, the seller traditionally pays a commission to the seller’s agent. For the sale of a $400,000 house, a commission of $24,000 would be paid to the seller’s agent. Historically, commissions were paid to sellers, and buyers’ agents were considered sub-agents of the sellers. That began to change when buyer’s agency gained traction in the early 1990s, according to Ellis. Around that time, states like New York recognized buyer’s agency—and listing brokerages began formally sharing their commissions with buyers’ agents, a practice known as cooperative compensation.

House listings on the MLS now include wording on cooperative compensation that’s available to buyers’ agents. Under the settlement terms, sellers’ agents can no longer advertise cooperative compensation. At first glance, it may look like the seller-agent-to-buyer-agent commission pipeline is shut down, putting the onus solely on the buyer to pay their agent a commission—but that may not be the case. Buyers’ agents can be compensated through concessions at closing, or the listing brokerage can communicate the availability of a commission in ways other than stating it on the MLS listing. But if a buyer’s agent is not paid via the seller’s agent’s commission, Ellis adds, “There are many as-yet-unresolved consequences for some consumers, especially those who qualify for federally insured loans and veteran’s loans. They may not have access to funding to pay their buyers’ agents’ commissions.”

Getting an Education

Lisa Halter, owner/broker of Halter Associates Realty in Ulster County, is concerned especially for first-time homebuyers who may be daunted by having to pay their agent directly. “There is, as of yet, no mortgage structure that allows for this,” Halter says. “Sellers can give a general concession toward closing costs, but the rules for including a commission payment are tricky. I worry that buyers will try to go out on their own, and end up with a house that might have significant problems, or a transaction that they just can’t close without assistance.”

Of greater concern to Ellis is that first-time buyers may think the settlement means they can’t be represented if they don’t pony up the funds for a buyer’s agent’s commission. That’s not true, she says: “This conflates people’s right to representation with the ability to pay a commission. But the economics don’t work that way.”

But the money for the buyers’ agent commission needs to come from somewhere, and that will most likely mean a concession at closing, according to Ellis. “If the commission needs to come out of the buyers’ pocket, what are the options? It’s going to affect consumer behavior in some way—they may take it off the price of the house,” she explains.

The settlement is still fresh, but Halter doesn’t foresee a reduction in listing prices. “There has been a lot of opinion that when sellers only have to pay their agent, they will reduce their home price,” she says. “I’m not aware of any sellers who plan to do that! Prices have continued to rise, so I don’t see this affecting prices in the way that many had hoped.”

Educating both buyers and sellers will go far in setting things straight, according to both Ellis and Halter. “Really clear communication and education will become that much more important,” Ellis adds. “And it’ll be up to the brokerages to provide that education.”

Halter says that experienced agents will have the tools to better lead their clients. “I think this settlement is going to push us to explain our value to our clients even more clearly,” she says. “I do worry that it will affect newer agents who may not have the skills—or the confidence!—to explain their value.”

Halter doesn’t believe the settlement consequences will drive clients away from realtors and toward technology. “I think the portals like, Zillow, etcetera, are a tool, but they only have the listing info and photos because listing agents entered that info into the MLS,” she says. “It then ‘syndicates’ to the portals.

“I’m more concerned that buyers will go without a realtor, and put themselves at a disadvantage in a competitive market; or they’ll try to go to the listing agent, who represents the seller,” Halter adds. “Either way, they won’t be getting their own representation, or the guidance they may need to make a good decision.”

Both brokers agree on the complexity of the issue, and say the implications of the settlement haven’t yet been finalized. Consumers/clients shouldn’t be overly concerned, though, since realtors are bound by the NAR’s code of ethics, Ellis says. Halter agrees that realtors will continue to be an important part of the home buying/selling process. “People still need to buy and sell homes, and always will,” she says. “And most people understand the value that a good, experienced agent brings to the table.”

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