new scheme, that may be impossible, so either dual agency will end, or the law will have to change somehow. I expect that, eventually, the new system will go something like this. The buyer and seller will negotiate their fees separately, with their own agents. Sellers will decide whether or pay a buyers’ agent fee and if so, how much. Buyers, in their purchase offers, will ask sellers to pay their agents, but may be liable for any difference between the seller’s agreement with his agent, and the buyer’s agreement with his, unless the two agents are willing to re-negotiate their fees. The amount paid to the buyer’s agent will most likely be treated as a concession, deducted from the purchase price, as a closing cost of the buyer whereas before it was a cost to the seller. However, it may be a bumpy road we will have to travel to get there and changes go into effect on July 1 2024 so there is not much time to figure this all out.
THE MORE THINGS CHANGE, THE MORE THEY STAY THE SAME! Mandatory Changes Due to NAR Lawsuit Settlement Now that the National Association of Realtors (NAR) has settled the class action lawsuit challenging the way commissions are paid, the question on everyone’s mind is, how will this change the way we do business. And the answer is, not very much, and potentially a lot! There are two changes required due to the settlement. First, buyers and their agents will be required to enter into
buyer’s agency agreements that include compensation to be paid by the buyer. The second is that seller’s offers of compensation to the buyer’s agent may not be communicated on the Multiple Listing System. Buyer’s Agency Agreements are nothing new. The New Jersey Association of Realtors currently provides agents with several Buyer’s Agency Agreement forms. Expect to see some minor changes to the forms, but not much. We may also see forms for “fee for service” and/or
For the consumer, I fear this new system may have the unintended consequence of driving fees higher. Under the new system, if a buyer’s agent signs an agency agreement for one amount, and the seller offers a higher amount, the buyers agent can only accept the lower amount that is stated in their contract with the buyer. They may not accept the higher amount offered by the seller. Thus, the new system
encourages buyer’s agents to negotiate a higher commission up front and then to potentially negotiate down if necessary. The other potential issue is that agents will by necessity spend more time negotiating and memorializing in writing, fee arrangements that were transparent, open and simple under the old system. Nobody works for free, over regulation always leads to higher costs and this situation is no different.
“flat fee” arrangements. We have had this system for a very long time, it has simply been under-utilized because it was optional. Now it will be mandatory. For sellers, the only difference is that offers of compensation may not be published on the Multiple Listing Service. Sellers always had the option of refusing to pay the buyers’ agents. If they chose to compensate the buyers’ agent, the amount offered was always open to negotiation and purely the decision of the seller. And sellers could always choose to sell their properties on their own with no professional representation at all. But now offers of compensation will have to be communicated somewhere other than the MLS. The larger issue is that banks will not allow the commissions to be included in the mortgage. NAR is currently seeking guidance from Fannie Mae, Freddie Mac, the FHA and the VA as to how this is going to work. The Veteran’s administration does not allow buyers to pay commissions at all if they use a VA loan. And the others limit the amount a seller can contribute to the buyer’s closing costs. If there are not adjustments made it is going to make home buying very difficult for most people. The industry may take a giant step backward to the bad old days when buyers had no representation and agents only represented the seller. Another issue specific to New Jersey is Dual Agency. New Jersey allows an agent to represent both the buyer and seller at the same time, however, that agent can only collect a commission from one of the parties. Under this
By Suzanne MacDowell, Managing Broker, Century 21 Christel Realty 86 Main Street, Succasunna, NJ 07876
973-627-6800 (office) 201-602-4458 (direct) suzannemacdowell@gmail.com
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