Thoughts on the Proposed NAR Commission Settlement Pt. 2

Over these past few weeks, I’ve become obsessed with the fallout from the National Association of REALTORS? (NAR) proposed settlement from the commission lawsuit. If you want to read my initial reactions, click here. (Fun fact: This post received the second most responses of anything I’ve published in recent years, right after my marriage announcement and just ahead of my Mother’s Day message, which included fabulous Hollywood glamor shots of my mom.)

Part of my fascination with the proposed NAR settlement is because the decision deeply impacts how we’ll go forward conducting real estate in California. The other part is because it’s a story that’s far from over.

Sure, it’s possible that come July, when the federal courts are meant to approve all this, we’ll have an entirely new process for real estate commissions. But then again, we might not. And honestly, we probably won’t. The issue is not clear cut enough to expect a clear cut outcome. It’s not the kind of situation where we can wave a wand and boom everything will transform to this new process overnight, the industry will fall into military line and everyone will unproblematically change their ways. This is months if not years of a steep learning curve for buyers, sellers and agents. We can expect new developments to happen every week, even every day, especially here in California. The idea of instituting a Buyer Broker Agreement – standard in 21 U.S. states – is very new to Southern California. Some agents might be using it today but in my opinion, about 90% of current agents are not using it right now.

In the new Buyer Broker Agreement, there will be three choices:

1. The seller pays no commission (not likely as that has not been the case in our array or the industry standard and no agent will show a house without compensation for their work).
2. The buyer will make up the difference between what the buyer’s agent is asking for and what the seller is willing to pay.
3. The buyer’s agent gets paid what they are asking for by the seller.

It’s a big change, and it’ll impact each side of the transaction. Plus, if a seller is only offering a limited commission or no commission they are going to severely limit their buyer pool and our job as a listing agent is to get as many buyers and buyer’s agents to show the property as possible. It’s the best way to achieve every seller’s objective, which is to get the highest exposure and sales price we can. After all, you can’t have a multiple offer without multiple buyers!

What happens when we’re all faced with these unpredictable and unprecedented changes?

It’s almost like a reality TV show unfolding episode by episode, except this is no storyline created for the sake of drama or binge-worthy viewing. This is real.

As wonderfully entertaining and endlessly fun as those shows are to watch, real estate reality TV is part of the problem. I can’t tell you how many people I’ve encountered who move to L.A. thinking they’ll become a REALTOR? then find instant success. They’re under the impression that the moment they get their license, their phone will magically ring with multi-million dollar listings, they’ll cruise down Mulholland in a brand-new neon green Lamborghini, and at the end of their very first year in real estate, they’ll make millions of dollars because that’s what they see on TV.

The reality? Most people who enter the real estate business don’t last more than two years. In 2023, a full-time REALTORS? earned on average about $31,000, and that’s working 40+ hours each week.

If you’ll indulge me for a moment, let me share a story from my real estate past. About 15 years ago, I was doing a deal (a Century City condo) with a big agent who is now a big reality TV star – no names, we’re keeping this post scandal-free. For the sake of the story, let’s call this agent (uncreatively) AGENT. So, AGENT was just starting to film the show that would eventually make AGENT famous and I was almost two decades into my real estate career. (I received my license in college, please do not do the math.) At the time, I had a receptionist, and she let me know while I was in a meeting that AGENT had just called, there’s an emergency, could I please call AGENT back as soon as possible?

About 10 minutes later, I gave AGENT a ring and when AGENT picked up, all I could hear was loud gusts of wind.

Me: “What’s going on? What’s the emergency? Where are you?”

AGENT (screaming): “I can’t hear you! I’m in my convertible Ferrari on PCH.”

Me: “Are you filming your show now?”

AGENT: “No.”

Me: “Then why did you answer your phone?”

AGENT: “I don’t know. Call me back in 20 minutes. I’ll be back in the office then.”

Twenty minutes tick by, I called back and AGENT described the big emergency: AGENT’s seller refused to remove the washer/dryer from the unit because it was too much of a hassle to get the permission, schedule the people to get it out of the apartment, etc. etc. You get the picture.

“It’s fine,” I calmly told AGENT. “My buyer is a divorced bachelor. Leave the washer and dryer where they are. He needs them.”

That’s the reality of real estate. It’s washers and dryers. It’s emergency calls while the wind howls on PCH. I’d argue that more than 90% of people don’t see what’s going on behind the scenes. My friend Laura Marie, in an absolutely awesome Facebook post, listed the typical tasks of a real estate agent when selling a home, and do you know how many tasks were on the list? Ninety. Ninety! Things like preparing a listing presentation, researching sellers property tax information, meeting with the sellers, familiarizing yourself with the property, providing home seller to-do checklist, explaining current market conditions, reviewing seller goals, explaining and demonstrating marketing strategies, getting listing agreement and disclosures signed … and on and on and on. The list is just as long for a buyer’s agent, who helps clients select the best home to meet their needs, reveals any unseen setbacks of the location that you won’t find on an MLS listing, (like planned construction projects or geological hazards), advises the buyer on whether the property is a good long-term investment …

You get the idea.

In the L.A. market, there’s an expectation that agents are going to be compensated for the valuable services they provide. Bringing this back around to the proposed NAR settlement, do the powers that be really think agents are suddenly going to accept $2,500 to sell a $2 million home? It’s not going to fly. And any agent who will accept that amount is probably not an agent you want to work with in the first place. Plus, the idea that agents will accept less is really nothing new. For years, a proliferation of giant teams has been putting downward pressure on commissions and upward pressure on volume. Don’t get me wrong, giant teams can be productive and wonderful to work with, but sometimes, I’ll get a seller referred to me after they’d been working with one of these teams and the experience is that they’re dealing with seven or 10 different agents; they’re not even sure who their agent is because there are so many people involved with the transaction.

“I thought selling would be easy,” the client usually says to me after our initial consultation. “Just like I saw on TV!”

Well, well, well …

I believe no matter what happens next, excellent agents will always prevail and the idea that you can simply list a home online without an agent will quickly prove impossible. There is no replacement for the knowledge, experience and skill set of a real estate agent who can provide a seller with resources to fix up their house, tell them exactly what they need to do to stage it, where to paint, how to landscape, what to do to maximize sales price. It’s very much like a FSBO (For Sale By Owner) transaction. Sure, you could sell a house on your own and save the commission you’d pay an agent but you’ll wind up selling it for a lot less than you could’ve gotten had you used a good real estate professional negotiating on your behalf.

OK, I’ll stop here and let you know there’s a part three coming, so stay tuned. (I could go on forever talking about this topic!) On a final note, let me say this: I am not the guru of all things change but I am keeping a close eye on this situation as it develops and evolves. No matter what happens next, agents in all markets will only get through these changes by addressing them with unity and collaboration. This is a scenario where education is key, and we all need to educate each other on the best way to make progress and find success for our clients. It really is a kind of kumbaya moment in our industry’s history where we just have to hold hands, accept that change is coming, and keep on keeping on.

My friend Keith put it best: We made it through the 1990 market crash, the 1994 earthquake, the Great Recession of ‘07/’08, the pandemic, we made it through so many things over the course of our careers and this is yet another hurdle. But just like all of those other immense challenges, the goal is and always will be to move forward together.

- Andrew Manning ? REALTOR? ? Berkshire Hathaway HomeServices California Properties ? DRE: 00941825 ? 818-380-2147 ??[email protected]