Lots of folks in the residential real estate business had August 17, 2024, circled on their calendars.[1] That was the day that the Burnett NAR settlement was set to go into effect. Among other things, the settlement prohibits Realtors from tying seller agent access to multiple listing services to a requirement to share commissions with buyer agents.
To many in the industry, August 17 was going to be the Apocalypse: the day the whole world stopped rotating. Buyer brokers wouldn’t know if they were going to get paid and sell side agents worried that their houses would not get shown if other agents were at risk of not getting paid. It would shut down the whole real estate market. Bill Murray’s Venkman (in the first Ghostbuster movie) captured this ethos, “Human sacrifice. Cats and dogs living together. Mass hysteria!”.
Instead, it was mostly a big (vegan?) nothingburger (just like Y2k[2]). That isn’t to say that there aren’t real changes happening in the market[3], but, as predicted by Sharran Srivatsaa, President of Real Brokerage, Realtors will find other routes to drive from Laguna Beach to LA.
Let me give you some advice
Despite it not being Armageddon, I still have thoughts to share. Now, I’m in the business of giving advice to others about how to do their business. Of course, I’m a professional (back off man, I'm a scientist!) and I have a license to get paid to do that with legal advice, but, as every child or parent knows, lots of people like to give advice. But, you don’t need a license to give (or take) advice, so sometimes folks get over their skis in an effort to sound knowledgeable or helpful when they are really out of school. Sidetrack appropos only of the reference to skis, here's a link to a classic SNL Bill Murray lounge singer skit that I still find hysterical.
Anyway, earlier this month, at a mortgage industry conference in California, Rob Chrisman and I were scheduled to speak about what to expect with the changes arising from the NAR settlement. Notwithstanding that topical heading, despite my license to provide legal advice and Rob’s superior market knowledge, both of us refrained from making many predictions and urged the audience to (sympathetically) enable their Realtors to figure it out themselves. Video from that event confirms our "wise" counsel.[4]Still, many of that mortgage conference’s participants expressed concern that their Realtor referral sources were depending on them (the mortgage professionals) to help navigate the NAR settlement(s) and new environment.[5]
Stay in your lane bro’
Historically, mortgage lenders have been a rich source of advice for their realtor referral sources. Lenders are also quite accustomed to trying to solve problems for Realtors to further a loyal relationship.[6] As regulations have made the home purchase transaction more and more complicated, it has consistently been the lenders (and occasionally title providers) who have shouldered the burden of adapting, training and explaining how things will need to get done to their Realtor business sources.
But this time is different. Beyond sharing that the lending guidelines from the GSEs, HUD and VA allow reasonable flexibility in who pays Realtor commissions, lenders shouldn’t get engaged in telling Realtors how to (i) get paid by their customers, (ii) what to disclose about their relationships with clients, or (iii) how thier clients (or borrowers) should structure thier purchase and sale agreements. It is flat out unwise, dangerous and, dare I say, unprofessional to tell another professional how to do their job and liability for borrower contracts is something every lender should seek.to avoid. While lenders may need to obtain copies of buyer broker agreements and disclosures to support loan underwriting and disclosure obligations, it is not the lender's job to draft, police or enforce any contracts other than loan documents.
In particular, lenders need to be careful not to provide legal or compliance advice to Realtors, because Realtors need to get their own advice about this stuff. Putting the shoe on the other foot with an example, no mortgage originator in their right mind should expect sound compliance and business tips from a Realtor on how to deal with the anti-competitive regulatory nightmare that is the LO Compensation Rule. So, I’d stay in your lane on this one and let the Realtors solve for themselves how they want to do business in light of the settlement’s changes. The same is true for homebuyers and thier contracts.
Conflicts and compliments
Reality can be messy, but lenders need to be clear about thier role. So, for example, if a referred client about to sign a purchase agreement asks a loan officer, “Is this buyer broker agreement a good deal?" The loan officer must be adamantly clear that is between the agent and the customer (and thier attorney), but, as noted by one mortgage company CEO, a bland statement by the loan officer, such as “commissions are negotiable” can cause a relationship disruption between the referral source and the loan officer. That said, there is nothing wrong with providing insights to a consumer about what is common in the market and to compliment a referral source's value and competence (if true).
Class dismissed
Of course, many of the changes to the marketplace arising from the NAR settlement(s) are ongoing and may differ by region or from agent to agent or brokerage to brokerage. Lenders may have to learn to accommodate many different real estate brokerage models and fee arrangements as we move forward. “Mass hysteria”, however, does not appear to be on the agenda (at least over this issue). For that reason and because it’s the last vestiges of summer up here in the upper Midwest on the cusp of a long weekend, I’m going to cut this Musing shorter than normal.[7]
[1] In his August 17, 2024, Daily Commentary Rob Chrisman soothed his worried readers by quoting from the musical “Annie”. Said Chrisman, “The sun will come up tomorrow. Should lenders provide more help to real estate agents than they did for us during the development of the CFPB, TRID, the new 1003, and LO comp changes? Perhaps. But lenders should not provide legal advice to any real estate agents!” Damn you, Rob Chrisman! You summarized this whole Musing in a couple sentences. Maybe I’ll have to learn to tweet (X?) my thoughts instead of this long form writing style.
[2] If you don’t know what Y2K is all about, congratulations, you are under 30 years of age and missed preparation for the greatest let down in risk management history.
[3]Reports have indicated, however, that commission rate compression is occurring.
[4] Sorry for that Rickrolling. But it proves I’m so hip on use of video. Also, the rest of this edition will be “very demurre and very mindful”. But I won’t own any trademarks from that. Shout out to my son Danny for the more recent viral mention since Rickrolling is like 15 years old. Also, rumor has it that one of the blond dancers in the Rick Astley video was my friend Pete’s wife Kim. It isn’t Kim, but she’s a darn good look-alike.😊
[5]Some Realtors apparently thought their mortgage partners will need to figure out how to pay buyers brokers directly. Ahem, RESPA training anyone?
[6]That’s a much better narrative for RESPA compliance than providing information that could be a “thing of value”.
[7]Please send all complaints and subscription refund requests to Robbie Chrisman.
Brian Levy is an attorney with Katten & Temple, LLP licensed in Illinois and Wisconsin who writes the free Levy’s Mortgage Musings blog available at www.mortgagemusings.com. Mr. Levy can be reached by email at blevy@kattentemple.com. Mr. Levy’s blog is copyrighted and presented by Chrisman Commentary with permission. All rights are reserved.