DANNY VARONA

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Misconception Regarding the National Association of Realtors Settlement

This month, the National Association of Realtors disclosed that it has reached a settlement agreement with a class action plaintiff in the Sitzer Burnett case, pending final court approval. The lawsuit is centered on the common practice of residential real estate transactions in which sellers engage agents to represent their interests for a fee and offer compensation to buyer's agents as an incentive to facilitate the sale.

The news of the settlement has sparked a flurry of media coverage, with many articles and stories discussing the implications for buyers and sellers. However, numerous reports have demonstrated a lack of understanding of the real estate industry, leading to inaccurate claims. Let’s address some of these misconceptions and provide perspective. Still, first and foremost, NWMLS, which serves the vast majority of Washington state including the greater Puget Sound region, is owned by its member real estate firms and not affiliated with the National Association of Realtors. Unlike other MLSs, NWMLS’s system provides buyers and sellers with choice, negotiation opportunities, and transparency of broker compensation.

  • Misconception: “The settlement will force real estate brokers to reduce their compensation.” The settlement does not establish any standard or limitation on what realtors may charge or the services they elect to deliver. Realtors' fees have always been fully negotiable, and there has never been any collective bargaining or collusion. Realtors may cooperate on transactions toward a common goal, yet they are fiercely independent and highly competitive with one another. Every market will have real estate representation at almost every price point and various levels of service and competency. I would argue that there is more variation in real estate pricing than in almost any other product or service one will ever purchase. Comparisons can be made regarding fees in the US versus some other countries, as many of those countries consider real estate professionals as employees with benefits, salaries, and bonuses. In the US, the vast majority of real estate professionals are paid purely based on performance through commissions.

  • Misconception: “The settlement will, for the first time, allow sellers to no longer pay compensation for an agent bringing the buyer.” There has never been an obligation for a seller to pay buyer agent compensation at any time. Yet, it has been a historical practice that's worked exceedingly well since the advent of modern residential real estate. This merely prohibits any reference of buyer compensation from the seller on association-owned MLS systems. The reality is that today, well before the intended settlement date this coming July, any listing could be displayed on the MLS whether it offered buyer agent compensation or not.

  • Misconception: “The settlement will prohibit sellers from paying a commission to a buyer's agent”. The practice of whether to pay a buyer's agent is totally a seller's decision and nothing changes in terms of options. Many of us would suggest that the most important outcome is the successful sale of the property on the sellers terms and having the greatest incentive to buyer agents to show and sell the home the best way to achieve their goals.

  • Misconception: “The settlement will now relieve sellers of any financial burden of buyer agent fees”. Although sellers can elect not to pay a buyer agent compensation, that doesn't mean they will avoid the economics altogether. In such cases, buyers may easily include a clause in their offer requesting the seller to cover the cost or provide other concessions, like closing cost assistance equal to the commission the buyer is compensating their Realtor. This ensures that financial considerations are still factored into the transaction, even if the seller opts not to directly compensate the buyer's agent.

  • Misconception: “The settlement will reduce the total cost of transaction services as sellers because will no longer be required to pay buyer agent compensation.” Should sellers now choose to compensate only the listing agent, it merely means that buyers rather than sellers will now have to pay for their own representation if they don't require the seller to pay it as a contingency of the contract. Realtor services are not free nor should they be. Just because two parties may now share the cost of services rather than one doesn't mean the total cost of the transaction has been lowered and it generally is going to be reflected in the final contract price.

  • Misconception: “The settlement will serve to meaningfully lower real estate prices and make homeownership affordable again.” The determination of real estate prices is primarily influenced by the basic economic principles of supply and demand, rather than the involvement of real estate agents. While realtors' commissions do form part of the costs associated with a real estate transaction, they are not the sole expenses involved. Other significant expenses include title fees, closing fees, mortgage-related costs, property taxes, association fees, and more. The key reason why homeownership is becoming increasingly unattainable for many is the substantial increase in property values in our market in recent years. This surge in home prices has had a far more significant impact on affordability compared to adjustments in real estate commissions. Ultimately, it is the significant rise in property values that presents the primary challenge to individuals seeking to purchase a home in today's market.

  • Misconception: “The settlement is a win for buyers who may now be able to negotiate their fee for representation.” For those who have purchased homes over the years, it is more than likely that you are quite happy to have the seller compensate your agents so you don’t have to. For buyers who had to scrape up enough money for the down payment and closing expenses, having the commission paid by the seller and incorporated into the price of the home allows the buyer to finance the amount over time rather than coming up with thousands of additional dollars at closing. The reality is that most mortgages are ultimately sold to Fannie and Freddie, and both have no provisions for commissions to be financed. The VA loan program expressly prohibits the borrower from paying any form of commission in a real estate transaction. So, just how is a veteran who has served his or her country now better off without it?

  • Misconception: “The settlement will result in significant restitution for real estate consumers who were harmed over recent years in their transactions by Realtors.

    The settlement, when one divides the amount by the number of potentially qualifying consumers, works out to be about $10 per person. The only people truly profiting are the class action attorneys who have submitted a request to the court for over $80 million in legal fees.

    As dedicated real estate agents who frequently go above and beyond their duties - navigating intricate transactions, offering emotional support, fostering trust-based relationships, assisting buyers in achieving their dreams, helping sellers maximize their profits, and guiding all parties through transitional phases - in some instances even taking on additional roles like housekeeping, maintenance, and caregiving, always prioritizing the needs of their clients.

    As Real Estate Brokers and Realtors of the Realogics Sotheby’s International Realty Brokerage, we take pride in working alongside other professionals, knowing that our clients benefit greatly from our expertise. The brokerage community has continuously adapted to ensure the best representation for buyers and sellers, adjusting to environmental shifts. We are confident that they will rise to the occasion once again.