Jonathon Haddad’s phone started buzzing after the National Association of Realtors (NAR) settlement over commissions was announced this spring. His real estate agent partners called to get his opinion on what it could mean for their business.
“I had 10 call me and say, ‘What do you know about this? What’s going to happen to us? What’s going to actually occur?” says Haddad, owner of Next Door Lending and the new CEO of Association of Independent Mortgage Experts (AIME). “Same thing I’m telling you is what I told them. Focus on what you can control. The market is going to adjust.”
Mortgage originators are also bracing over what could happen. The proposed settlement would resolve a class-action lawsuit by a group of homeowners who say they were forced to pay excessive commissions to list their homes on NAR’s affiliated multiple-listing services. A federal judge in Missouri overseeing the case gave preliminary approval to the settlement in April.
“There’s always anxiety in the unknown. The truth of the matter is that the market is going to figure itself out. It has for the last 100 years.”
– Jonathon Haddad, CEO, Association of Independent Mortgage Experts
The mortgage industry wasn’t part of the lawsuit. But it’s no secret that many originators rely on real estate agents for most of their leads. Any major changes on real estate agent commissions can create uncomfortable uncertainty.
“There’s always anxiety in the unknown,” Haddad says. “The truth of the matter is that the market is going to figure itself out. It has for the last 100 years.”
For decades, the traditional way that real estate agents were compensated for their services was that the seller of a property agreed to pay generally 5% to 6% of the total cost of the house to the listing agent, who in turn paid about half of that to the buyer’s agent. Under this arrangement, Americans paid about $100 billion in real estate commissions annually. In many other countries, real estate commissions are between 1% to 3%.
When news of the settlement first broke, economists predicted that commissions could drop by 30% and could even reduce home prices. What exactly will happen is still unknown. Some of the big questions to be answered include how buyer agents will be paid for their services and how homebuyers and sellers will react to the changes.
NAR is going to require in July that multiple-listing service (MLS) agents working with buyers enter into written agreements before touring a home. NAR says that buyer agents could be paid in multiple ways including a fixed-fee commission paid directly by the homebuyer.
The settlement also does not ban cooperative commissions, meaning that listing brokers and sellers can continue to offer compensation to the buyer’s real estate agent, just not through the MLS. The Federal Housing Administration and the government-sponsored agencies have said that this payment would not be counted toward interested party contributions in the lending process.
But what if sellers balk? CNN spoke to one home seller in Minnesota who planned to list his house with the stipulation that he would offer 0% for the buyer’s agent.
Valerie Saunders, the president of the National Association of Mortgage Brokers (NAMB), says that a buyer’s agents put in a lot of work to get to a sale, often showing homebuyers multiple homes, doing due diligence and negotiating with the listing agent to get a contract accepted. “If you don’t know if you’re even going to get paid, why would you do all the work?” Saunders asks.
Still, as far as the mortgage industry is concerned, Saunders thinks that mortgage professionals should relax. She says that these issues will work themselves out in the coming months.
“We’re all kind of getting worked up about it, because we don’t know what it’s going look like. But once it all gets hashed out, we know we will adapt,” Saunders says.
There’s enough angst over the settlement that Freedom Mortgage hosted a webinar this spring that brought together experts from the Mortgage Bankers Association (MBA) as well as Saunders to look at the impacts on the mortgage industry. MBA president and CEO Bob Broeksmit told webinar participants he doesn’t expect the lending process to be derailed.
“I think it’s entirely possible that a year from now, we’ll look back at this time and say, ‘Not much really changed,’ because again, the cooperative compensation is not prohibited,” Broeksmit said during the webinar.
Freedom Mortgage senior vice president Allen Middleman echoed the same sentiment. He noted that there’s understandable concern since so much of a broker’s livelihood is dependent on leads from referral partners.
“I know there’s a lot of anxiety,” Middleman said during the webinar. “The bottom line is, no matter which way this goes, a little bit from now it’s going to be everyday business.” ●
