Rounding the corner on the Commission lawsuit
The main change we have made is widespread implementation of Buyer representation agreements in the main residential niche where we used to just rely on cooperation and (rapport if not) trust. We already had such agreements and used them, just mostly? in other niches.
Buyer representation agreements are hard on normal people. By normal people I mean home buyers looking to buy a place, especially the first time they look to buy a place to live - as opposed to investors. That brings us to the next change I am seeing, one that I warned about previously.
The market now favors seasoned investors more than ever. Buyers would have been left with only negotiating commission as one other thing to worry about were it not for the flawed journalism portraying the entirety of NAR membership as criminals. Now Buyers have been told not to trust us, the impressionable Buyers do not trust us.? The seasoned Buyers do. The ones that have been signing Buyer representation agreements and habitually deal with us as they buy and sell multiple properties are enjoying having less competition from those one-off owner occupants whom the rules and laws often favor over them.??
Despite all the over-reaching news stories claiming that the business has been changed by the settlement, the settlement still has not been approved even yet as of this writing. However, the industry is not waiting, and norms have already begun to change. Because of the wave of copy cat lawsuits and the case NAR lost last year, buyer side agreements are becoming mandatory as an in-house rule at most brokerages. CAR is pushing for this to be required by law throughout the state. Prior to these events, a minority of agents required these, most of us only used them when dealing with properties without a cooperating commission listed..?
The hype and propaganda surrounding the lawsuit devastating the trust the public had for realtors will further erode homeownership levels in America. Affordability, interest rates, the job market and exodus patterns have all taken a toll on the population of all buyers. In fact, last year in California the number of home sales has hit the lowest point in 16 years. The average number of deals per agent dropped to the lowest in about? 10 years.
Nationally 2023 home sales were the lowest in almost 30 years.??
Most agents were not even aware of the commission lawsuit until November. The data for 2024 Year to Date would suggest that we are already rounding the corner locally:
NAR’s loss of the lawsuit and proposed settlement is a major embarrassment, the organization compromised so much it is difficult not to perceive the organization as compromised:? We are talking about a practice that has been ongoing for some 30 years and has been signed off on by scores of lawyers because they all come together frequently to give input on and update our contract forms periodically including our purchase agreements which reference cooperation and have done so for a long time. This practice was implemented first in California then adopted throughout the country via NAR and then they could not defend it in court! Instead, we saw leader after leader abdicate under questionable circumstances unrelated to the issue, then we heard it announced the legal budget was tapped out. Finally we got this miserable proposed settlement, that may not admit wrongdoing but certainly seems to the public to admit wrongdoing.
With the looming settlement approval expected, and changes in the industry afoot, we carry on and know that the only thing we can do to survive has not changed: sell, sell, sell. That is what we do for a living, we sell houses.?
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Of course it isn’t up to me to decide that these journalists will be proven wrong, that is up to the market. It is only fair to point out when they are pompous, premature and often the same journalists I’ve pointed out were wrong time and time again over the years as they declared the real estate market bubble bursting.
I expect this Investor's market to be the pattern for a while and result in a more mechanistic industry. Investors tend to be less beholden to the softer elements of the business, focusing on metrics that are more tangible and making less emotional decisions about buying and selling.? This aligns with other trends such as the proliferation of AI. Automated valuation models should become more accurate not only due to technology but because of the increasingly mechanical nature of those decisions as investors comprise more of the active population buying homes.
This is bad for society because it means a larger percentage of society will be renters - inevitable when more owners are investors. Transient occupants are in general less concerned about property’s longevity of value and maintaining it since it would only increase their costs not their equity.
This is what rounding the corner looks like at this time, with the settlement not fully approved and changes already occurring. Part of me hopes there is an upset in the 11th hour, that NAR is forced to fight in court and win because there is more at stake then what the media would have you believe: nobody is admitting that the most vulnerable buyers are the ones being accommodated with the cooperation model. But I have been around for the recession,the pandemic and everything in between up until now so I expect change, the only constant.?
When the market declares otherwise, when commissions do not decrease, owner occupants become fewer and homeownership becomes even more rare perhaps that will cause another reckoning. But I do not expect this to happen overnight or even by the end of the year. This will require a large amount of data to look back upon for it to be clear. The fact that realtors have helped so many owner occupant buyers navigate very complex processes related to buying, owning and selling homes will not just go away because some journalist called us a cartel. Hamstringing the system that accommodates that for so many people will have repercussions for that population moving forward.? For me to be wrong about that, it would either have to be untrue, or new systems will have to be implemented to replace realtors. These systems will be developed now at a time when buyers are going to be less homebuyer-like and more investor minded, pushing home ownership further from the grasp of the regular person.
We are turning a corner in real estate at this time, and I expect that there will be less homeowners after we do. The good news is that this does not have to mean you. Even if you do not use a real estate agent to represent you as a buyer you can still buck all the other trends and get in. Homeownership is still the number one wealth building tool in America and despite bad press that is what real estate agents want to help you achieve. Some people will turn the corner on this issue faster than others and achieve wealth and homeownership by doing so. Of course that can be a risky proposition, and having an expert real estate professional you trust is an invaluable asset to anyone attempting the endeavor.
Uche Nchekwube is a full service real estate broker active throughout the Bay Area. Text or call (415)322-0774 or send an email to [email protected] to get help to buy/sell real estate or more information on affordable housing. Information here is not legal advice, for information purposes only, deemed reliable at time of posting subject to errors, omissions and change at any time.
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