Major Real Estate Shakeup

For people aiming to buy or sell a home beginning in the third quarter of this year or after, the old way of doing things will likely have changed.

As it usually has stood, a home seller pays a 6% commission on the sales price of the home to an agent, who splits it with the buyer’s agent. But beginning in mid-July, home sellers will no longer have to pay a commission that also covers the buyer’s agent; that will be the responsibility of the buyer. That is, IF a judge signs off on the new rules.

In addition, compensation for buyers’ agents cannot be advertised by the seller’s agent on the Multiple Listing Service (MLS) of for-sale homes maintained for dues-paying Realtors, brokers or their companies throughout most of the United States by the National Association of Realtors. Typically, consumers don’t get to see the MLS, relying instead on their agents to introduce them either to potential buyers or sellers.

The National Association of Realtors has long controlled how the business of buying and selling homes is done in the United States. After years of litigation — first brought against it by homebuyers in Missouri — the NAR has agreed to pay $418 million in compensation and to establish the new deal.

Denny Grimes recently spoke at Market Trends, a real estate conference in Fort Myers. Grimes says transparency will be good for the industry. COURTESY PHOTO

In public statements, an industry analyst, Ryan Tomasello (at the New York-based banking-services firm Keefe, Bruyette & Woods Inc.) predicted: “These changes are going to reshape the housing market in the greatest fashion we’ve seen in over 50 years.”

One of the biggest differences, he added, is transparency. Consumers will be less likely to encounter unexpected, unseen “friction costs,” a term used to describe various fees in residential real estate transactions.

Knowing who pays whom

That analysis, though, is too pat for veteran Realtors in the region eyeing the new deal with years of experience behind them. They almost uniformly insist that the business of buying and selling homes here has always been transparent, and the costs have always been negotiable for consumers.

As for how this is going to work out later this year, either for them or for consumers, we’ll just have to wait and see, they say.

“No one knows. This hasn’t been signed off by the judge … it’s a moving target,” said Michelle Noga, a luxury sales associate for William Raveis Real Estate based in Palm Beach. With her partner,

Paula Wittman, she works the luxury, high-end market in the region.

“They’re claiming we didn’t have transparency before, but it’s always been transparent and negotiable. You could sell your own house, use a flat-fee Realtor, or negotiate your fee.”

Some sellers and buyers, for example, use online real estate companies, including Zillow and Redfin, to conduct business, listing their homes or searching for new ones.

Zillow is significantly more popular in terms of social media presence — Realtors or private sellers “pay to play” on the site — but Redfin is a brokerage. By paying the National Association of Realtors, the site gains access to the MLS.

Michelle Noga (left) and partner Paula Wittman, luxury sales associates at William Raveis South Florida in Palm Beach. COURTESY PHOTO

In the markets of recent decades, the seller of a $400,000 home (now roughly the median price of homes in Florida) would pay a 6% commission to the agent, or $24,000. The seller’s agent would then split that with the buyer’s agent, sometimes in half or sometimes taking a greater portion of the fee by a half or a whole percentage point.

Those arrangements — those deals between seller agent and buyer agent — were often made out of sight of the buyer or seller using the MLS, unless they inquired or sought to negotiate.

In a press release, the NAR said it had created “a new MLS rule prohibiting offers of broker compensation on the MLS. This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals.”

OSBORNE

Furthermore, those using the MLS from now on will require a written agreement with buyers to “help consumers understand exactly what services and value will be provided, and for how much.”

For Denny Grimes, an analyst and 40-year veteran of the industry who heads Denny Grimes & Team on the southwest coast, “This is similar to Y2K” — the acronym for a dreaded year 2000 event that never materialized, in which computers could become undependable because their formatting and storage data for calendar dates after 2000 would be wrong.

“We were all worried that the world would come to an end — and here, that the intent going forward is to replace the real estate agent. But people get worked up and worried more than they need to.

“This is a significant ruling, and it’s good for the industry because it will remove any doubt of who’s getting paid by whom. Transparency is a good thing — unless you’re in the shower or something.”

Rethinking what’s just happened is also a good thing, he suggests.

“The seller’s probably thinking: ‘Oh, good, now I don’t have to pay the buyer’s agent.’ But they never had to anyway — all commissions are negotiable. Customary commission paid by seller is divided up between the buyer’s side and the seller’s side. So, who really paid the commissions?”

It’s a rhetorical question.

“The seller paid it from the buyer’s money,” Grimes said.

That may not change fundamentally, in his view or others’. But now there will have to be a written agreement between the buyer and the buyer’s agent.

Levels of service

Echoing the observations of other Florida Realtors, Aprile Osborne, co-founder of Call It Closed International Realty based in Naples, turns the conclusions of some analysts in the national media upside down.

“The bottom line is, the buyer has already been paying the commission for all these years. Where do you think the sellers got the money to pay the commission?” she asked.

“From the buyer.

“So, the seller is making a choice to pay for services that agents provide — like title companies, fees to the city or county, taxes, transfer monies in your HOA, inspections, insurance.”

Another service the agent provides is cool, impartial judgment and research.

Osborne tells this story:

“I had a customer in love with a house, and the listing price was $1,250,000. I thought I could get a better deal — I wanted to offer $1,150,000.

“I said, ‘I can save you $100,000. I know the agent; I know the seller.’ I was able to do a deep dive to find out he was in the middle of divorce. I did the homework.

“My customer said, ‘If you lose this house, I’ll fire you. I’ll never use you again.’

“So, I started at $150,000 off the asking price, and she ended up buying the house for $1,150,000. I saved her $100,000. She was emotional and I was not emotional.”

Osborne has helped expose fraud, too, she says — with a buyer who was doing this elsewhere also, coming to her directly on a $2 million-plus property, taking it under contract, then buying it for a discount ($300,000 off ) by pretending to offer cash, and giving himself 15 days to sell it for more.

“At the end of 15 days, that buyer can walk away with no risk, without losing the escrow, and the seller has to let them out of that contract,” Osborne said.

It’s not illegal — but it’s unethical.

“And we have buyers who come to me and who want to tie up two properties because they haven’t decided. But we won’t do that to a seller, even though the seller might never know.”

In her first-ever deal, the one that inflamed her passion for the business, she worked three months to get a single mom with two jobs a government-foreclosed home with no money down, exchanging the buyer’s rent payment of $1,250 for a mortgage of $683. She cemented the deal in part by giving away a full percentage point of her commission to make it happen.

“Good real estate agents that love family, love home, will make it work for their buyers and their sellers because we have a heart for home,” she said.

And that focus, she argues, might help assuage concerns many analysts have that the new rules will cut out lower-end buyers — the first-time buyers, the single parents trying to buy, the people working more than one job just to break even.

You’d better shop around

“This could put a lot of hardship on first-time home buyers because they have to come up with a down payment, and now you add two or three extra percent points — some people won’t be able to do it,” Grimes said.

But sellers want buyers, and the more buyers, the better. To get them, he suggests, sellers may show some leeway.

“Now buyers will have to come up with another 3% on top of a down payment, and that could take a lot of buyers out of the market.”

Unless. Unless what?

“Unless smart sellers, getting the most market-opportunity they can, ask themselves: Do I want 20% (of potential buyers) being able to buy this house, or 100% being able to buy it?

“At tempt i ng to make real estate transactions more transparent — that’s not a bad thing,” Grimes acknowledges. “But it will be disruptive until people figure out how to work it.”

As they figure out how to work it, the market is no longer singularly bullish as it was during the pandemic, when so many people suddenly wanted to move to Florida.

A Zillow report from late last year described Tampa, Miami and Jacksonville as the fastest growing cities in the United States, and Florida as the second most valuable housing market in the country, with total inventory worth $3.8 trillion, up from $2 trillion in the beginning of 2020.

But a Redfin report this month, which noted the median sales price for homes in the state is $404,100, up 4.5% from a year ago, also offered some more sobering news: sales of condominiums have dropped significantly, the number of sellers willing to accept a below-asking-price offer to sell more quickly has risen to become the highest in the country, and sales in the hottest markets have plummeted in a single year: down 27% in Jacksonville and 9% in Miami.

But those are just numbers. Whether working in an old deal or the new deal — whether working from lower-end to high-end luxury markets — things always go better for consumers who, as they do with any other product, shop around and find the best services.

“We think the goal of a lot of our clients is to reach the largest amount of qualified buyers — so whatever that looks like to them, that’s what they will do,” explained Noga.

She added a valuable truth of conduct in any market, including one with a brand-spanking-new way of doing business: “Great service is expensive. But bad service costs you a fortune.” ¦

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