AriZona Real Estate insider!

As we approach August 17th, the real estate world is buzzing with anticipation and a bit of anxiety. This date marks a pivotal moment for agents, buyers, and sellers alike, due to significant changes resulting from the National Association of Realtors (NAR) settlement. Let’s dive into what these changes entail, how they will impact on the industry, and what this means for you, especially in my neck of the woods in the Phoenix-Scottsdale-Mesa area.

Understanding the NAR Settlement

The NAR settlement introduces several key adjustments designed to increase competition among agents and provide more transparency for consumers. Here are the major changes taking effect on August 17th:

1. Written Agreements: Real estate agents must now have written agreements with buyers outlining their services and fees before showing homes.
2. No Commission Disclosure: MLS platforms will no longer display specific compensation offers to buyer agents. This means that agents will not see the commission offered by the seller’s agent when browsing MLS listings.

Impact on Buyers’ Agents

For buyers’ agents, these changes bring a new level of clarity and responsibility. The requirement for written agreements means that agents must clearly communicate their value and fee structure upfront. This transparency is a step forward in building trust and ensuring that buyers understand the services they are receiving.

Additionally, the removal of commission disclosures from MLS listings will shift the dynamic of how agents operate. Buyer agents will need to negotiate their compensation directly with their clients, potentially leading to more competitive and customized service offerings.

Impact on Sellers’ Agents

Sellers’ agents will also feel the effects of these changes. Without the ability to publicly disclose the commission offered to buyer agents on the MLS, there will be an increased need for direct negotiation. This could lead to more strategic discussions around commission structures and the overall value provided by both parties.

What This Means for Buyers and Sellers

The most significant change for buyers is the need for a written agreement to see homes. This agreement will outline the agent’s services and fees, ensuring that buyers are fully informed before making any commitments. If the agent’s fee cannot be negotiated into the purchase contract, buyers may need to pay this fee out of pocket at the close of escrow.

This shift might lead some buyers to consider going directly to the seller, especially in mid to lower price points. However, in the higher-end market, the need for professional representation and expertise will likely keep the traditional agent-buyer relationship intact.

For sellers, the process remains relatively unchanged, but there will be an increased emphasis on negotiating commissions and ensuring that their listing stands out in a competitive market.

My Take

I really do not know if this is good or bad for the industry; it’s too early to tell. Everyone I talk to or hear from has a different opinion about the changes and how they will work out in the end. I think this will clear up who pays whom and what their services bring to the table. I do see some gray areas and scenarios that don’t make sense. I think it will take time for this to work out and function as business as usual. While there may be an adjustment period, I hope the long-term effects will lead to better service for clients and a more professional landscape for agents.

I also think that if you are a real estate agent, you will need to sell yourself more than ever. You have to convince your buyers why you are worth your fee.

Preparing for the Change

To navigate these changes successfully, it’s essential to stay informed and proactive. Here are a few tips for buyers, sellers, and agents:

Buyers:

• Be prepared to discuss and sign a written agreement with a real estate agent. Understand the services being offered and the associated fees. The days of seeing a home without any written agreement are gone. A few examples for buyers to their agent
  • Example: Many people travel to the Valley of the Sun for events such as the Waste Management Open, Barrett-Jackson, Fiesta Bowl, etc. If you decide to view homes while you’re here, you will need to reach out to the listing agent or hire a real estate agent and sign a buyer broker agreement. If you contact the seller’s agent directly, you won’t need to sign anything, but if you make an offer, you will not have any representation unless you hire an agent, attorney, or the listing agent represents you as a dual agent.
• The buyer’s agent cannot receive more commission than what is stated in the buyer broker agreement. For example, if you agree to pay your buyer’s agent 1.5% to represent you, and they negotiate a 3% commission from the seller, the agent will only receive 1.5%. Be sure you understand the commission rate you agreed to pay your buyer’s agent.
• Make sure to ask the agents you interview about their buyer broker termination agreement. If, after a few showings, you find that the agent is not a good fit or does not meet your needs, you should not be locked into the agreement. You want to avoid situations where you discover that the agreement binds you for a year or more, and then, after closing a deal with a new agent, the original agent seeks their fee. Be sure to understand all the terms before signing any agreement.

Sellers:

• Work with your agent to develop a competitive and attractive listing. Be ready to negotiate commissions directly with the buyer’s agent before they submit an offer or through the purchase contract. Alternatively, offer a commission upfront, even if it’s just 1%, with the opportunity to negotiate more. Here are a few examples:
  1. Open-Minded Seller: “I am open to paying you (listing agent) 3% and offering 1% to the buyer’s broker. I am also open to offering more compensation if the buyer’s broker asks or submits an offer with a higher commission. Let’s see where the offers come in. Some agents might accept the 1% and move on, while others may negotiate for more.”
  2. Negotiating Seller: “I do not want to commit to offering any compensation to the buyer’s broker upfront. However, let them know I am open to negotiating a fee. Put it in writing, and we will take it from there.”
  3. Fixed-Fee Seller: “I will agree to a 3% (or what you agree to) commission to sell my home. If you (listing agent) think offering a portion of your fee to the buyer’s broker will help sell my home faster and attract more interest, you can do so. If you bring me a solid offer or one higher than the asking price, we can discuss higher compensation.”
• The real estate market in the Phoenix-Scottsdale-Mesa area is slowing down, inventory is increasing, and it’s best to offer some compensation to the buyer’s broker. This ensures agents do not overlook your listing in favor of properties that offer compensation.
• Be prepared to negotiate up to a 5% total commission, as the agent might pay the buyer’s broker from the total compensation. This is common in commercial real estate, where I negotiate up to 6% in listing contracts because the fee often comes from the total cut or is negotiated in the letter of intent. Not offering any compensation can start negotiations negatively, especially in a slowing market where buyers have the upper hand.

Agents:

• Clearly communicate your value proposition to clients. Ensure all agreements are in writing and transparent.
• Be professional and work with everyone, even those who might be difficult – We call them assholes.

By staying informed and adapting to these changes, everyone involved in the real estate process can navigate this new landscape successfully.

Conclusion

August 17th is more than just a date—it’s a turning point for the real estate industry. By embracing these changes and focusing on transparency and competition, we can create a better, more efficient market for everyone involved. Stay tuned as we navigate this exciting new chapter in real estate!

First Look: New Buyer Broker Agreement (to show property)

This draft outlines the new Buyer Broker Agreement that will go into effect on August 17th. Every buyer will need to sign this form before touring any property.

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FAQs for Buyers and Sellers About the NAR Changes

For Buyers:

1. What are the key changes affecting buyers starting August 17th?
   • Buyers will need to sign a written agreement with their real estate agent outlining the agent’s services and fees before viewing any homes. Additionally, MLS platforms will no longer display specific compensation offers to buyer agents.
2. What does the written agreement with my agent need to include?
   • The agreement must clearly outline the services your agent will provide and the fees associated with those services. This ensures transparency and helps you understand what you are paying for.
3. How will these changes impact my home-buying process?
   • You will need to discuss and agree on the agent’s services and fees upfront. If your agent cannot negotiate their fee into the purchase contract, you may need to pay their fee out of pocket at the close of escrow.
4. Can I still view homes without hiring an agent?
   • Yes, you can contact the listing agent directly to view homes without hiring a buyer’s agent. However, if you decide to make an offer, you will not have representation unless you hire an agent, attorney, or the listing agent represents you in a dual agency capacity.
5. What is dual agency, and how does it affect me as a buyer?
   • Dual agency occurs when the same agent represents both the buyer and the seller. This can lead to conflicts of interest since the agent must remain neutral and cannot fully advocate for either party. It’s essential to understand the pros and cons before agreeing to dual agency.

For Sellers:

1. What are the key changes affecting sellers starting August 17th?
   • MLS platforms will no longer display specific compensation offers to buyer agents. Sellers will need to negotiate commissions directly with buyer agents or offer compensation upfront.
2. How should I handle commissions with the buyer’s agent?
   • Work with your listing agent to develop a competitive commission strategy. You can offer a baseline commission (e.g., 1%) with the potential to negotiate more based on offers received. This approach helps attract buyer agents while keeping negotiations flexible.
3. Why is it important to offer compensation to buyer agents?
   • Why is it Important to Offer Compensation to Buyer Agents?
     Offering compensation ensures that buyer agents do not overlook your listing in favor of properties that offer compensation. In a slowing market, providing competitive compensation can help attract more interest in your property.
     Depending on your price point, particularly in the lower to middle range, it’s wise to offer compensation to the buyer broker because buyers in these ranges typically do not have much, if any, extra funds to cover additional expenses. Helping them out by offering compensation can make your property more attractive to both buyers and their agents.
4. What if I don’t want to commit to a specific commission upfront?
   • You can indicate that you are open to negotiating the buyer agent’s commission based on the offers received. This approach allows flexibility while ensuring that agents know compensation is available.
5. How does the changing market in the Phoenix-Scottsdale-Mesa area affect my listing strategy?
   • With the market slowing down and inventory increasing, it’s crucial to offer some compensation to buyer agents to remain competitive. Be prepared to negotiate commissions and ensure your listing stands out to attract buyers in a more challenging market.

Disclaimer

I am not an attorney but a real estate agent. The scenarios and examples provided are based on my experiences and what I believe may happen and how it may play out. All commissions are negotiable, and every agent offers their services and runs their business differently. Most real estate agents in my area will likely use similar forms, but some may opt for their own versions. Please consult with a legal professional for specific legal advice.

En Español

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