You have undoubtedly heard the news about the "new compensation rules for Realtors." With all the buzz and media coverage, it's natural to wonder how these changes might affect you—whether you're considering buying or selling a home in Whatcom County.

As someone who has been deeply involved in our local real estate market for the past 18 years, I want to offer some clarity.

In this article, I'll explain what these new rules actually entail and how they differ from our current practices under the Northwest Multiple Listing Service (NWMLS).

We'll explore what this means for homebuyers and sellers in our community, delving into topics like buyer broker compensation and the new requirements for written agreements.

My aim is to demystify these changes and provide you with straightforward information.

Understanding the nuances can help you make informed decisions and navigate the real estate process with confidence. So, let's dive in and see what these "new" rules really mean for all of us here in Whatcom County.

1. Please explain the new law regarding Realtor fees that went into effect on Saturday, Aug. 17. How will this affect homebuyers in Whatcom County? How will this impact real estate commissions?

The changes that took effect on August 17, 2024, are not new laws but new rules implemented by the National Association of Realtors (NAR) as part of a settlement agreement in a national class-action lawsuit.

These new NAR rules require all members of its affiliated Multiple Listing Services (MLS) across the country to follow two specific guidelines. Importantly, this does not include the Northwest Multiple Listing Service (NWMLS), which covers all of Whatcom County and most of Washington State, for reasons I'll explain.

The two new rules are:

1. Compensation Disclosure: A property listing cannot display an offer of buyer broker compensation offered by a seller, even if it is zero dollars. Instead, a buyer's broker must contact the listing broker to inquire if there is seller-paid compensation included in the price.

2. Buyer Service Agreement: Buyers must sign a service and compensation agreement with their brokers before beginning the search for a home.

However, these rules don't represent a significant shift for brokers in Whatcom County who are part of the NWMLS. The NWMLS is not affiliated with the NAR; it's owned by its member firms.

The leadership at NWMLS disagreed with concealing seller-paid offers of compensation to buyer brokers and had already begun requiring a buyer broker services agreement. Therefore, they opted out of adopting the new NAR rules altogether.

Back in 2019, the NWMLS proactively addressed these issues by decoupling the compensation of buyer brokers and listing brokers, no longer requiring sellers to offer buyer broker compensation.

This means that the new NAR rules about transparency in broker compensation aren't really new to us—they've been standard practice here for five years.

The key change that might feel new to brokers and clients in Whatcom County is the requirement for a signed Buyer Brokerage Services Agreement (BBSA) to be in place before a buyer broker provides any services, such as showing a property.

This requirement became law in Washington State on January 1, 2024, and is designed to formalize the relationship between buyers and their brokers, ensuring that compensation terms and other details of broker representation are clear and agreed upon upfront.

For homebuyers in Whatcom County, this means that before you tour any homes, you must sign a written agreement with your broker that outlines exactly how much they will be paid, usually as a percentage of the final purchase price.

This agreement ensures transparency and prevents any unexpected costs from arising later in the process.

This change will likely lead to more structured conversations between buyers and sellers about who pays the buyer's broker and how much.

Sellers still have the option to offer compensation to the buyer's broker, and it should be clear that the amount is negotiable.

A seller can choose to offer a specific amount, a specific percentage, invite the buyer to request compensation as part of their offer, or opt not to offer compensation at all.

This more formalized approach is designed to make the process clearer and more predictable for everyone involved.

2. How are you advising clients about the changes? What do you expect will happen with the housing market in Whatcom County in the coming months?

When working with buyer clients, I explain from our first conversation how I am paid, what percentage I charge, and that I am required by law to have a written agreement clarifying those terms.

I mention that my compensation is still usually—but not necessarily always—embedded in the price they pay for a home. (As of this writing, all 127 single-family listings in Bellingham offer seller-paid buyer broker compensation.)

I also explain that if we find a house they want to buy that does not include buyer broker compensation in the price, we'll need to add it on top of—or embed it into—their offer amount and then ask for it to be credited back by the seller.

One way or another, the buyer's broker needs to earn a paycheck, and in my 18 years of experience, buyers understand this.

Regarding sellers, I explain the same concept: there are embedded costs in the list price and ultimately the sale price of their home.

These include my fee (the listing broker compensation), excise tax, title insurance fees, and escrow service fees.

They have the option of offering buyer broker compensation, built into the price upfront and published on the NWMLS listing.

Most sellers I work with want to discuss what other sellers—the competition—are doing, whether they are still including compensation in their list prices, and if so, how much.

We discuss that while a seller can choose to offer no buyer broker compensation upfront, all buyers will have a legally required agreement with their broker before they are shown any houses.

Those agreements ensure the broker will earn a paycheck when the sale closes.

So, the compensation can be built in and offered upfront, or—unless the buyer is in a financial position to write the buyer's broker a check for their services—built in at the time of the offer.

Despite what some news outlets have portrayed, a seller doesn't generally just forego these embedded costs and pocket what has historically been the buyer broker's compensation.

As for the housing market in Whatcom County, I expect there will be a lot of questions and a period of adjustment as everyone gets used to these new rules.

Buyers might be more selective about the properties they tour and the brokers they work with, given the clarity around compensation.

Sellers might also rethink their strategies, possibly leading to more competitive pricing or creative incentives to attract buyers.

Overall, I believe these changes will encourage a more transparent and informed market, though it may take a few quarters for the dust to settle.

3. In your view, how will the NAR agreement impact the housing market in Bellingham? And home affordability in Whatcom County as a whole?

Unlike much of the rest of the country, the NAR settlement and agreement do not reinvent real estate industry practices in Bellingham or the rest of Whatcom County.

The NWMLS led the decoupling of buyer broker and listing broker compensation back in 2019 and has required the BBSA since January 1.

In Washington, the new BBSA law is a positive step toward increased clarity and transparency, ultimately leading to more informed decision-making by buyers and sellers.

In terms of home affordability, there might be a few cases where buyers in lower price ranges are adversely affected by the need to increase an offer amount to cover their buyer broker fee if a seller didn't include it upfront.

But in general, the housing affordability issues in Whatcom County exist for a long list of reasons that vastly outweigh broker compensation issues.

Key factors affecting housing affordability include:

• Supply Chain Disruptions: Shortages of affordable labor and building materials have driven up construction costs, reducing the number of homes being built.

• Prolonged Low Interest Rates: The Federal Reserve's extended low-interest rates during COVID-19 spurred demand, driving up home prices.

• In-Migration: Bellingham's lifestyle and climate attract new residents from many other areas, increasing demand and driving up prices.

• Limited Land Availability: Zoning restrictions and environmental protections limit the land available for new housing, pushing prices higher.

• Regulatory Hurdles: Strict and increasingly expensive building codes and permitting processes slow down and increase the cost of construction, contributing to the housing shortage and driving up prices.

• Property Tax and Insurance Increases: Year-over-year increases in taxes and insurance have reduced affordability for many buyers and existing homeowners alike.

• Median Income vs. Home Prices: The median household income in Bellingham is approximately $63,950, while the median home price is around $757,000. This significant gap makes homeownership increasingly unaffordable for many residents.

• Cost of Living Increases: Rising costs for essentials like groceries, utilities, and healthcare further strain household budgets, making it even harder to afford housing in Bellingham.

These factors all contribute to the ongoing affordability crisis in Bellingham, far more than the increased transparency and negotiation of real estate broker compensation amounts.

4. How could these changes transform the real estate industry?

The topic of broker compensation has become a more transparent, upfront part of the conversation with both buyers and sellers.

The hoped-for outcome is that it leads to greater understanding and higher standards of broker services.

We will likely see more tailored compensation models tied to customized service offerings, where brokers provide different levels of service depending on the client's needs and budget.

Additionally, the emphasis on transparency in the new written agreements should lead to a more competitive market, where brokers must differentiate themselves based on their total service offering to a client, rather than just the commission they charge.

This could also encourage innovation in how services are offered. How that looks, at this early stage, remains to be seen.

Overall, in Whatcom County and throughout the service area of the NWMLS, the NAR settlement primarily reinforces what we've already adopted and found to be industry best practices.

The recent news helps bring it to the greater attention of buyers and sellers and opens the door for a more transparent, efficient, and client-focused real estate industry.

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