Dear friends,
Since August is my birth month, I’ve always been sensitive to its being a time of transition. For me personally it marks the beginning of another trip around the sun. But as I was planning a tea party to celebrate along with some of my Lady Leo friends, I was also reminded, as I had been since childhood, of how many people travel this month, taking advantage of the last weeks or days before school resumes. For those of us living in Berkeley, the transition from early to later August is dramatic! We’re coming to the end of this special time when Berkeley belongs to the locals, with less traffic and easier parking, more space at restaurants, and shorter queues for Cheese Board pizza. But soon the students will return!
August also represents the month when a large number of listing agents, including me, are helping sellers prepare homes that will debut in the new autumn market in September, which always begins after Labor Day. Some colleagues are bringing listings to market now, in hopes of avoiding the influx in the fall. But it’s risky: just like attendance at parties, there may be lower attendance at open houses (that special kind of party, if it’s one of my listings!)
But August 2024 represents a very significant transition within the real estate industry. As of this Monday here in the Bay Area, and as of August 17th nationwide, there are key changes to how we practice our business, as a result of law suits between home sellers and the National Association of REALTORS (NAR) related to commissions and buyers’ agents:
- Compensation offers moved off MLS: NAR agreed to put in place a new rule prohibiting offers of compensation on an MLS. Offers of compensation could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. And sellers can offer buyer concessions on an MLS (for example—concessions for buyer closing costs).
- Written agreements for MLS Participants acting for buyers: While NAR has been advocating for the use of written agreements for years, in this settlement they agreed to require MLS Participants working with buyers to enter into written agreements with their buyers before touring a home.
- Separate written agreements will need to exist for buyers’ agents compensation: Now the amount that a seller agrees to pay will be on a new form, separate from the listing agreement, and not tied to the listing agent’s compensation.
It is too early to know the full magnitude of these changes. But we already know three key things:
- Many (most?) sellers will continue to offer compensation to buyers’ agents: compensation (what we have until now called commission) was always negotiable. And in my opinion, savvy sellers will continue to offer compensation, in order to attract the most capable buyers. The strongest offers will come from buyers who have independent representation and thorough counseling by a REALTOR. I very much hope that will be the majority of cases moving forward.
- Some buyers will try to avoid paying for the expertise and protections of their own agent. They will either represent themselves (oh my!) or seek to have the listing agent represent them as well (also, oh my!) Many of us foresee unrepresented buyers causing many more law suits, as they cannot possibly understand the complexity of the disclosures and the procedures of a real estate transaction, especially here in California. I fear that attorneys may well benefit from this change more than consumers.
- At least initially, each transaction will be more complex than before. There are now a host of new forms required, as well as modification to existing forms, such as the purchase contract. And for buyers who require financing, they will want to engage the services of an especially savvy loan professional, who can smartly address the best way to build compensation into the loan as a closing cost.
I’ll be watching for with great interest to see if appraisals may be impacted by having the concessions/commissions accounted for differently. But it’s crucial to keep in mind that commissions were always paid from funds brought in from the buyer to complete the transaction. Now the balance sheet may look different, even if the seller still agrees to compensate both agents from the proceeds. In some cases, the buyers may indeed need to pay some or all of the concessions. Will that eventually impact prices, and to what degree?
Given that we expect to see a transition in interest rates (see the article below for more details), the next few months, if not years, are going to be very interesting!
For now, I’ll enjoy the last days of student-free summer, and the last summer flowers in our native plant median-strip garden. Those of you nearby may appreciate my favorite birthday present: a “Native Plants live here!” sign gifted to me by my dear husband! Right now we have verbena, lots of white yarrow, ceanothus and some California poppies, the featured plant in this month’s Red Oak calendar.
Wishing you the best final days of summer!
Arlene
