Clause + Effect: More Paperwork, Little Change

“I am from the government, and I am here to help”… the most dreaded words in the history of the United States. ???? In my 21 years of real estate, the Association of Realtors has changed the documents that are used and our standard operating procedures at least twenty-one times.  The changes this year, brought forth by the Department of Justice, have made the news and likely caused more confusion.  In reality, not a whole lot has changed in the wonderful world of real estate, so I decided to address it to help everyone have a better understanding.

Let me give you some backstory.  A class action lawsuit was filed a couple of years ago in Missouri by a home seller who admittedly was happy with their Realtor.  The lawsuit claimed that the Realtor did not clearly disclose the commission being charged and what was done with the money the seller was paying.  Fortunately for North Carolina, our listing agreements and buyer agency agreements are written much more clearly and to a level that my 10-year-old can understand.  The lawsuit claimed that the agent had hidden the commission from the seller and did not make it clear to them what and who was being paid.  In the end, the class action lawsuit ended up in front of the Department of Justice.  The ruling was settled by a lot of the major real estate companies and the National Association of Realtors, with a settlement cost of 418 million dollars.  The plaintiffs in the case received around $12 each, while the attorneys made many millions of dollars from the case.  I am unsure who won and who has really been helped through this case; however, it has caused changes in the way Realtors must operate now, though again, little has changed. 

What has changed, and how does it help the consumer?  The first thing that we Realtors have noticed in the change is that the listing agreement and buyer’s agency agreement have changed some of the wording.  For Realtors, the wording in these documents changes slightly every year.  When I started real estate in 2003, the Offer to Purchase was four pages, and it is now eighteen.  The listing agreement was also four pages and is now thirteen pages, while the buyer’s agency agreement was three pages and is now seven.  The major change this year is that in both the listing agreement and the buyer’s agency agreement, it is noted that commissions are negotiable.  The interesting thing about this change is that commissions have always been negotiable.  Negotiations can go up and down.  As a consumer, buying or selling typically your largest investment, make sure you are not hiring a weak negotiator, as that may not help you when it is time to negotiate a contract on the house you are purchasing or selling.  The cheapest, the most expensive, the biggest, the smallest, and any Realtor in between may not be the best.  Find someone who knows the market, understands the process, and can negotiate on your behalf.  If you don’t know anyone, give me a call, as I know a guy!

The next biggest change that will likely make most buyers uncomfortable is the fact that Realtors will not be allowed to show a buyer property without first having a signed buyer’s agency agreement.   The public may see this as Realtors locking them into having to work with the first agent they meet.  However, this is just Realtors following the law and the ruling brought down by our government.  Please note a buyer’s agency agreement can be signed for one specific property or for every property in each area.   An agency agreement can be signed to last one day or up to one year.   However, it is against the law for an agent to now show a buyer a property without having a buyer’s agency agreement in place.  This will take getting used to by buyers and Realtors.  As a buyer, it is important to understand the documents you are signing, as you may find out that you are not comfortable working with an agent.  However, once you are in a buyer’s agency agreement, that agent and you are bound by that agreement together until it expires, or you both agree to terminate that agreement.  Again, this is why it is important to understand what legal documents you are signing and to ensure the agent understands how to help you.  The advantage of this for buyers is that it will give them an opportunity to have a real buyer’s consultation with an agent or agents.  This can help buyers and agents save time to ensure expectations are set by both parties and a clear understanding of the property a buyer is looking for is grasped.  The worst thing for buyers and agents is to show up to a property to see it, and it is not anything close to what a buyer was hoping for.  A buyer’s consultation will alleviate this from happening as much, though not completely.  

In the end, the ruling by the courts and the Department of Justice will add clarity to the process for buyers and sellers across the United States.  However, nothing really changed as commissions have always been negotiable, and agency documents had to be signed prior to making offers anyway.  We all know the government being involved rarely makes things easier or cheaper, so we are all interested in seeing how this plays out!