KGCI: Real Estate on Air - Adapting to the NAR Settlement

Episode Date: November 15, 2024

And welcome to another edition of the nerdy agent podcast. I'm your host, Luke Pedersen, with only one brother and fellow nerd today, AJ. We're recording on a Monday instead of a Tuesday, which means Josh is climbing some rock walls, fake rock walls. Fake rock walls. Not real rock, but he's pretty good at it. I've been there with him before. So hopefully he's having some fun. But today we wanted to talk about essentially how the weekend went with the first ever weekend with the new changes

in real estate specifically in Minnesota. It started on August 15th, and I think it's, what, August 19th today. So what that's been looking like, what our agents have been seeing in the marketplace with the changes with the new forms, and then also talk a little bit about what we've seen to be best practices so far in order to get our clients to be comfortable with signing a buyer representation contract in order to show properties and what that's looked like or touring agreements. So to start, can you just give them, let's talk about getting a buyer rep contract. What's the easiest way that we've had that conversation with people to make them comfortable? Yeah, you know what's fun is, well, there's so many different scenarios of this, right?

Like I had a client that I've been working with for over a year and they came back out and they're like, we're back. We're trying to see some houses this weekend. And I'm like, hey, we got to talk on the phone. Some stuff has changed. We can't just like tour around. And then she had all the questions of, you know, well, what if the seller doesn't pay, then I'm responsible and this and that. You know, I think the overarching theme that we've talked about is, you know, the losing of the lawsuit by NAR and the subsequent fallout, money-wise, practice changes, all of that are designed to be pro-consumer. So we've taken the stance since the beginning of being in real estate since starting this team and an ongoing basis of also being pro-consumer.

So I've tried to lean into that as we're talking to people of, sure you know we run a business we have to protect you know our interests and prevent us from you know getting quote unquote screwed in any specific situation but I think as long as we look at it from the lens of the consumer and how can we be pro consumer in everything that we're doing and that's tended to work out for us in the past and so um one fun number that I saw this weekend that someone on our team just posted he has signed six buyer rep contracts um since the beginning of last week with consumers that he's already been working with. I just looked after he sent that. I've done five because if you show a house, you have to sign one. Like, it should be better for agents to an

extent because you have that document. Yeah. And I think, you know, in the world where we work with a lot of online leads, we've, we've sort of resorted to the fact that I think the ones that probably aren't ready to do anything, transact, they're not really ready to take the next step. Maybe aren't going to be the ones that would go and get pre-approved, when recommended, et cetera, et cetera, are probably the ones that are going to give you more resistance to a representation contract or even a touring agreement of some sort. Like they're going to be the ones that, you know, pump the brakes as soon as you kind of bring up that conversation, you approach the topic.

And if they do that, you probably are saving their time and your time from trying to advance too far because what this has done is that. created more professionalism and seriousness around showing houses. And showing houses for so long was something people did for fun on the weekends, while others were out there actually actively trying to find the next home for them and their family. And they were very serious about making offers and doing these things. But we've noticed that in the world of Zillow and parade of homes and pretty pictures

on Pinterest and stuff like that, you know, you run into people who push the button because they want to see what the, you know, the cool oak floors look like and see if we might want to put them in our own house. And those people are going to go, wait a minute, I got to sign something to see these floors now. You're like, yeah, if I'm going to be on your side, that's how that's going to go. And I think that's got to change. So what, what's that conversation look like when your client reaches out and you have to call them and explain the fact that we can't just see this house now? We have to have this contract signed. Yeah. So with the specific client I had, I sent their old buy, she said, well, how did this change from the old buyer rep?

I said, I'll just forward you the copy that you have of the old buyer rep, which we always had put zero in for the commission line. And now we can't do that. And I showed her, hey, here's the slot where it says that my brokerage can only earn up to the amount listed in here. So we're going to have to rework this contract to make it so that I'm earning up to the amount that I've determined is my value for the marketplace, right? And so I put, and so I put, put that number in there. And then she calls and she says, well, yeah, it does reduce by the amount that the seller or the listing broker pays, but what if they don't pay?

And I said, I'm never going to force you into anything. But truthfully, this is just putting in one more variable into negotiations and purchase agreements that was a fixed number before. So it went from being a fixed number posted on the MLS. anybody who's listening knows most people didn't negotiate that number. Some people will say, oh, I always negotiated for whatever my fee was. And that's great. But most people in my experience took whatever it said on there, and that was the amount

that their brokerage was going to get. Whatever the MLS stated as their blanket offer of compensation that the seller and the listing agent agreed to was what they were going to take. And now... Even if it was super low. Exactly. All the time. Most people.

And so now what we're seeing is it's another part of the math equation. So I told my buyer, I said, well, yes, I understand that may happen. But keep in mind, it's still part of the negotiation from a math perspective. And because it states on the PA, you can specifically write in as part of your offer what the seller is paying towards the buyer's broker. Exactly. And the buyer and the buyer's agent are driving that action now rather than the seller and the listing agent. And so the interesting part after all of this is going to be, do sellers actually try? try to negotiate on that number?

Or do they just try to negotiate on a net? And given that the buyer and their agent already agreed on a commission number in their buyer rep agreement, presumably, now you just put that number in the contract. And the sellers, you know, they could say, I want that to be 1% lower, 2% lower, or whatever. But in the past, notably, we've asked, do you need the closing costs? Same kind of conversation. Do you need the agent commission in there?

Well, the buyer is putting it in there in their offers. So, yeah, like they need that to absolve themselves of it in the buyer rep contract, right? Of course, with conversations happening with your client. So then it's just a matter of, okay, what does the price need to be for the net number to net out what they want, right? There's a few lines that I think, as far as scripting goes, I think are important to have down as the buyer's agent, though, in this situation. The first one is the fact that AJ had, he briefly mentioned it. being confident when you're talking to people about the value you provide and what you're worth, saying I personally believe that I'm worth and my value is this commission that I'm putting in

this bi-rep contract and I'm going to show you consistently that I'm worth that throughout the transaction. Two, the other thing you touched on, making sure they understand you're not going to like tie them into something necessarily. They have to do this because there's new regulations that are telling us we have to have this signed. I don't necessarily think that's better for consumers, so I'm always going to work from the sense of being pro-consumers. So if something crazy happens, we're going to discuss it and we're going to figure something out.

Three, telling them that you never want that to stop them from buying the house they want is really important. And so that you're not going to go out and ask people what the seller has discussed for commissions or doing this and that. You're just going to find them the house they want and you're going to make sure you can get that for them. because then it's going to feel more like you're working on their behalf. You're going to be pro-consumer no matter what, right? You're on their side, no matter what. And you're not looking to lock anybody into contracts. For those out there, I have heard stories of buyers going through open houses.

If you don't know when you go to an open house, if your agent isn't with you, you don't need to have a signed agreement. That's stated. They told us that. And I've heard of agents at open houses trying to get people to sign buyer reps right when they walk in the door because they're trying to lock them into contracts. And they're probably not going to let them out of those contracts. And so just making sure people are aware of that, too, just because that's a one-off. And people are going to try and take advantage of the situation, too.

Totally. And I think you're starting to learn not so much, you know, at the beginning, it was a lot of like, I'm going to find a workaround for this. That's what ever is. I'm going to find workgrounds. I'm like, in the legal system, workarounds are not your friend. You don't want to try to find a workaround. Yeah.

It's just not, don't try and find something that doesn't follow the spirit of this and just gets around. But one thing we've done is. we've found a way through some good thought, good collaboration of making our representation agreements in the buyer's control at all times. So we're not going to get into the specifics of how we're doing that, but they're in the control of the buyer at all times. So that way when we present that, specifically, you know, with somebody who maybe isn't online lead that we just met, right?

And we just say, listen, this is in your control at all times. I'm not going to be able to and I'm not going to be able to. and I'm not going to hold you to this. I think that through this process, you're going to find that the amount of value that I'm able to add for you is going to justify at least the amount my broker just collecting through this contract.

And I think you're going to find that you're, you were very happy that you got to work with me and my team. And like Luke said, if you can say that confidently to somebody and then you can actually deliver on that, the buyer will be in control that contract the whole time, but they're not going to do anything with it because they know Luke's got my back.

This is the guy that's working for me, and I need him here. here throughout this process from that first showing all the way through closing and after closing. It's pretty hard to object with somebody that looks you and goes, I'm worth my value. I'm going to be really, really good working on your behalf and it's in your control at all times. Exactly. It's hard to object because they can do whatever they want and you're basically giving it in their court. Exactly. So the last thing I want to talk about was the the broker co-op agreements and the direct-to-seller payment on the purchase agreement and the confusions that we have in the marketplace.

so people understand how to have the conversation with listing agents depending on the situation. Well, yeah, and I think our brokerage we've talked about has taken the stance that all buyer broker comp paid by the other side should be directly from the seller and not from the listing broker. If that's confusing for any agents that are listening to this, you should probably do a little bit more research to understand what the difference is. If that's confusing to any agents listening to this, you should probably look around at who you're surrounded by and wonder why, the people, if you're not alone, if you're on a team, if you're at a brokerage, why nobody's taught you that difference. Yeah, you've got to know why that's important. And I think the biggest reason why our brokerage has taken that stance is because on the seller's side, again, pro-consumer, pro-client, if you're representing a seller, I would tend to say, at least in my

economic background that not making a blanket offer up front is better for your seller because you don't know what they're going to come with in that purchase agreement and they might offer you 1% lower than what your seller was thinking they might offer way higher at least it becomes a negotiable point rather than it being fixed um from the get go and i think that's why we're taking that stance and now on the by side um there's not much we can do about that because how our contracts in minnesota are written that that that line that luke's reference is in addition to any co-opted number. And so if they have a listing contract with a co-opted number in there,

and they've given you that co-op broker-to-broker compensation form, well, now if you put the same number in the purchase agreement, you're getting paid double. And people started to realize that as these forms came out because it doesn't say whatever's greater. It doesn't say any specific language around that, or this absolves the seller of the co-opting amount or whatever. So I think over time, we're going to see what practices

are, you know, being most readily utilized by agents. And I think the least confusing option is just to have it right there on the purchase agreement. It's just like how commercial deals happen currently, right? It's always just right it in there. It seems to make the most sense. It's the most transparent because when it's a broker co-op agreement, the seller has signed it, but the buyer doesn't even see it. Yeah, it's an outside document.

I just did one. And, yeah, that agent wouldn't allow me to put it in the PA. So she sent over the co-op agreement. And I just included it as the last page of the PA. Exactly. So my buyer understood that the number we signed in the buyer rep contract was the same as the number we were getting. So they were absolved of that payment. But technically it doesn't need to be on there.

Correct. So you could create less transparency. I do think moving forward, it would probably be easiest for everybody to just write into the PA. Moving forward. I don't disagree with you. But you will have confusing conversations about that. So make sure you understand how to talk to listing agents about the co-op versus their direct-to-seller. Make sure you're able to explain that to your buyers as well because it is going to be really important to know that.

And in these changing times, in these confusing times, being the one that understands and as knowledgeable is the best way to grow your business, just like when they added that written statement verbiage, which is always extremely confusing for everybody. Oh, yeah. And there's just a lot of other things that have been coming into play now. you know, one of our agents posted about the compensation disclosure through our brokerage now stating that whatever you put in the compensation disclosure automatically amends your contract to match that. It's a pretty wild one. So like if you had X, but then the payout was Y, instead of amending your buyer rep contract, you would just do the compensation disclosure, which would be disclosing the amount and amending the amount that was listed in that contract.

And so there's been some disagreement on if you could go higher or if you can only go low. lower. I would tend to say the spirit of the agreement is that you could probably only go lower than what you originally had. But yeah, there's just a lot of interesting ideas and topics and just like deep thinking like our agent had around, well, what if I did it this way? This just amends it. So like there's people paying attention, I think, to what these forms say and what's going on. And obviously none of us are attorneys. So we've had to consult with some of those as well. But all in all, I think the first weekend seemed like we were doing pretty well. Like we didn't get too many. objections to this whole process and our agents are still getting out, showing home, selling property. We turned in several files this weekend with all the new forms and all the new changes. And it seems like we're plugging along and adapting. People are still buying and selling real estate. It's wild.

Well, we're going to keep you updated. Hopefully in like a month, I think it would be a good time to revisit this topic because there'll be even more coming out about it. Like I said, it's only been one weekend so far here in Minnesota. So that's all we have today on the nerdy agent podcast. and as always remember be better.