REAL ESTATE LAW UPDATE:
ARE THERE BIG CHANGES COMING IN HOW YOU BUY OR SELL A HOUSE?

You may have heard talk about possible changes in the way real estate brokers and salespersons are compensated.  The talk has risen as the result of a successful class action lawsuit against the National Association of Realtors.  The court that heard that lawsuit ruled that the way real estate professionals are compensated results in consumers paying too much for the services of those professionals.  

NB Hannah

Nathan B. Hannah, attorney

You may already know that in the typical real estate commission arrangement, there is a broker that represents the seller, and there may also be a second broker that represents the buyer.  The broker’s commission is paid by the seller.  If there is a second broker that represents the buyer, the first broker splits the commission with the second broker.  If there is no second broker, the first broker gets the entire commission. 

I haven’t read anything that actually came from the court in that class action lawsuit, but the news accounts that I have read indicate that the court’s decision was based on the conclusion that the “split commission” arrangement results in the second broker getting more compensation than they have earned.  I’m not saying that I agree with that, or even that that’s what the court actually ruled, but that is what is getting the attention of real estate professionals and the news media.

What change will result if that court’s decision sticks?  My guess is that it will result in “buyer brokers,” that is, the second broker that comes into the deal representing the buyer, either (a) being compensated by the buyer instead of the seller, or (b) disappearing.  If buyers don’t want to pay a percentage commission, they might be willing to pay a flat fee to a broker, or perhaps an attorney, for advice from a professional who is looking at the transaction from the buyer’s viewpoint, rather than rely on the broker who’s working for the seller.

The idea of a “buyer’s broker” that is compensated by the buyer is actually not a new idea.  It’s been around a while, but it has not caught on, probably because buyers don’t want to, and don’t have to, pay for services that have traditionally been paid for by someone else, i.e. the seller.  It’s like the attempt by the National Football League to put its games on pay-per-view: it’s going to be tough to convince millions of casual football fans to pay for something that they’ve always been able to get for free.

In a not necessarily unrelated development, I receive unsolicited bulk-mail letters or postcards almost every day from people who say they want to buy my house. That could be nothing more than an indication that once again, too many people are making speculative investments in residential real estate. On the other hand, it could be an indication of a shift away from the traditional commissioned salesperson structure of residential real estate sales, toward a lower-cost, lower-price model. It does seem like there is a trend toward treating houses as more of a fungible commodity.

In fact, if you look at the inroads that have been made by high-volume online sellers in the market for cars, it makes sense that the same trend could take hold in the market for houses. There is definitely a lot more price information available on the internet for both cars and houses than there was just a few years ago.

Rental housing is getting more commodified, too. Technology is changing how consumers find and acquire rental housing, just as it’s changing how homeowners and investors are buying and selling houses.

I’m not an expert on any of this. I’m just putting down on paper what I’m thinking about as I observe what’s going on. I guess we’ll see if there is a significant, long-term change in how houses are bought, sold, and rented.  I don’t think the typical arrangement will disappear overnight, but I could be wrong.

If you are thinking about buying or selling a house, townhouse, condominium, co-op apartment, or vacant lot (with or without a commissioned salesperson), and you need help with the contract, don’t understand the title report, or just need the process explained, I can help.


WHAT PAPERS SHOULD I HAVE AVAILABLE FOR MY ATTORNEY TO LOOK AT WHEN I AM ASKING FOR ADVICE ON A REAL ESTATE MATTER?

If it’s property you own:

  • your policy of title insurance
  • your deed
  • your most recent property tax bill
  • any written communication concerning the property

If it’s property you are intending to buy:

  • all marketing materials you received
  • the contract
  • the preliminary title report
  • any written communication concerning the property

It’s also a good idea to keep all those papers for as long as you own the property.


 

QUOTE OF THE MONTH JAN 24

Nathan B. Hannah is a Shareholder in the Tucson office, and practices in the areas of estate planning and administration, real estate, and commercial transactions.  He is also a noted blogger, and you can find more of his articles on his private blog,

Contact Attorney Hannah:   nhannah@dmyl.com  or  520/ 322-5000


This communication is designed to bring legal developments of interest to the attention of our clients and others. It should not be relied upon as a substitute for specific legal advice in a particular matter. For further information on any of the subjects discussed, or for legal advice in connection with any particular matter, please contact us.

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