The lead-up to buying a house is going to start differently, with house hunters and brokers sitting down together to talk about money before they go look at homes, the National Association of Realtors announced Friday.
The change, which all brokers must implement by Aug. 17, will clarify that “nobody works for free,” said Mike Golden, co-CEO of @properties Christie’s International Real Estate, the biggest real estate brokerage based in Chicago.
In the past, before a recent court decision spurred changes in the industry, a broker could easily give a potential buyer the impression that “you’re not paying me, so let’s go start looking at houses for you,” Golden said. That was because the brokers for both seller and buyer were compensated by the sellers out of their proceeds from the sale.
The change, Golden said, means brokers “will tell you clearly, ‘these are the services I’ll provide while we’re looking for your house. I’ll be investing my time in you, and (in the end) I’ll be compensated, like anyone else who works for you.’”
It’s one plank in a platform of changes the trade group announced Friday as it moves away from the old practice of encouraging brokers for the buyer and seller to split commissions paid by the seller. Precipitated by a $1.7 billion verdict last October in a federal case where a jury found that the practice amounted to industry collusion that kept commissions high, NAR announced in March that it would abandon the practice and formulate new standards for compensating buyers’ brokers.
On Friday, NAR’s chief legal officer, Katie Johnson, issued an email laying out nine changes that will take effect Aug. 17. Most of them are “backstage” changes that primarily impact brokers and multiple-listing services.
But among them is one that codifies what many people in the industry say is a substantive change in the way homebuyers go through the process. It requires agents “working with a buyer to enter into a written agreement with a buyer prior to touring a property,” Johnson’s email to the media said.
Along with clarifying that brokerage isn’t a free service to buyers, the change further “professionalizes our industry,” Golden said. Brokers representing sellers are schooled in explaining their value by showing the potential client all their marketing tools, such as agents-only apps, staging services and individual property websites.
But the buyer broker “didn’t have to tell you much,” Golden said. “That’s going to change.”
Some buyers are sure to be intimidated by the change, said Laura Ellis, president of residential sales at Chicago-based Baird & Warner. Shortly after the October court decision, she predicted buyer-broker agreements would become the new standard.
Ellis envisions buyers sitting across the table from a broker thinking, “wait a minute, I’ve been scraping to save up the 10%, 20% down payment, and now you’re telling me I have to pay you 2.5%, 3% on top of that?”
Ellis said professionalism and a clear approach will overcome that resistance. “All the surveys we’ve seen say buyers aren’t against the broker getting paid,” she said, “They just want to know what they’re paying for.”
To be clear: A buyer-broker agreement isn’t new. It’s already required in 19 of 50 states, Ellis said. What’s new is the industry-wide requirement that all buyers sign an agreement with a broker up front.
Jeff Kropp, broker-owner of the North Side firm Home Buyer Agents of Chicagoland, has been asking clients to sign a buyer agreement for 23 years. “It’s a highly effective, transparent way to be very clear about how I get paid and what value I provide my clients,” he said.
It’s also been a good way to detect buyers who “aren’t serious about working with one agent,” Kropp said. “They’re going to go see some properties with you, then go see some with another agent,” in essence gobbling up free samples.
Requiring a buyer-broker agreement, Kropp said, is long overdue. “It always struck me as odd that you’re entering into this relationship where you’re going to make probably the biggest investment of your life,” he said, but you have no written agreement.”
Particularly in the beginning, when the forms are relatively new, some buyers might be turned off, said Ed Lukasik Jr., the broker owner of Re/Max Professionals in Bolingbrook. They’ll likely be the same people who under the old system believed “they didn’t need representation,” he said. “They’ll call the listing agent directly to see the house,” only to learn later of the many complexities a buyer’s broker is skilled at handling. They include radon and other disclosures and comprehension of the intricacies of a bidding in a multi-offer situation.
Lukasik avoided saying those people will come running back to a buyer broker, but said “they have to be very confident about representing themselves.”
Ellis said the people who might be most intimidated by the new rule aren’t buyers but real estate agents.
“It’s unnerving for an agent to have to look the buyer in the eye and say, ‘You’re going to pay me 3%’ when they’ve never had to do that before,” she said. “Some won’t be able to do it. Just won’t be able to do it.” Ellis expects to see some agents who’ve worked exclusively on the buyer side to leave the business as a result.
“The more proficient, confident professional agents will get more business,” Ellis said, “because they know their value and they know how to explain it.”
