In Part 9 of the real estate commission lawsuit series, we’ll look at how the settlements will change the role of NAR and the MLS.
The most interesting challenge is “how do we save the golden goose and maintain the MLS as the central platform for listing property”. I’ve lived in other countries (UK and South Africa) that don’t have an MLS, and I can tell you the MLS is the greatest thing ever.
Why is the MLS so successful? – the MLS works because it required two non-negotiable things. 1) a clear co-operation policy that gives certainty to buyer agents that they will get paid, and 2) a mandatory listings policy requiring all listings get listed on the MLS.
1) Clear Co-Operation Policy – this is where we will see the biggest threat to buyer agents. If the DOJ successfully decouples listing and buyer agent commission, buyer agents will be severely impacted. There are almost no buyer agents in the UK and South Africa.
Why No Buyer Agents? – two things happen when buyers are forced to pay buyer agents out of pocket. First, most buyers struggle to pay the down payment and don’t have the cash needed to pay a buyer agent. They need to roll buyer commission into the mortgage.
Second, listing agents offer to do the buyer agent work for free. It starts out as a way for listing agents to capture more of the commission (in states where allowed), but eventually waters down to a lower average listing fee (2% to 3%) and the listing agent does everything.
Good Mortgage News – the major mortgage agencies (FHA, Fannie) have issued a clarification that buyer agent commission will not be viewed as a seller concession. This will allow sellers to pay buyer commission and stay within current seller concession limits.
2) Mandatory Listing Policy – in other countries, there is no MLS, so big brokerages end up with silos of exclusive listings. If you want to view area listing, you need to go to multiple brokerages, not a single MLS. It’s highly inefficient.
Exclusives and Pocket Listings – will proliferate if there is no MLS as they’re beneficial to large brokerages, but bad for the local brokerage industry. If NAR and the local MLSs lose their ability to compel mandatory listing on the MLS, the whole system could fall apart.
Understanding NAR’s Actions – NAR has pivoted from fighting to settling the lawsuits. Instead of years of legal uncertainty, NAR has pushed for a blanket nationwide settlement. They’re trying to hit the reset button, as soon as possible, with a few rule changes.
NAR isn’t going away – this pivot will hurt NAR financially ($418 million in damages) but keeps NAR at the center of the real estate sales industry. It keeps the national, regional and local association in place.
Will NAR lose membership? – almost definitely. A significant number of NAR members were compelled to become members. Many of them will now voluntarily relinquish membership. A tough current market and a loss of some (or many) buyer agents will also impact NAR.
NAR Must Change – in many ways the lawsuits have been a catalyst for much needed change at NAR. Too much heavy-handed decision making. Too many scandals. NAR will need to earn its membership fees by servicing its members. Members first, please!
The MLS isn’t going away – the industry recognizes the value of the MLS and there is no sign that it will go away. There will almost certainly be more consolidation as the smaller MLSs struggle financially due to the damages awards and reduced industry membership.
Mandatory Listings Must Survive – the most important outcome is that the mandatory listing policy looks to be unchallenged and will survive. There’s been no signs of listing flight or a renewal of the pocket listings and exclusives debate.
MLS is the golden goose! Don’t kill the golden goose.
