The landscape of real estate is on the verge of a major transformation. Gone are the days of "business as usual" for real estate agents, and loan officers (LOs) have a unique role to play in navigating these shifts.

In March, the National Association of Realtors (NAR) agreed to a monumental $418 million settlement following a lawsuit challenging agent compensation practices. The U.S. District Court for the Western District of Missouri approved the settlement in late April, marking the beginning of significant reforms aimed at reducing inflated housing prices.

Starting on August 17, 2024, these changes will take effect. Sellers and buyers will be required to disclose compensation, and offers from brokers to buyers in the MLS will be banned. As a result, real estate agents face a summer of uncertainty and a new reality.

This settlement empowers home sellers to negotiate commissions more effectively, potentially disrupting the standard 6% fee structure. This shift could significantly reduce agents' earnings and alter how broker fees are managed. Buyers may need to pay their brokers directly if they choose to work with one, and sellers will have the ability to shop around for better rates. Anticompetitive practices, such as forcing sellers' agents to determine compensation for buyers' agents, are now prohibited. Additionally, agents can no longer filter or limit listings based on compensation or the name of a brokerage or agent.

Navigating the Change

It's no surprise that some agents are feeling anxious about these impending changes. However, in every crisis lies an opportunity, as Debra Killian, director of mortgage education and training at CLOES.online, points out. Killian emphasizes that the settlement presents a chance to strengthen referral relationships. "There's always been an adversarial relationship between real estate agents and brokers," she notes. "Now, more than ever, LOs and agents need each other, and the tables have turned."

Killian sees sponsored training as a key area where LOs and real estate agents can collaborate. She offers a course that teaches MLOs how to provide continuing education (CE) to real estate agents. "Real estate agents are tired of hearing the same things—they're looking for good speakers and fresh content," she says. "In a rapidly changing industry, agents are seeking guidance as the settlement reshapes the landscape."

Having been an LO and a Certified Residential Mortgage Specialist (CRMS) since 1994, Killian anticipates some challenges. "I foresee dual licensing being proposed as a solution, but I expect pushback from originators," she says. "Representing both the buyer and seller simultaneously is difficult... Additionally, there may be tension between buyer’s and seller’s agents, as the assumption that buyer-agent commissions would be covered by the seller is no longer guaranteed."

Carl Lantz, a Coldwell Banker Realty agent in West Hartford, Conn., and the 2024 president of CT REALTORS, is concerned about how agents will prove their value without seeing buyer’s agent compensation listed in the MLS. "I don't think there will be a huge shift away from sellers offering compensation to buyer's agents, but we might see more instances of it," Lantz says. "Sellers have always had the option not to offer it, but if they don't, they limit their pool of buyers, especially since many buyers are strapped for cash."

This is where loan officers can play a crucial role. "On the lender side, it's important for originators to understand how buyers can incorporate these changes," Lantz says. "LOs need to be well-versed in their products and offer tailored advice to their buyers. Building strong relationships with realtors is more important now than ever."

Innovative Solutions for a Changing Market

Lantz chuckles at the idea of a "typical" 6% commission. "In my experience, it's more common to see 4.5%, maybe 5% if you're lucky," he says. "My business relies heavily on referrals. When I explain it to potential buyers, I tell them, 'When you need a heart transplant, you don't look for the cheapest surgeon. You look for the best one.' That's how I demonstrate my value to buyers."

He acknowledges that agents across the country may be worried about how to sustain their earnings post-settlement. Fortunately, there are solutions available.

InstaMortgage’s program, InstaOffers, provides homeowners with instant cash offer options through its marketing platform. InstaMortgage's founder and CEO, Shashank Shekhar, describes it as a solution for guaranteed leads. "The idea behind InstaOffers was to help agents get more listings," Shekhar says. "About 58-60% of sellers want cash offers, but less than 5% actually sell for cash. InstaMortgage partners with a company to facilitate these transactions, providing sellers with offers in seconds, all powered by AI."

Initially, InstaOffers was intended for marketing, but Shekhar realized it also empowers buyers and listing agents. "Sellers are also buyers, and each listing generates buyer leads," he explains.

Brian Rogerson, president and CEO of Wallick & Volk, proposes cash programs as a solution during the NAR shakeup. One of Wallick & Volk’s initiatives, "Cash-to-Win," helps qualified borrowers compete with cash buyers. "This program turns prequalified buyers into cash buyers, leveling the playing field in a competitive market," Rogerson explains. "Wallick & Volk steps in to make cash offers on behalf of customers, securing properties quickly without the usual mortgage and appraisal processes, resulting in faster closings and immediate payment of the real estate commission."

Originally designed to address the challenge of cash competitors, the Cash-to-Win program has uncovered even more opportunities. "Cash offers not only provide a discount for consumers but also make transactions more appealing to sellers by closing deals within 10-14 days and avoiding contingencies," Rogerson adds. "We can purchase properties at a cash discount and pay the agent's fee by incorporating it into the purchase price, rather than forcing the buyer to come up with the commission cash if the other side doesn't pay."

Emphasizing Value

Converting leads into buyers is another challenge in this evolving market. Scott Nicholson, a mortgage advisor with NEO Home Loans, has developed a platform called Lender Marketing Platform (LMP) to address gaps in the industry. "LMP allows LOs to create a digital canvas for public or private content," Nicholson explains. "It's essentially presentation software that can also be positioned to help agents. Many agents are unprepared to discuss 'what-ifs' with customers, like when a seller isn't covering the commission. LMP can help create presentations for both LOs and buyer’s agents to use with customers."

Nicholson stresses the importance of presenting value to customers. "A buyer’s agent needs to articulate their value proposition to stay relevant—something they've never had to do before," he says. "Customers are bound to be confused."

This is where LOs can step in to assist. By helping buyer’s agents explain options to consumers, LOs can strengthen their position as thought leaders. "LOs and agents can collaborate to develop solutions, such as cash, financing the commission in the loan, or altering the price to cover the commission," Nicholson says. "The old methods—like calling a listing agent or sending an email with options—won't cut it anymore."

Using LMP not only serves as an educational resource but also boosts confidence for both agents and LOs. "Getting a buyer-broker agreement signed upfront is crucial. If you have to articulate how you're going to get paid, you'll face tough questions," Nicholson remarks. "If you can't answer those questions, you won't get that agreement signed, period."

As the real estate industry braces for these significant changes, LOs and agents must adapt, innovate, and work together to thrive in this new era.

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