Some thoughts on the proposed NAR settlement.
When I worked in the restaurant industry, we used to have a phrase: Verbal Tippers.
This phrase was used to describe customers who were effusive with their praise of you, your service, the grand ole time they had, etc.
However, when the bill came, these kinds of people would leave a nominal tip that was so starkly in contrast to the flowery compliments issued just minutes ago, it would make your head spin.
“Verbal tips don’t put diapers on my baby,” one server told me.
I remember, too, a coworker who was a single mother dashing towards the exit to catch her most recent table as they were about to leave.
She had seen the measly tip scrawled on the receipt.
“I just wanted to make sure everything was ok with your dinner?”
“Yes,” they said. And then they left.
In the restaurant world, a 20% tip is customary for good service.
Customary. Not guaranteed. Not required. It’s a free country.
This week, a landmark settlement was reached requiring the National Association of Realtors to pay $418,000,000 to home sellers across the country. Other than the payout, which is to pay home sellers for damages related to “inflated fees” and “price-fixing” agent commissions, there are rule changes as well.
In real estate, the customary commission structure has to this point been based on a total of 5-6% of the property’s sales price. The listing agent has historically negotiated the commission, and offered in her agreement with the seller to share the commission with the agent who represents the buyer. If this settlement is approved by the courts and goes into effect, there will be no written offer of buyer agent commission attached to a listing in our multiple listing system (MLS).
The seller can choose to pay a buyers agent the customary rate of 2.5 or 3%. They can offer 4%. They can offer 1%. They can offer nothing, with the expectation that the buyer will pay their own agent to represent them or forgo representation altogether.
It’s this part, the idea of buyers paying their own agents, that is going to require some new thinking and adaptability on the part of both the real estate industry and our clients.
I really like history. In moments like these where big shifts are happening, I think looking back in time can add context to what we are experiencing. It also comforts me because, as that old Bible verse says, “there is nothing new under the sun.”
In 1993, just 30 years ago, the real estate industry was all in a dither because a consumer-based movement was gaining traction: the idea of Buyer Agency.
Up to that point, most agents represented home sellers. Even agents who brought potential buyers to a listing were actually subagents of the seller. The problem was, as noted in an FTC study from 1983, the vast majority of home buyers did not know that the agent showing them the home and drawing up their paperwork did not in fact represent them.
In an article from the New York Times dated September 19, 1993 appears this paragraph featuring our favorite “Shark Tank” star talking about buyer agency:
Barbara Corcoran, head of the Corcoran Group, a large Manhattan real estate firm, said she felt that the movement was “rolling cross country.” It is a consumer movement, she said, “fueled by buyers who want more control, want to be better informed, want to know where the brokers’ loyalties actually lie, want it defined.”
And this featuring Ralph Nader:
Among their most vocal backers is the consumer advocate Ralph Nader. “I think buyer brokers who are distinctly nonconflicted are necessary,” Mr. Nader said in an interview. “The ideal thing is to have an exclusive buyer’s agent who only represents buyers in his or her business and takes a fee from the buyer.”
*side note: In 8th grade, everyone in our class had to choose a presidential candidate to do a report on. Each student in our class chose either Al Gore or George W. Bush. Except for me. Yes, I was the only one who chose the Green Party candidate Ralph Nader. He does seem strangely prescient in the quote from the NYT…
It strikes me that Barbara Corcoran is among the only agents quoted in the article who is fully on board with the shift towards buyer agency. In 1993, that was a pretty radical stance to take. Other agents interviewed didn’t really want to talk about it, almost ignoring the issue and hoping it would go away.
Now, as ever, it will be the agents who adapt to change, who find ways to make their businesses tick, who will prevail.
The author Morgan Housel has a new book out called Same as Ever. The premise of the book is largely based on this Jeff Bezos quote from 1997:
I very frequently get the question: “What’s going to change in the next 10 years?” And that is a very interesting question; it’s a very common one. I almost never get the question: “What’s not going to change in the next 10 years?” And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time.
If we take this principle and apply it to real estate, what are the things that will never change? People will always need to buy and sell, that’s a given. Some of the articles coming out now seem to minimize an agent’s role to simply “giving advice.”
I would submit that people, even 10 years from now, will want more than “advice.”
They will want an advocate. Someone who’s an expert in their field to represent their best interests, to be a trusted fiduciary, to navigate and negotiate the biggest financial decision they will likely ever make.
It remains to be seen what unintended consequences this settlement and change to our industry practices will bring. We all know what they say about good intentions and best laid plans.
I think it’s a good idea to remember that we have a great deal more control than the restaurant servers I referenced in the beginning. We can establish our own business standards and lay out our fees in the beginning. We don’t have to wait until we’ve done the work and see how the chips fall.
We can also choose who we work with. Unlike a server who has to take the same table of Verbal Tippers every Thursday when they come in for lunch, an agent-client relationship is a two-way street and we can absolutely forgo an agency relationship that does not compensate us fairly. I have seen in my own business that people respect you when you set good standards of practice and stick to them.
Agents with longevity in the business have seen the advent of buyer agency, a housing bubble, the financial crash, and a pandemic.
This is one more thing. It probably won’t be an easy transition. But, then again, being a real estate agent has never been easy. It’s not the business we’re in. It’s always been full of highs and lows.
As my colleague Aurora likes to say, “Buckle Up”.
Adrienne Messeca, REALTOR, Heller Coley Reed