Brokers relying on realtors as referral partners may have to change tack, suggests executive
A high-profile National Association of Realtors (NAR) class action settlement received court approval last week, bringing the curtain down on a protracted saga that brought about sweeping changes in how realtors are paid across the US.
The landmark decision rubber-stamps a $418 million payment over four years to a settlement fund and releases over 1.4 million NAR members, associations and brokerages from liability – but the impact of the new rules is set to reverberate around the real estate sector for a while yet.
Those changes mean the NAR has removed a standard 6% commission for realtors and requires them to enter directly into a contract with a buyer before being able to show them any properties.
For mortgage brokers and loan originators, the amendment could also mean a significantly reduced pool of realtor referral partners as professionals leave that space because of lower commissions, according to Amir Nurani (pictured top), broker-owner at Left Coast Leaders.
He told Mortgage Professional America the realtor profession was “100%” going to see an exodus in the coming years – not least because part-time real estate professionals will step away from their roles.
“There’s no doubt it’s going to happen. I say that with absolute certainty,” Nurani said. “The reason I say that is when you look at the data, when you look at the licensed realtors across the nation, the bottom 90% average less than one deal a year. That means real estate is not their primary profession.
“As the compensation goes down, it’s going to be harder and harder for people to make the job from going part-time real estate to full-time real estate… I think we’ll see heavy levels of attrition there.”
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— Mortgage Professional America Magazine (@MPAMagazineUS) December 3, 2024
Realtors already squeezed by new rules
A recent survey showed that real estate commissions have already been hit by the settlement, especially among younger realtors – and Nurani said mortgage brokers should be aware of the possibility of an acceleration of realtors away from the profession as that trend continues.
With realtor commission now visible on any given transaction, he noted that smaller fees are now evident in California compared with before the settlement. In the immediate aftermath of the agreement, he said its impacts would take time to cascade through the market – “and I think [we’re seeing] the early endings of that,” he said.
“I think it will settle at 1% to 1.25% on both sides of the transaction. The market’s always going to price in value: What is my realtor really doing? What’s the value of that specific service?”
How can mortgage brokers navigate the new normal in the real estate industry?
Brokers and LOs who still rely heavily on real estate agents to provide business may not be seeing the immediate effect of that movement yet, Nurani said. “But when you fast-forward to tomorrow, when these types of changes are still taking hold, those that are leaning on real estate relationships to generate business are going to slowly watch the production go down from that specific lead source.”
That means developing a direct-to-consumer model, rather than being overly reliant on referrals to drive business, could be a wise step amid shifting real estate dynamics. It’s a strategy that Nurani said is already well underway in the mortgage industry.
“I think that you’ll see a lot of loan originators and mortgage companies as a whole really transition into that specific type of model, a consumer-direct model,” he said.
“You’re seeing a lot of companies already trying to dominate that space, but they’re going to continue trying to do that because they’re going to have to in order to survive. The landscape is changing, and I think that if you’re a loan originator and you’re not focused on this, it’s going to be detrimental to your business.”
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