In this new listing, Berkshire Hathaway agents are boldly offering no commission at all to the buyer-agents, and instead suggest that we take it up later – which leaves the amount uncertain, at least for now.
It has the potential to be anything from 3% to zero. Will it be a moving target?
I think there will be different trends for different areas, and the outcome will depend on how bold and brash each individual brokerage wants to conducts itself. The $10,000-commission brokerage in Silicon Valley is offering a downright insulting fee for high-end neighborhoods ($4 million and up), and I wish they would just do zero/negotiable. But they have enough market share that they will get away with it.
If this is company-wide among Berkshire Hathaway agents, it will hurry up the overall transition, that’s for sure. Every buyer-agent will need a written employment contract with their buyers immediately.
Weren’t we going to work this out slowly over the next few months? Guess not! đ
From the CEO of a large Sotheby’s brokerage based in Florida:
Last week the National Association of Realtors announced a settlement agreement in the Sitzer Burnett case that would take effect in July. For those who missed the declarations in the media that this outcome will render transacting real estate almost free, protect consumers, and make homeownership affordable once again, the settlement does none of that.
Hereâs the truth.
1. The settlement forces brokers to reduce their compensation. False.
The settlement in no way establishes a standard or limitation on Realtors for what they may charge, nor services they elect to deliver. Those fees have always been negotiable and there has never been any collective bargaining. In every market, there is a wide variety of fees, just as there are levels of marketing, service and competence.
2. The settlement will, for the first time, allow sellers to no longer pay compensation for an agent bringing the buyer. False.
There has never been an obligation for a seller to pay buyer agent compensation, yet it is a practice thatâs worked well. A past rule requiring an offer of some amount of compensation was a rule of display on a Realtor-owned MLS, yet it could have been as low as $1. That limitation was removed and today the MLS accepts all listings, regardless of buyer agent consideration.
3. The settlement prohibits sellers from paying a commission to a buyerâs agent and relieves sellers of the financial burden. False.
The mandate restricts properties with an offer of buyer agent compensation from displaying on association-owned MLS, yet the practice canât be restricted in any other form of marketing. Sellers may still elect to pay buyer agent compensation to differentiate their properties. While sellers can elect not to pay buyer agent compensation, that doesnât mean they will avoid the economics as buyers may write into any offer a contingency requiring the seller to cover the cost or request other concessions.
4. The settlement will serve to meaningfully lower prices and make homeownership affordable again. False.
Values in real estate are determined by supply and demand. Fees in a real estate transaction represent additional expenses, yet these include not only commissions but many other related charges. Should real estate commissions be reduced by 1% because of compression, that $500,000 home will now cost $495,000. Not only is the potential impact marginal at best, but do you think the seller now believes the home is worth less and will happily give the difference to the buyer? The reason home ownership is increasingly less affordable is that homes in our market have significantly risen in value these last few years.
5. The settlement is a win for buyers who will now be able to negotiate the fee for representation. Questionable.
For readers who have purchased homes, it is more than likely you were happy to have the seller compensate your agent so you didnât have to. For buyers who had to provide the down payment and closing expenses, having the commission paid by the seller and incorporated in the home price allowed them to finance the amount over time instead of coming up with additional cash at closing.
6. The settlement will result in significant restitution to consumers who were âharmedâ over recent years in their transactions by Realtors. False.
The settlement is huge, yet when one divides the amount by the number of potentially qualifying consumers it works out to about $10 per person. Those benefiting are the attorneys who have submitted a request to the court for over $80 million in fees.
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As a real estate professional for over 40 years, I have had the privilege of working with Realtors who represent the public in what is likely their largest investment. What I have witnessed are the countless situations where an agent has gone above and beyond to help buyers realize their dreams and sellers maximize their returns, often serving in ways far beyond their job description.
Everyone would like to see costs lowered yet I do not see the Department of Justice going after attorneys or other professions we wish would charge less. I always believed in the concept of free enterprise. If one is willing to assume the risk of running a business, one may do so at rates that allow a reasonable return for the capital investment and time. As my dad would say during his 60-year career, you wake up every day unemployed and have to find a job. Then you spend out of pocket and donât make a cent unless you achieve someone elseâs goals.
The brokerage community has always adapted to best represent buyers and sellers whenever there is a shift in the environment. And we will again. Yet when an industry I love is singled out and the justification is for false reasons, I will not be quiet.
Nobody was overcharged, but the media will feed the hysteria for another week or two with baseless claims and lies just to attract more eyeballs! Meanwhile, buyers are hurrying up their quest to buy a home before they have to pay their agent’s commission!
I haven’t seen any evidence that paying 3% or higher commission to the buyer’s agent would result in a higher sales price. But those homes offering 2% or less commission usually sell for less, though that is mostly due to an overall weak listing agent, not solely because of the rate.
The conspiring events – softer market, fewer and less-experienced agents, and lower commissions – are all leading us to the same place:
The destruction of the traditional model of residential real estate sales will be triumphed by the unknowing, but it will be the worst thing to ever happen for consumers because agents will be so tempted to tilt the table.
The only savior will be the company that brings home auctions to the masses.
Oh, you’re going to get lower commissions alright – on the backs of the buyer-agents.
The last time I checked a couple of months ago, there were 30% of the monthly closed sales that offered a buyer-agent commisssion under 2.5 percent. Of the 92 closings so far this month, 25% of them were under 2.5% – and those were determined before the NAR debacle.
The listing agent determines how much the buyer-agent gets paid.
Not the seller, not NAR, not the attorneys – it is the listing agent who decides the commission rate to offer the buyer-agents. It makes for an easy solution. Want a lower overall commission rate? Just take it off the amount paid to the buyer-agent. What’s worse is the MLS rule that buyer-agents are not allowed to negotiate the rate – hopefully that will go away now.
Listing agents aren’t lowering their commission rate – they are taking the same or more than ever, and paying less to the buyer-agents. They are under-appreciating the amount of work it takes to conclude a successful buyer-side transaction (usually 3-6 months of frustration and losing).
If the listing agent has superior skills that result in a higher sales price and a smooth transaction, then no one will mind them getting paid accordingly, but their success is also at least partially due to the buyer-agent doing his job well. The good buyer-agents shouldn’t be penalized, and ideally, there would be a sliding scale based on performance.
But because everyone will be hearing that commissions are negotiable (for the first time, says Biden), the listing agents who feel the need to agree to a lower rate with their sellers will just subtract the same discount from the buyer-agent side. But is that in the best interest of the seller?
This practice will expedite the demise of the buyer-agent.
Every realtor-related entity is scrambling right now to train agents how to get their buyers to agree to a contractual relationship where the buyer pays the buyer-agent commission.
It would all be well and good – and be similar to the listing agreement we have with sellers – if it weren’t for the paragraph in red above that allows for cancellation by either party. Even if the parties agree to Exclusive Representation, the buyer can still cancel with a 30-day notice (in C1ii). Both boxes on the left need to be checked to eliminate the option to cancel.
The big problem is that listing agents will be advertising to buyers to come direct to them to buy their listing and not pay ANY commission.
Will agents be able to convince buyers to sign the Exclusive Representation with no cancellation? Or will it be a happy compromise just to agree to representation that they can cancel at any time. Yes, the happy compromise will be preferred, mostly because it is so clearly laid out on the form.
But it means that the minute the buyers see a hot new listing advertised as No-Fee-If-You-Come-to-Me, they will cancel their existing buyer-broker agreement and go direct to the listing agent.
Buyer frustration builds quickly even if you have a great buyer-agent because the good deals or cool houses are competitive and almost all picky buyers will lose a few bidding wars before they win one. Buyers don’t like losing houses they had their heart set on winning, and the temptation to go direct to the listing agent – especially when you can save the fee – will be very high.
I’m guessing this will all blow over in a few months because listing agents will be advertising to buyers directly – leading with the No-Fee-If-You-Come-to-Me mantra – and it will expedite the industry’s transition to single agency, and eliminate buyer-agents altogether.
The reporting on the NAR settlement seems to be focused on creating hysteria, rather than finding the truth. Realtors commissions have always been a juicy topic, and the media is intent on using this opportunity to fabricate wild and salacious stories to attract the maximum number of eyeballs.
The hysteria may just be beginning, however. The NAR settlement included penalties for every brokerage that sells more than $2 billion in volume per year. For Compass, the top brokerage in the country for total volume, it means imposing a fine of $500 million without consulting with Compass management, let alone negotiating. The NAR doesn’t have the authority to speak for us, or commit us to any penalty so who knows what they were thinking but it guarantees the end of NAR – why would any brokerage want to be associated with such bums?
Those fines will get litigated and drawn out for years. The requirement to remove the commission rate in the MLS will start in July, but listing agents can advertise the amount of buyer-agent commission everywhere else. We will hear more about the buyer-agent commission than ever before – and steering done by both buyer-agents and buyers themselves. Buyers will prefer the listings that pay more commission, so they pay less. So much for fixing the concerns about steering!
As realtor-panic goes, the beginning of Covid was much worse – we didn’t think we’d sell a house for months! Those who panic about this hiccup are the realtors who don’t have much to offer – those who aren’t real salespeople. Nobody will mind seeing them either get better, or get out of the business.
But houses will keep selling at a brisk pace regardless of commissions.
This will blow over in a few months.
My previous post mentioned the need for getting good help. Getting cheap help will probably be tempting until people get a feel for the difficulty of what it’s like:
We made a clean, full-price offer. Three days later, still no answer.
We made an offer on a Friday that was $50,000 under list on a 2-br house in original condition. The sellers decided to take their chances with open houses (in search of two in the bush) over the weekend, instead of responding. We attend, and the listing agent isn’t doing the open house; there is a trainee there instead. We look harder to find something better, and succeed. By Monday, the listing agent wants to re-engage, and by Wednesday she begs me to get back in the game. They receive another offer, but it’s $100,000 under list. We moved on.
I’ve had several solid buyers attend open houses in the last year – people I’ve talked to who sure gave me the feeling that they liked the home so much that they were going to make an offer. But then when I follow up with their agents – who usually don’t accompany – they can’t close the deal. It makes me want to sell my listing to their buyer and just send them a check in the mail.
Multiple offers – what do you do? I lost another one where we offered the exact same price ($100,000 over list), and the listing agent seller picked the one with the bigger down payment, instead of letting the buyers decide it. Don’t you think there might be some gas left in the tank? Like $25,000 to $50,000?
You get an offer while off-market. Then what?
When does a seller lower their price? Or not?
Buyers and sellers typically have little experience in fixing things – especially the big stuff – and agents aren’t much better. So instead, a proper discount is attempted, but sellers always think in pennies, and buyers think in thousands. With little or no buyer representation, how are those going to get handled? They’re not, and more deals will die. This is a problem on virtually every sale.
Inexperienced people tend to over-react, and any bump in the road could be a deal-killer.
How much should buyers offer? Most agents respond with, “Well, that’s up to you”.
What is the real value of the property? Once a home is on the open market, Zillow and Redfin adjust their estimates to within a buck or two of the list price, so sellers, buyers, and agents must each determine the value themselves. How good are they at determining the value? How much variance is acceptable? Virtually nobody knows, and unless there is a good agent involved, more deals that are 1% to 2% apart will die an unnecessary death.
How do you know when you’re talking to the wrong agent?
Their only line is “Let me know if you have any questions”.
Good salespeople ask the questions, and then offer opinions and advice!
The commission lawsuits are the best thing to ever happen for my slogan! Get Good Help!
Everyone seems to have a take on the commission lawsuits. This is one of the best:
A way to implement an instant solution within the existing framework is to require that realtors possess a broker’s license, which takes a minimum of two years experience (or a four-year degree with a major/minor in real estate), plus passing EIGHT college-level courses.
Getting a salesperson license only requires a passing score of 70% on a 150-question multiple-choice test after talking a couple of classes. Once licensed, the office trainings are thin and too basic in nature, which unfortunately forces new agents to learn the trade on the backs of their first 100 clients or so.
The commission lawsuits may expedite the retirements of a million realtors, but they aren’t going to solve the problem – convincing the public that they should Get Good Help! Instead, the lawsuits will just keep everyone talking about the same old thing, with no advancement of what’s really best for the consumer.
Ryan tries to make the same point here, and look how fast it deteriorates:
What a headline! Nowhere in this article does it say that NAR is slashing commissions or that any agents – the people who determine the commissions – have agreed to slash the commissions. The weak, spineless agents who have nothing else to offer will gladly agree to work for less because to them, it beats not working – but consumers suffer when they hire a weak agent.
Nothing will change until consumers realize that the key is to GET GOOD HELP!
There will be only one result from these commission lawsuits. The buyer-agent will be eliminated in the name of ‘saving money’, and home buyers will be forever harmed by not getting any, let alone adequate, representation.
Nobody from the industry is quoted in the article, and they published the most outrageous quotes they could find.
Excerpts:
Housing experts said the deal, and the expected savings for homeowners, could trigger one of the most significant jolts in the U.S. housing market in 100 years. âThis will blow up the market and would force a new business model,â said Norm Miller, a professor emeritus of real estate at the University of San Diego.
The lawsuits argued that N.A.R., and brokerages who required their agents to be members of N.A.R., had violated antitrust laws by mandating that the sellerâs agent make an offer of payment to the buyerâs agent, and setting rules that led to an industrywide standard commission. Without that rate essentially guaranteed, agents will now most likely have to lower their commissions as they compete for business.
Economists estimate that commissions could now be reduced by 30 percent, driving down home prices across the board. The opening of a free market for Realtor compensation could mirror the shake-up that occurred in the travel industry with the emergence of online broker sites such as Expedia and Kayak.
âThe forces of competition will be let loose,â said Benjamin Brown, co-chairman of the antitrust practice at Cohen Milstein and one of the lawyers who hammered out the settlement. âYouâll see some new pricing models, and some new and creative ways to provide services to home buyers. Itâll be a really exciting time for the industry.â
Under the settlement, tens of millions of home sellers will likely be eligible to receive a small piece of a consolidated class-action payout.
The legal loss struck a blow to the power wielded by the organization, which has long been considered untouchable, insulated by its influence. Founded in 1908, N.A.R. has more than $1 billion in assets, 1.3 million members and a political action committee that pours millions into the coffers of candidates across the political spectrum.
The antitrust division of the Department of Justice is continuing its investigation of N.A.R.âs practices, including the organizationâs oversight of databases for home listings, called multiple listing sites or the M.L.S. The sites are owned and operated by N.A.R.âs local affiliates. For decades, the Justice Department has questioned whether these databases stifle competition and whether some N.A.R. rules foster price-fixing on commissions.
Some experts said the shift on commission structure, and the billions of dollars that would flow into the housing market as a result, could spark a recovery in the housing market, going so far as to say that it could be as significant as the 1930s New Deal, a flurry of legislation and executive orders signed by President Franklin D. Roosevelt designed to stabilize and rebuild the nationâs economic recovery following the Great Depression.
âThis will be a really fundamental shift in how Americans buy, search for, and purchase and sell their housing. It will absolutely transform the real estate industry,â said Max Besbris, an associate professor of sociology at the University of Wisconsin-Madison and the author of âUpsold,â a book exploring the link between housing prices and the real estate business. âIt will prompt one of the biggest transformations to the housing market since New Deal-era regulations were put in place.â
Despite N.A.R.âs turbulence over the last several months, however, there was one constant: their insistence that the lawsuits were flawed and they intended to appeal. With Fridayâs settlement agreement, N.A.R. gave up the fight.
The settlement includes many significant rule changes. It bans N.A.R. from establishing any sort of rules that would allow a sellerâs agent to set compensation for a buyerâs agent, a practice that critics say has long led to âsteering,â in which buyersâ agents direct their clients to pricier homes in a bid to collect a bigger commission check.
And on the online databases used to buy and sell homes, the M.L.S., the settlement requires that any fields displaying broker compensation be eliminated entirely. It also places a blanket ban on the longtime requirement that agents subscribe to multiple listing services in the first place in order to offer or accept compensation for their work.
âThe reset button on the sale of homes was hit today,â said Michael Ketchmark, the Kansas City lawyer who represented the home sellers in the main lawsuit. âAnyone who owns a home or dreams of owning one will benefit tremendously from this settlement.â
From the NAR President:
NAR has agreed to put in place a new rule prohibiting offers of compensation on the MLS. Offers of compensation could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. And sellers can offer buyer concessions on an MLS (for exampleâconcessions for buyer closing costs). This change will go into effect in mid-July 2024.
It’s been obvious that the entire real-estate-selling business has been deteriorating towards single agency. I see it every day on the street, and I’ve posted evidence of the shift regularly.
The trend is moving quickly now on multiple fronts.
The DOJ is going to decouple commissions, which will prohibit sellers from offering to pay the buyer’s agent. The buyers can include it in their offer, but it likely won’t get that far. The buyer-agents who are left will want a written agreement to get paid by the buyer if the seller won’t pay. How many agents will be able to demonstrate why they are worth it? Not many, but maybe the buyers won’t ask too many questions.
Homes.com is spending millions and billions on advertising their website to compete with Zillow. Their twist? They funnel all the leads back to the listing agent, instead of farming them out to the highest bidders like Zillow does. I’ve been called by several phone jockeys from Homes.com to sign up for their enhanced listing packages, and I’ll sign up. Robert Reffkin responded positively to the Homes.com program, and you can see how Gary Keller feels about it above.
Agents are giving up on representing buyers because it’s too hard and doesn’t pay enough. Most of the unsold listings are grossly over-priced and the occasional deal gets multiple offers within minutes. Agents have to spend months or years working with their buyers before they get lucky, only to then get a reduced commission from the listing agent. Now I have to convince the buyer to pay the commission too? Great, thanks.
Listing agents are advertising for buyers to avoid paying the buyer’s-agent commission by coming directly to the listing agent instead. Realtor cannibalization is what we deserve. (link)
This house priced at $1,985,000 in Rancho Penasquitos received 15 offers and likely sold for 15% to 20% over list (an offer that was 12% over with free rentback wasn’t enough).
I remember when $2,000,000 got you a decent house in Carlsbad!
