Teresa King Kinney is well-acquainted with sudden changes in the real estate industry, and the recent settlement is no exception for the NAR.
Since 1993, she has served as CEO for the Miami Association of Realtors and its 60,000+ agents. Throughout her career, she has successfully managed several recessions, the Global Financial Crisis, and the challenge of the COVID-19 pandemic.
Since the NAR agreed to eliminate buyer broker compensation offers from its Multiple Listing Services and require agents to secure a buyer’s agreement from homebuyers, Kinney has taken the lead in training tens of thousands of members of the Miami Association of Realtors. Kinney conducts this training through various methods, including seminars, webinars, and a newly developed curriculum.
“It’s a major change that affects every property that Realtors want to show. “It’s quite important,” Kinney said.
The NAR has agreed to implement these modifications by Aug. 17 as part of its $418 million settlement agreement in a series of class-action lawsuits regarding buyer commissions. After a jury verdict of $1.78 billion in November against HomeServices of America Inc. and other major broker names in the suits, several other brokers have reached separate settlements, resulting in potential payouts of more than $943 million.
Experts predict that the settlements will change the industry, but it’s unclear how much.
A significant portion of the training provided to members of the Miami Association of Realtors focuses on guiding agents in their conversations with clients regarding compensation. The aim is to highlight the value that agents can provide in exchange for their commission.
Kinney compared the rapid implementation of training after the settlement to the changes in her group during the pandemic. The shift from traditional tours to virtual ones necessitates the provision of tools for agents. That marked the start of South Florida’s hottest two years of real estate history.
“It is crucial to provide members with an option, tools, resources, and examples to assist them,” she said.
'Summer of uncertainty' looms over the real estate industry
This summer has presented challenges for an industry that is adjusting to the settlement’s changes.
It remains unclear whether the preliminary settlement will receive approval. The settlement is set to receive final approval at a hearing on Nov. 26. These approvals have been challenged by several parties, with some appealing. It’s unclear whether these objections will be sufficient to disrupt the settlement.
Clever Real Estate, a St. Louis-based real estate company, conducted a survey and found that 67% of the public supports the commission changes, while 70% of real estate agents oppose them. According to the survey results:
- Approximately 61% of Americans support the main argument of the lawsuit, while 89% of agents believe that the lawsuit lacks validity.
The public’s views on potential negative consequences differ, with 40% expressing their belief in such outcomes. Only 15% of agents believe that it will have a positive impact on their business, while 58% anticipate negative outcomes.
- About 88% of agents who anticipate negative impacts express concern about the discouragement it may cause among first-time homebuyers, and 82% believe that it will have a detrimental effect on buyers in general. According to the survey, 42% of respondents believe that the impact on sellers will be negative.
- Approximately 56% of agents anticipate an increase in the duration a home spends on the market before selling. A staggering 95% of people believe that the new commission practices will lead to agents leaving the industry.
In a new report, investment and equity research firm Keefe, Bruyette & Woods has labeled the current period as the “summer of uncertainty” due to the relatively fast pace of adjustment. The report describes the industry as “largely unprepared and overly optimistic in its belief that the impacts will be limited.“
Many professionals were surprised by the rapid pace of the settlement, as they had initially believed that any significant changes would take years to materialize.
The report stated that, in general, companies acknowledge the presence of a high degree of uncertainty regarding the impacts on the industry. However, they also anticipate a low risk of disruption to their own businesses.
Yet, the KBW report predicts that the Department of Justice, which has previously pursued legal action to withdraw from a prior settlement agreement with the NAR, will step in this fall to improve the settlement’s provisions.
That also includes remarks made by the DOJ in a related case, expressing their opposition to compensation offers outside the MLS. The settlement presently allows for this.
According to the report, the DOJ’s recent remarks suggest a desire to pursue more assertive changes. This includes the elimination of many loopholes that might enable listing agents and sellers to exert influence over buyer commissions.
According to KBW, the DOJ may take action by October.
What is the settlement's impact on homebuyers, and when will it take effect?
According to a statement by Phil Crescendo Jr., the vice president of the Southeast division at Nation One Mortgage Corp., he expects that many buyers will not feel the impacts of the settlement right away, but he predicts that they will start to feel them during the next summer buying season.
“With the new rules set to take effect in August, agents will face increased pressure to justify their compensation. This is because buyers will be more likely to press for a lower commission,” Crescendo said. That will also create space for discount shops that cater to first-time buyers. As this happens, residential real estate markets will become increasingly diverse and competitive.
Although the initial settlement came as a surprise to the market, there is still enough time for preparation, he said. Additionally, the housing market is likely to remain strong due to pent-up demand.
However, the industry is already adapting. The Department of Veterans Affairs issued a “temporary local variance” on June 11 for veterans purchasing homes in the settlement’s implementation areas.
The seller’s commission on the home sale allows veterans to pay “reasonable” amounts for any buyer-broker charges not included in the loan amount. In the past, veterans using their Veterans Affairs-guaranteed home loan benefits faced restrictions on paying certain commissions and fees as part of the financing agreement.
We will implement the variance on August 10, days before the NAR deadline.
Meanwhile, the playbook requested expert advice on how potential buyers can select a reliable agent. They guide you on how to vet a trustworthy agent.
