Change Disrupting the Real Estate Industry
You have likely seen the snippets on the news about changes that are occurring in the real estate industry resulting from a lawsuit settled by the National Association of Realtors (NAR). The crux of the change is how and by whom commissions are agreed to and paid. Historically when you have sold your home the listing agreement you signed obligated you to pay a commission to your agent of maybe 5%-7%. Listing agents had to publish an offer of compensation to the buyer’s broker when listing homes on NAR-affiliated multiple listing services, or the MLS. Listing agents could theoretically offer zero dollars in the compensation field, leaving commissions to be negotiated, but the lawsuits alleged the requirement to post an offer reduced competition and kept commission rates artificially high. It alleged that this was because buyer’s agents “steered” their clients to properties that offered higher commission rates. In most cases if you were a prospective home buyer you really were not involved in compensating the agent representing you on the purchase. This is how it worked in RESIDENTIAL real estate. The new rules do not allow any offer of compensation to be posted in the MLS. These changes could certainly change the experience of buying or selling a home, and this is what is being covered in the news.
The part of the story that is not covered are the effects on the Commercial segment of the market. In Commercial Real Estate the commissions for representing buyers and tenants have always been negotiated at the same time the transaction is being negotiated, and are presented openly in the Letter of Intent and the subsequent contract or lease. The listing commissions are agreed to between Broker and client in a listing agreement. In a sense this change was already the norm in the Commercial realm. The change that Commercial Brokers are now navigating is that many of the standardized forms that have been used by both residential and commercial brokers have changed with the rules taking affect 8/17/24. The new forms are clearly now residentially focused and no longer make sense in a commercial transaction. Commercial Real Estate Brokerages will need to pivot to an alternate source of standardized forms or establish their own engagement documents and disclosures that meet the laws of Arizona.
The changes feel as though they will be ever evolving. What is important is that people are not discouraged from being represented in a real estate transaction. The average person does not have enough knowledge to navigate through a residential or commercial real estate transaction and make sure they do not cause harm to themselves because of a lack of knowledge. What might come out of the process that is a good thing is perhaps moving in a direction to separate the residential real estate market from the commercial real estate market. They are certainly unique from one another and have different norms and standards. While the education and license are the same for both, each agents experience and knowledge from practicing their specialty is critically important. It is always in the best interest of the client to be represented by an agent that is experienced in the type of transaction they are doing.
At Commercial Property Connect we have always felt it was important for us to be a member of the Realtor Association, even though we only practice Commercial Real Estate. The primary reason being was their Code of Ethics, that as Realtors we pledge our allegiance to and swear to uphold. We discuss this Code of Ethics often when meeting with clients, and it is a focal point we are proud to have. As the Realtor Association becomes less appropriate for Commercial Brokers to be involved in, does that make our pledge to conduct our business in an ethical manner any less important? The answer for us is NO. As the Designated Broker of Commercial Property Connect, LLC Susan McCall has made it clear all agents will continue to uphold the principles of the Code in our daily business. Susan is also a CCIM (Certified Commercial Investment Member) Designee, and that designation also carries an identical Code of Ethics pledge.
If you are wondering if this change affects you, or you have questions please reach out to us and we can help.
