Currently, every listing agent is required to offer some sort of buyer-agent compensation on the MLS. Zillow and Redfin publish those commission amounts on every listing now, so they are all out in the open.

Today, there are 79 homes for sale between La Jolla and Carlsbad in the $2,000,000-$3,000,000 price range. Thirty percent of those listing agents are offering less than 2.5% commissions to the buyer-agents.

Outsiders who see that will assume that commissions are finally starting to drop, after all these years.

But the vast majority of those listing agents are probably still taking 5% to 6% commissions, and offering 2% or less to the buyer-agent (and more for themselves).

If the listing agent is supremely talented and brings special skills to the transaction, then it would be understandable. But I’ve been a buyer-agent on listings that are offering less than 2.5%, and they’re not different. Virtually every listing agent still practices the Three-P marketing plan: Put a sign out front, Put it in the MLS, and Pray.

There are hundreds of multiple listing services in America. So far, only a few have removed the requirement of offering a buyer-agent commission.  But the NAR lawsuits are going to change that, and soon every MLS will permit 0% commissions to be offered to the buyer-agents (hoping buyers will pay their own agent).

The listing agents who have little or no repsect for the buyer-agents will keep offering them lower and lower commissions. Eventually, their rate will get down to zero or close.

Will sellers figure it out?

Sellers focus on the total commission. They don’t do enough transactions to know that the amount the listing agent pays to the buyer-agent will impact the sale. It is a bounty offered to encourage the sale of the house, and when market conditions are soggy, it is better to pay buyer-agents more commission, not less.

In the lawsuits, they will discuss agents steering their buyers to homes that pay higher commissions. It’s why the search portals publish the commission rates now so buyers can track whether their agent shows any bias based on the commission rate being offered.

It’s why the industry will be racing towards 0% commissions offered to the buyer-agents.

Eventually, the DOJ will probably step in and insist that ALL sellers pay 0% commission to the buyer-agents to insure there is no chance of steering. Instead, listing agents will just offer them spiffs under the table in a softer market or when the house is ‘unique’.

Until then, the listing-agent teams are going to keep offering lower and lower commissions (if any) to the buyer-agents – who will then try to get their buyers to pay them something….anything!

At the same time, the listing agents will be encouraging buyers to avoid paying a buyer-agent commission altogether by coming direct to the listing agent instead. Their in-house assistant-agents will attempt a faux representation of the buyer but it will just be a novice clerk who processes their paperwork.

Boom! The seller didn’t have to pay a buyer-agent commission – making these lawsuits worth it – and instead the listing agent keeps the whole commission. If buyer-agents can somehow wedge themselves into the deal, then great, but will the buyer pay them too, when it doesn’t seem necessary?

Mark my words – this will be standard fare in the next year or two.

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Jim the Realtor
Jim is a long-time local realtor who comments daily here on his blog, bubbleinfo.com which began in September, 2005. Stick around!

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