The squeeze is coming from several directions, and all are rooted in the fact that there isn’t enough business to go around. Thankfully, half of the realtors are of retirement age, and will drift away naturally.
The pending class-action lawsuits will likely de-couple the commissions, and sellers won’t be paying a bounty to buyer-agents like they have since the beginning of time. Agents who can justify their value and services can always contract with buyers, and we’ll see where that goes. But it won’t go very far.
There are also forces within the industry that are deliberately putting the squeeze on. Opendoor has developed a nice little package of exclusive listings presented to buyers at a 2% savings if they don’t mind just placing their order online:
Because the people who put this together have never been realtors, it never occurs to them that paying a buyer’s agent has value. Homebuyers who get good help are going to feel more comfortable paying more the home, and conversely, with no help, they will want to pay less to compensate.
Is the tease of a 2% discount enough? We will see. But it’s another example of the pressure to squeeze out the buyer-agents, and Opendoor thinks they are passing the savings along to the buyers. But does any seller want to have buyers floating around, hoping to figure out the buying details on their own and cope with buyer’s remorse? No! It’s why the I-Pay-One companies never last because they don’t get it – buyers need and want help.
Instead, what has developed during a raging seller’s market is the thought that eliminating buyer-agents is a good thing. The message is clear – we don’t respect what you do, we don’t think we need you, and we don’t care what you think about it.
Redfin has no respect either.
On homes that they own – and can pay any rate – they are down to 1.75%:
They are giving buyer-agents the double middle-finger salute, and they don’t care what you think about it. Another option would be for them to pay a healthy commission and earn some respect for themselves, but that doesn’t occur to them either.
It would be worth it to champion the value that buyer-agents bring to the table, but nobody appears interested in that angle. Instead, they think the cost-cutting somehow justifies it, without considering – if it results in buyers paying less, then did you get anywhere?
I picked a great day to start the mortgage-rate tracker in the right-hand column! >>>>
Mortgage rates haven’t been in the 6% range since 2008:
How many agents have operated in a 6% environment? It will be less than half of the active agents today. To check, their license number would have to be around 01850000 or lower (real estate license numbers in California are sequential).
Wondering how to cope? Here are my tips:
Sellers – Offer to Pay Points. Even if the buyer won’t use your lender, offer to pay 1%-2% of the loan amount to buydown their interest rate. If their lender keeps the money instead of giving a lower rate, well then, heck, at least you tried. But the buyers should appreciate the effort, and two points should reduce the rate by at least 1/4%.
Sellers – Carry the Financing. If the seller carries all or part of the financing at a reasonable rate, it will help the buyers. Plus, sellers only pay capital-gains taxes on the money you receive, so you’ll get a break there. The big bonus will be if the buyer stops paying – you’ll get your house back too!
Buyers – Get a Short-Term Mortgage. We call them ARMs, or adjustable-rate mortgages which sounds scary after the neg-am debacle last time. But they offer a fixed-rate for the initial term – just get a seven-year or ten-year loan and refinance once we go into recession and the Feb has to back off again (because they owe $30 trillion themselves, it will probably happen sooner than later).
While the impact on the buyers’ monthly payments is real, it’s the market psychology that will make it worse. Buyers will be expecting lower prices, so instead, consider one of my tips above as an alternative.
Previously I said that buyer-agents are getting cut out of the action.
There are so many reasons why:
Commissions are grinding down. Buyer-agents have to sell more, to make the same $$.
Working at higher price-points requires advanced skills. Can agents improve?
Are you good enough to convince the buyer to pay your fee? It’s coming.
Fewer listings will be exposed to the buyer-agents, and to the public.
Smart sellers who offer a bounty, or reward, to agents will attract the most eyeballs, buyers, and offers. It is a system, powered by the MLS, that has worked well for decades. But it is coming to an end, sadly.
The pending lawsuits against NAR and major brokerages will likely cause the de-coupling of the commissions, and sellers won’t be able to offer a bounty (commission) to buyer-agents.
But buyer-agent commissions have already been dropping over the last two years, in part because the listing-agent teams don’t respect or care about outside buyer agents. During the frenzy, the listings sold themselves, so why not just keep most of the commission? Or all of it?
What will happen post-frenzy?
The frenzy conditions that pushed prices much higher have devastated the move-up/move-down market. Homeowners love living here, and if they have to leave town to make selling their home worth it, they aren’t as interested.
As a result, it looks like the amount of listings will keep dropping:
Detached-Home Listings between La Jolla and Carlsbad
Year
Total Number of Listings, Jan-May
Total Number of Listings, May
2017
2,287
507
2018
2,222
523
2019
2,274
502
2020
1,855
485
2021
1,780
408
2022
1,330
316
Even after mortgage rates rose dramatically, the number of new listings last month were way below previous months of May. As it gets more difficult to sell and potential home sellers get discouraged about not getting astronomical sales prices, the listing counts could dwindle further.
In the squeeze, listing agents will get more desperate and choose not to share their hot new listings with outside agents, or even within their own brokerage. Buyer-agents who are dependent upon the MLS for homes to sell just won’t have any product.
It’s already happening – the homes you see on the open market seem like the leftovers. It’s already happened with commercial listings on Loopnet, and new-home tracts don’t want to pay buyer-agents at all:
It’s inevitable that the same mindset will infiltrate the residential resales too. Buyer-agents will get squeezed out because nobody wants to pay for them, regardless of how valuable their service might be.
Speaking of infiltration, the impact of OpenDoor probably deserves its own blog post. Because NAR sold our website realtor.com (the best thing we had going for us) to a third party, other entities are now advertising their services on realtor.com that will take away business from realtors.
Input an address of a lower-valued home onto realtor.com, and you’ll see something like this:
As listing counts erode, the desperation among agents will heighten. Buyer-agents will be the first casualty, and then buyers and sellers will feel the pinch too as the MLS dissolves and private websites are used sell homes privately:
The frenzy interrupted the need for off-market sales because all sellers and listing agents wanted to go on the open market for the thrill of a bidding war. But as the market gets tougher, the off-market sales will likely resume. In the process, the buyer-agents will be the first to go, and because there are already way too many agents (at least twice as many as we need), many other agents will face an early retirement too.
The part that disrupters overlook is that the people doing the work need to be really good at advising and transacting real estate sales. It’s not as easy as it looks!
Real estate brokerage REX Homes became famous in recent years for spearheading an anti-trust lawsuit against Zillow and the National Association of Realtors, accusing them of being a ‘cartel’ to edge out non-MLS participants. But it appears that as of today, the company may no longer be in existence.
Numerous staff reached out to us directly to indicate the company’s last day was Tuesday and that a companywide call on Friday outlined the end of REX Homes.
Staff at the Austin and The Woodlands offices (both in Texas) have confirmed that as of today, the doors are literally closed. It is unclear what REX’s plans are for wrapping up any current contracts that haven’t closed.
The company’s website remains live with no notification of any service interruptions and there have been no changes to the faces that appear on the staffing page.
Many Glassdoor users have begun leaving reviews asserting that operations have ceased. To thicken the mystery, we’ve already seen several recent reviews disappear, but it is unclear if that is Glassdoor or REX’s doing.
Several LinkedIn users formerly employed at REX Homes are putting their #OpenToNetwork signs up, stating the company has closed – some indicate departments dissolving, others that the entire company has collapsed.
More people continue to get their real estate license.
It looks like there have been around 8,000 new licensees in each of the last 2-3 quarters! There are somewhere between 15,000 and 20,000 dues-paying realtors already in San Diego County, and last month there were 3,198 residential sales on the MLS…..for the whole county!
I think that their doomy author has been misreading the market for years, but if you are thinking about becoming a realtor, believe their nonsense and don’t bother – there is not enough business to go around.
A remarkable achievement considering that Compass has only been a nationwide company for 3-4 years.
It will matter more later too.
CoStar is going to change the search-portal landscape, and if they spend enough advertising money to get all the eyeballs, the buyer-agents will be cooked. Unlike Zillow and Redfin who encourage viewers to contact their own set of agents, CoStar will direct people back to the listing agent of each property.
You can imagine the advertising that could change everything:
“Would you rather be represented by a third-party who doesn’t know a thing about the house in question, or do you want to speak to the listing agent who knows everything about the property – including how to get you the best deal?”
CoStar got a head start when they boughthomes.com, and are rolling out their first version this summer in New York City.
Buyer-agents will be forced to join realtor teams who have the listings, or just fade away.
Who has Compass been recruiting for the last four years? That’s right, the realtor teams.
Instead of pushing a Code of Ethics that is 109 years old and is unenforceable, the National Association of Realtors should do the same thing and require a similar bill of rights.
Besides, once you ban blind bidding, then open auctions would evolve naturally!
This week, the Wall Street Journal ran a story entitled, ‘How Should Realtors Get Paid’.
The author is a general freelance writer who describes herself as ‘a versatile writer with experience covering a wide range of topics. As a freelancer I contribute regularly to the Wall Street Journal, writing about personal finance, healthcare, aging and technological innovation’. Because she isn’t a real estate expert, she relied on three college professors for content:
They went off on some crazy tangents and no realistic conclusions were found, other than to note that there are discount brokers if you want to pay less.
My thought:
Would you do your job for the same pay if these were part of your job description:
You invest your own time and money along the way.
You don’t know when/if you will get paid, and….
You don’t control the final decisions – the clients do.
There should be a hefty bonus for those factors.
That being said, I would agree that the majority of realtors are grossly overpaid, relative to the services provided.
I see it every day, and if you go to open houses, you’ll see it too. The standard agent knows how to identify each room (this is the kitchen, this is the family room, etc.) and then ask you if you have any questions. Most can complete the fill-in-the-blank contracts too.
But they aren’t professional salespeople who can deliver expert advice on the fly, recognize good and bad features and assign costs/values on the fly, and put the correct price on a home based on the complete package of home’s condition and location, market conditions, and buyer pool….on the fly. Those are the realtors that deserve full compensation because the piece of mind delivered is worth extra. It is a service that is more than just taking an order.
Unfortunately, the order-takers are prevailing though, because consumers don’t know the difference and we all get paid the same. The industry isn’t motivated to disclose this to consumers because they get paid more on the lousy/inexperienced agents, so it will be up to consumers to seek out the experts in a quickie, push-button world.
Eventually, companies like Zillow will determine the values, and consumers will decide if they can live with that. Most will – it is what they are being fed by the new-age disrupters who are advertising the most. It should be just a matter of time before they prevail, and the old guard packs it up.
There will be lower costs eventually, and virtually no good help.
