After much ado, residential agents have some clarity about a sales process that complies with the National Association of Realtors court settlement.
With the Aug. 17 deadline looming for the rollout of new rules resulting from NAR’s $418 million settlement of an antitrust case earlier this year, the California Association of Realtors last week released updated disclosure forms for agents.
Earlier versions were not without drama. The Consumer Federation of America’s June critique found they were too difficult to understand. CAR suggested the consumer group spent too much time on “grammar, formatting and design” of old drafts. Meanwhile, a Department of Justice inquiry further delayed the forms’ release.
In the NAR case, the court found that having a seller pay a commission to the buyer’s agent created a conflict of interest and amounted to collusion. NAR agreed to prohibit listing brokers from offering commissions to buyer’s agents through the Multiple Listing Service, and to require buyer’s agents to obtain written compensation agreements before taking them on home tours. The new forms are designed to address these issues.
With the documents now out, and the disclosures packet four pages longer than the previous one, Nourmand & Associates President Michael Nourmand went over the forms and explained the changes to TRD.
What changed?
- Big change: No more box designating a fee for the buyer’s agent. Instead, there’s a box specifying if a buyer is unrepresented, the seller is to pay the buyer’s agent a specific amount.
- Nourmand’s take: “I believe that buyers are going to ask the seller to pay their agent and it’s now going to be reflected in the price. I think now it’s part of the negotiation on price because it’s an expense.”
- Big change: The fee in the Buyer Representation and Broker Compensation Form overrides the fee agreement in the residential purchase agreement.
- Nourmand’s take: “If in my BRBC I say to the buyer ‘You only have to pay me 2 percent’ and I write an offer and in the purchase agreement the seller agrees to pay me 2.5 percent, I’m getting paid 2 percent because the BRBC overrides it. … That’s something very important because I know in a matter of months, somebody’s going to walk into my office very upset that they didn’t sign a full fee on the BRBC.”
- Big change: Many in the industry say the California residential market’s largest headwind now and in the future is housing affordability. But if sellers don’t pay the buyer’s agent, it raises the possibility of buyers bringing more money to the deal.
A few ideas of possible workarounds have been floated, such as lenders potentially approving a buyer credit that could be used to pay the buyer’s agent, he pointed out. However, time will tell if that becomes a viable option.
Nourmand’s take: “Normally, when people buy a place, they’re cobbling money together. … Sometimes, they’re getting money from family, so it’s not the best time for them to write a check to an agent.”
Ready?
Take a look through The Real Deal’s post-settlement reporting and one thing is clear: management at some of the largest brokerages say they’re ready for Aug. 17. Some with boots on the ground feel less confident.
“It’s going to take some time. This is educating buyers, educating other agents. I get calls from other agents who work at other companies to ask me questions about how it works and what I think is going to happen,” Nourmand said. “Obviously they’re my colleagues so I answer them, but to me that also clearly demonstrates they’re not getting it from their leadership.”
When asked what types of brokerages those agents who called are hailing from, Nourmand described them as being mostly from big boxes not headquartered locally.
Nourmand views that as a competitive advantage of boutique brokerages. Agents at smaller firms may have easier access to managers to get clarity on the new rules.
“The advantage that boutiques have is I see my people,” he said. “I see my agents on a regular basis.”
What to do?
Nourmand outlined some steps he has taken to clarify the buying process for agents and clients.
- Change the website, again: Last month the agency sought to get ahead of the new NAR settlement rules by displaying the buyer agent commission on all Nourmand website listings.
That will now be updated to remove the “buyer agent compensation” line. It will be replaced with “seller concession” and specify either “yes” or “no.”
- New buyer presentation: This is given to buyers to review the services Nourmand & Associates provides.
It’s an educational play for buyers who think their agents’ sole job is showing them houses, while also offering the formal meetings that have historically happened mostly on the sell side.
“This is to explain that if you think I can beat a machine, that’s impossible. Even if I sat on my computer refreshing the screen, that’s the worst use of time. Yes, we will show you properties on the market and schedule showings and tell you about stuff that’s off market and coming soon, but here are the other services we do,” Nourmand said.
- Final thought: “There’s a lot of moving parts [in getting a deal done] and I think that’s what’s really frustrated Wall Street and Silicon Valley is how do you disrupt human emotion?” Nourmand added. “One of the core things we do is keep the buyer and seller apart because they would kill each other. How do you have a standardized way to deal with that? … It’s a lot of soft skills that people don’t understand.”
