Numerous changes are forthcoming in the real estate industry, and we’ll be exploring all of them in detail in upcoming blogs…please stay tuned!
Last Man Standing
The Sitzer/Burnett vs NAR Lawsuit has one remaining defendant, Home Services of America, the parent company of Berkshire Hathaway Real Estate Services. On Monday, March 18th, 2023 the plaintiffs filed a request asking for a final judgment of more than 4.7 billion to be paid by Home Services of America. This figure includes the tripling of damages and all interest deemed due and payable. This has no bearing on the latest lawsuit towards Berkshire Hathaway Energy, alleging its complicity in a scheme to keep real estate commissions at inflated levels.
NAR Settlement Bombshell
The 418 million dollar settlement with the National Association of Realtors (NAR) is truly a game changer when it comes to the cost of commissions, disclosure, ethics, integrity, and who is responsible for payment thereof. The industry is currently awaiting the final approval of a judge and clarification of updated regulations, with implementation in mid-July. For those of you wondering why the NAR chose to settle after implying they would fight all the way to the Supreme Court, the answer is money. Insurance policies have a cap, and when that money runs out, the NAR and various state and local organizations are obligated to pay legal fees directly. The cost of settling was significantly more cost-effective than the expense of the full fight. We’ve covered additional information regarding the DOJ, lawsuits and potential ramifications in previous posts.
Key Points:
- Cost of the Settlement Payment: The NAR agrees to pay $418 million over a period of four years at a cost of approximately $65/member per year. It is anticipated the increase will be reflected in membership dues which are paid on an annual basis.
- Discontinuation of Posting Commissions in the Multiple Listing Service (MLS): The NAR will implement a rule prohibiting offers of compensation to be displayed on the MLS. This does not prohibit commission offerings. Compensation (if offered) will have to be disclosed via other channels.
- Written Buyer Agency Agreements: MLS Members working with buyers will be required to enter into written representation agreements with their buyers.
- Blanket Ban on Compensation Requirements in MLS: Members of any MLS will no longer be required to offer or accept compensation for their work.
Impact on Home Buyers:
- Buyer(s) will determine what, if any compensation they will pay to their Buyer Brokerage and terms/timelines of services associated therewith.
- Many loan products allow for additional expenses to be incorporated therein as long as it complies with the Loan to Value Ratio (LTV). Currently, Conventional Products allow for a 102% LTV whereas FHA remains at 100% LTV.
- Some Loan programs may require modification to ensure the Buyer can incorporate Buyer Brokerage compensation into the loan product. Veteran Administration (VA) loans DO NOT allow Buyer Brokerage Compensation to be incorporated into the loan product at all! A VA Buyer will have to pay any Buyer Brokerage compensation out of pocket.
Home Buyers Exposed to Significant Risk: Elimination of Title Insurance on Government Backed Loans
Knowing the risks associated with Attorney Opinion Letters, the Biden administration has embraced a “no clean title, no problem” approach to save Buyers a mere pittance of money to make it appear they are doing more to help the housing industry. This is a win-win for lenders as the government insures the lender for FHA and VA loans at the expense of tax payers, and is very risky for the Buyer who will not benefit from the protection of an adequate title insurance policy.
The vast majority of computerized title searches are facilitated in foreign countries rather than by professional title searchers based in the county courthouse where the property is located. I can’t even begin to count the times I have personally found inaccurate data displayed on multiple county websites over the years, and foreign searchers who are paid a minimal fee to process a search are not trained to look for any red flags per se.
Buyer Beware
The Buyer/Owner of the property will be responsible for securing a release of any lien(s) that have been missed and for paying off the missed lien if it’s called due and payable, or at the time the real estate is re-sold if they are unable to seek legal recourse against the Attorney that wrote the attorney opinion letter.
While certain title policies offer significant protection to the Buyer, the Buyer has NO RECOURSE if the Attorney who facilitated the AOL based upon the lien search and missed something files for bankruptcy or passes away.
Buyer(s) need to facilitate their own research and understand they have the right to negotiate the purchase of an Owner’s Title Insurance Policy into the purchase agreement as well as terms associated with payment thereof. Title companies have modified their policies to allow issuance after facilitating a 40-year lien search rather than searching the entire chain of title—likely due to the fact that many courthouses have only computerized the minimum required years of searches into their databases, and the cheaper fees charged by search companies located overseas.
It is important for every Buyer to research the various title insurance policies available and determine which one best suits their needs. For properties situated in rural areas, the less expensive standard ALTA policy may be appropriate, whereas Buyers of properties in certain subdivisions may be have additional protection by purchasing the enhanced, more expensive policies. Buyers can also pay for a professional search of the full chain of title if they are interested in the entire history of the land on which the property is situated, or if they simply prefer to have the additional security of knowing there is a more extensive and thorough lien search facilitated on the property.
Numerous Banks in Dire Need of a Lifeline as the Commercial Real Estate Industry Tumbles
Hundreds of major and regional banks with a significant commercial real estate portfolio and extensive unrealized losses from low interest bonds, are experiencing dangerous financial stress cracks as a result of 11 interest rate hikes. This coupled with the ongoing mass exodus of utilization of commercial office space with millions of employees opting to work remotely, has banking executives scrambling to secure additional revenue to avoid the need of merging with other, more stable banking institutions.
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