July Conversations (Or Sooner)

On Friday, the Plaintiffs’ counsel filed a Motion for Preliminary Approval of the commission-lawsuit settlement agreement with the federal court, so the two new rules will go into effect in late July, apparently. The plaintiffs have requested a hearing on final approval of the settlement by the court to be held on November 22, 2024.

The second rule about buyers having to hire a buyer-agent before touring a home is a done deal, mostly because nobody is objecting. At least not yet. It will become a major headache for all.

The first rule about home sellers not being required to pay a buyer-agent commission will be affected by the overall market conditions. Red-hot markets like Silicon Valley will likely be seeing zero percent (or close) being offered as a reward to buyer-agents. The demand is so strong there, the inventory is so thin, and the buyer-agents are so desperate that the sellers will get away with it. How much will buyers be willing to pay to hire a buyer-agent there? Not much – 1% tops – but the entry level there is $3,000,000.

But other markets will have different challenges – especially those that are slowing (or buckling under) from a heavier load of unsold listings and stingier demand.

The conversations will go like this:

Seller: It’s been thirty days, how come my house isn’t sold?

Listing Agent: I feel good, and it should be selling any day now. People are looking.

Seller: What are you doing to sell my home?

Listing Agent: I’m showering every day now in case someone wants to show your home.

Seller: Are you advertising in SF, LA, and NYC where all the rich people live?

Listing Agent: We are advertising world-wide.

Seller: Then what do you suggest we do?

Listing Agent: You should lower the price and pay more commission to the buyer-agents.

Seller: The last thing I’m going to do is lower the price. Aren’t I paying 4% commission already?

Listing Agent: Yes, because you saw in the news that realtors imploded, so commissions are less now.

Seller: You’re saying 4% isn’t enough?

Listing Agent: Correct, because I work for 3% and that leaves only 1% for the buyer-agents. You should increase it to encourage more buyer-agents to show it.

Seller: It sounds like you’re backing into a 6% listing.

Listing Agent: I’m sorry you feel that way, but yes. But hey, you got to try out lower commissions!

Seller: Well, I guess you got me because I want to sell. Knock off $5,000 off my price too.

Listing Agent: Off your $3,000,000 listing?

Seller: Ok, ok, knock off $10,000, but that’s it. I’m Not Going To Give It Away!

Realtors will still be holding all the cards, and will game any system you throw at them. I said this will blow over quickly, and a softer market will help keep the status quo. Listing agents may appreciate buyer-agents (finally), though paying them more won’t be an obvious solution for many. Expect a slower market instead.

Buyer-Agents Getting Squeezed Out

While the benefits of buyer-agents may be obvious, will anyone stop their demise? Probably not.

Will it become easier or harder to buy a home?

The answer is unclear amid widespread confusion over what’s happening to real-estate agent commissions. On April 5, a federal court determined that the Justice Department can reopen its investigation into the policies of the National Association of Realtors, indicating that the association’s March settlement in a separate case may not be the final word on this issue. Yet in their effort to deliver lower costs for home buyers, federal officials and courts may inadvertently undermine consumer protections without addressing the root causes of high home prices.

The settlement is a positive development: It could lower real-estate agents’ commissions, benefiting home buyers. It also increases transparency and negotiating power for home buyers who use agents for representation. The settlement will also increase professionalism among agents, who will now sign an agreement detailing their services before showing a buyer a home. These policies should put downward pressure on commission prices, which currently average 5.3% and are split between buyer’s and seller’s agents.

Despite these wins, federal officials seem to want a more aggressive solution. In a February court filing, the Justice Department noted that U.S. commissions are “two to three times more than” those in “other developed countries,” a point the media frequently repeats. That gives the impression that federal officials want to cut commissions at least in half as quickly as possible, and the department appears to be pursuing this goal. Yet dramatically slashing commissions can be achieved only by reducing the use of buyer’s agents—a move that would be unwise for a few reasons.

Consider the pitfalls that home buyers face in countries where buyer’s agents aren’t commonly used. In Australia, where I grew up, home buyers typically work directly with listing agents, who have a fiduciary duty only to the sellers. In some Australian territories and states, if a buyer looks at a home on a flood plain or in a region prone to bush fires, the seller’s agent isn’t necessarily obligated to tell him about the risks.

The U.S. model provides lower overall costs and better representation for buyers and sellers alike. Americans chose this model for good reasons. Before the 1990s, few people in the U.S. used a buyer’s agent. Yet home buyers began to demand representation, especially low-income and first-time buyers who needed help navigating the process. Consumer-rights advocates championed this development. As buyer’s agents became more popular, eight states even banned the old model of a single agent representing both parties. Americans effectively gained two agents for the price of one, and that price has fallen from over 6% to closer to 5% today.

Discouraging the use of buyer’s agents would reverse this progress. Although it would likely lower home buyers’ costs, it would do so at the price of sacrificing their interests. Without a buyer’s agent, no one would be legally required to help buyers understand their risks and options. There would also be nothing to stop seller’s agents from increasing their commissions to match what previously went to buyer’s agents.

There are better ways to help home buyers save money, policies on which state lawmakers should take the lead. Most U.S. states have transfer taxes, which can add thousands of dollars to the cost of a home purchase. Lawmakers should either cut these taxes, leading to lower costs and more home sales, or reduce property taxes after windfall gains post-pandemic. State and federal lawmakers could also ease burdensome licensing, zoning and environmental regulations, all of which add nearly $94,000 to the cost of a new single-family home and lead developers to build fewer homes. The best way to decrease housing’s cost is to increase its supply.

The alternative is to erode the hard-fought victory that American home buyers have achieved. While the U.S. system is far from perfect, it serves home buyers better than any other arrangement, and it’s moving in an even better direction after the recent settlement. As federal officials and courts weigh whether to push further, they should remember that some cures are worse than the disease.

Mr. Eales is CEO of Move Inc., which operates Realtor.com. Move Inc. is owned by News Corp, which also owns The Wall Street Journal.

Link to Article

Negotiable Commissions?

Are commissions negotiable?

The common perception is Yes, because commission rates aren’t determined by any regulatory body, and brokerages/agents are free to devise their own compensation plan.

But the agents who have a meaningful skill set and a book of business have determined their fee. They aren’t going to work for less just because the NAR blew their defense of a two-bit lawsuit in Missouri. In addition, the consumers who are convinced that their agent is worth it will pay their fee to ensure they get quality help that delivers the best results.

If you want to negotiate the fee, you will have to find a different agent.

The exodus of incompetant realtors leaving the business over the next 2-3 years will be significant, and their commission rate will be more negotiable than ever. Will consumers take a chance on the has-been agent hoping to eek out one last deal before they quit, just to save a point? Unfortunately, the answer will be yes in many cases.

How bad is it? I could tell a new story every day.

How about the listing agent wants to give his 80+ year old seller the personal touch, but he doesn’t like driving the 30 minutes to her house….so completing the final documents to close escrow has been stalled. The seller is moving to Arizona, and she had to get her realtor there to help her fill out the forms!

Hopefully the result of the Big Shakeout will be that consumers investigate thoroughly the services that realtors offer, and understand that different agents do different things. There will always be the agents that offer to do less – carefully examine whether reduced services are in your best interest.

Commission Lawsuit Pay Outs

Attorneys for the plaintiffs claim they spent 96,500 hours and $13 million of their own money to review over 5 million documents. They retained at least 20 experts and consultants, and performed approximately 180 depositions, and suffered through three unsuccessful attempts at mediation to achieve this result. The two lawsuits have over 1,800 docket entries. Under well-established precedent, they say they are entitled to an award of attorneys’ fees representing one-third of the $208,500,000 settlement fund ($68,805,000).

Americans can claim payments as part of a major settlement from the National Association of Realtors and other real estate groups. A variety of real estate companies were also involved in the suit, which is paying out up to $418 million.

RE/MAX, Anywhere and Keller Williams were all named in the suit, which alleged that groups forced home sellers to pay commissions through anti-competitive agreements.

Agreements between companies can result in non-competition across an industry, which inflates prices and corporate profits.

These practices, allegedly used by the named real estate companies, may violate antitrust laws, which aim to protect consumers by preventing monopolies.

Plaintiffs in the case claimed that home sellers paid inflated commissions to brokers and real estate agents as a result. There are few details yet available on how much those impacted will be paid, according to Top Class Actions.

The deadline to file a claim is May 9.

If you were impacted and do not wish to be included in the settlement, the deadline for exclusions and opt-outs is April 13.

None of the companies involved in the suit admitted any wrongdoing.

First, you must have sold a home on a multiple listing service, or MLS, in the time period covered by the suit. Date ranges vary greatly based on region and listing service. The oldest complaints that could get payments are from 2014, with the newest being from early 2024.

The exact dates for your location can be found on the settlement website:

https://www.realestatecommissionlitigation.com/faq

You must also have paid a commission to a real estate brokerage in connection with that sale.

These brokerages are common across the industry, but many have speculated that could change soon as a result of years of legal trouble facing real estate companies.

If you’re unsure whether the suit applies to you, the settlement administrator can be reached at 888-995-0207.

If you do not opt out or file a claim, you may lose your right to be able to sue any of the companies implicated over this issue in the future.

The individual payouts are expected to be around $10-$13 per transaction.  I’ll also include a pair of tickets to the Del Mar Turf Club for any of our clients!

Buyer-Broker Agreements Required

While the media has been stirring up their hysteria over the commission decoupling…..this from CNN:

It’s the second part of the settlement that will likely frustrate buyers even further:

Let’s call it, The Return of the PEAD!

When Covid broke out, it was decided that the only way we could safely show homes again was if every buyer and agent submitted a form to the listing agent that declared they didn’t have Covid, and weren’t exposed to anyone who did. It was a joke of an exercise, but we had to do something.

Because this is a business where the competency of the listing agent is many times just measured by their ability to complete the forms, the gathering of the PEADs became almost militant in nature. Listing agents demanded that a buyer-agent MUST provide their PEADs before even thinking about scheduling an appointment to show the home!

Do you remember how in the minutes/hours it took to send the PEADs over to the listing agents, it caused just enough delay to allow shenanigans to take place behind the scenes? Listing agents would declare with glee, “Oh, you took too long to submit your PEADs and I already sold the house to someone else!”

The same thing will happen with the buyer-broker agreements. I’ve already had a Coldwell Banker agent tell me that if I was going to submit an offer on his listing, to make sure I include a copy of my buyer-broker agreement. It’s not required until July, but hey, it’s never too early to bust the chops of the buyer agents!

Secondly, think about the buyers who haven’t found a buyer-agent they liked yet, and just want to attend an open house that looked semi-interesting online.

The new rule says you can’t see the house without a buyer-broker agreement.

Open-house agents will be manning the front door with their “sign-in” sheets. But now those sheets will be committing the buyer to a buyer-agent commitment too. Will the agents mention that part? How many unwitting buyers will attend an open house in July and then find themselves in a 3-month or 6-month commitment with an agent they just met?

The legit agents will at least designate their agreement for this house only, where the buyers are committed to the agent if they buy the open house. But those buyers will be giving up their name, address, phone, and email so if you don’t buy this one, the agents keep contacting you until you buy or die.

Oh, you don’t like that program?

Chuck had the best reply so far, “Hey, it’s the DOJ”.

(tomorrow is a day off – I’ll be back Thursday!)

Unlisted Commissions

The recent NAR settlement clearly states that the MLS is prohibited from publishing a buyer-agent commission paid by the seller.

It means we might be hearing more commission talk, not less, as listing agents take responsibility for publishing the buyer-agent rate their sellers are offering.

It won’t last for long.

Many have speculated that the residential resale business is heading the way of commercial agents – an arena that has never had an official MLS, and where each listing agent decides their own policy on how to pay the buyer-agents.

Go to Loopnet or Crexi, the two commercial real estate websites of last resort (where agents put their listings after they have exhausted their stable of waiting buyers).  You’ll read about cap rates, FARs, NOIs etc. but you won’t find ANY mention of a buyer-agent commission unless desperation is in play.

Why is that?

They want you to make assumptions (in order):

  1. No commission is being offered to buyer-agents.
  2. Some commission might be offered, but you have to call to find out.
  3. The commission they offered over the phone won’t change.

Those are some hasty conclusions, and don’t be surprised if they are a moving target. Even when it gets down to putting terms in writing, the listing agents want to commit to a commission rate “as stated in the listing agreement” and hope you don’t ask questions. One agent this year said that the commission was on a sliding scale, depending upon how much I offer – but wouldn’t commit to any hard numbers.

Residential listing agents have always loved being vague so nobody can ever pin them down about keeping their word. When they figure it out that they don’t have to publish any commission rates, soon all will be offering zero (or close) to the buyer-agent – and will only acquiesce if they have no other offers.

A bad market will fix it though.

If the political hysteria over the next seven months freezes up the market, the motivated sellers and listing agents will be forced to pull out all the stops to make a deal – including the offering of a generous commission to buyer-agents. We haven’t seen a buyers’ market for 10+ years, so many won’t remember – but sellers will want to try everything else before they lower their price.

But will it come to that?

Probably not, because they will wait it out instead, and we’ll look up next year to see who is left! It won’t be the buyer-agents though. They are walking dead men, and by this time next year, single agency (buyers going direct to the listing agent) will be emerging as everyone’s solution.

$1,142,000 Over List

This was going to be the big test.

The controversial local brokerage in Los Altos was offering a measly $10,000 commission to the buyer-agents on their listings, most of which were $4,000,000 and up. They listed a similar house on a quiet street about a mile away for $2,988,000 and then marked it pending a week later.

So I followed their lead and priced my listing at $2,995,000 even though mine needed EVERYTHING and was on a heavily-traveled street.

My video tour of my listing HERE.

I wanted to prove that paying 2.5% commission to the buyer-agent would cause a better result.

Theirs closed for $4,200,000 (and was put up for rent for $2,900/mo).

Mine sold for $4,200,000 too, but then our buyer-agent volunteered to cut 1.5% of her 2.5% commission and deduct it from the sales price. In those cases, the lender has to get the appraiser to re-issue their appraisal at the revised price – but she forgot, which delayed closing for another week. I’ve never prayed so hard for an earthquake not to happen!

I don’t know if the agent on the other sale only got paid $10,000 to support her buyer with paying $1,200,000 over their list price, but she deserved more.

But combined with my buyer-agent being so generous, and the other comments at open houses, the agents around the Silicon Valley are so desperate that they are begging for business. The amounts buyers pay over the list prices indicate the same.

I still think my result was better than the $10,000 guy due to our harsh condition and busy street. But I can’t say that the 2.5% made any difference at all.

We can probably come to this conclusion though. In a scorching-hot entry level market, you don’t need to pay much to a buyer-agent, if anything at all. If the buyer-agent is smart, they will have their own agreement with their buyer to cover it.

In areas where the actives-to-pendings ratio is 4:1 or higher (Rancho, I’m looking at you), paying a reward or bounty to a buyer-agent is worth considering. Is that steering? No, it’s America, where paying incentives to get what you want should be legal and encouraged.

Reducing Commissions

In January, 30% of the NSDCC sales offered less than a 2.5% commission to the buyer-agents, and in February it was 25%.

Since the NAR settlement was announced on March 15th, 40% of the listings are offering less than a 2.5% commission to the buyer-agents.

There isn’t a new rule that directed listing agents to offer less commission. They just felt like doing it.

Is it due to the listing agents being weak and inexperienced? Or are the listing agents are still charging their full fee and taking more for themselves? Either way, they are under-appreciating of the job of buyer-agents, which isn’t good for their sellers.

What’s going on?

  1. Agents who lack solid sales skills will offer a reduced commission rate as their reason to hire them. Importantly, these agents are unwilling to improve their skill set. They believe that completing the forms is all there is to being a realtor, and offering a reduced fee is the only way for them to get business.
  2. Those who still charge their full fee but are now paying less to the buyer-agent are flat out greedy. Their commission rate is never disclosed to anyone besides the seller – at least not yet, and if the DOJ wants to focus on the nefarious, they can start right there.

Would you want either of those agents in your corner when the action starts?

Smart home sellers will recognize a critical issue.

The eventual sales price matters more than the commission rate.

Homeowners who don’t want to pay ANY commissions can sell their house to the buffoon who advertises on television. But he only pays 70% of the home’s value – yet he gets business because there are people who fall for the ‘quick cash and no fees’ enticement.

In addition, there are plenty of agents who offer a reduced rate in exchange for reduced services – but what real estate services can you do without? What are the vital sales skills needed to sell for top dollar?

The best agents have sales skills that cause your home to sell for more money, and they are successful enough that they don’t need your listing. Do you think they are going to discount their rate?

Are you going to hire a great agent who will push the sales price higher? Or will you settle for any old licensee just to save a point on the commission?

Reducing commissions aren’t going to make agents better, or have them put in extra effort. They aren’t going to do the same job for less pay. Because they agreed to be paid less, they will want to do less.

Is that who you want working for you?

The top agents employ a collection of superior sales skills that deliver a top-dollar sales price AND make the experience easy and enjoyable. Isn’t that what you want?

More on Single Agency

Most people think that the lawsuits are going to cause lower commissions, but if that happens, it will be in conjunction with the buyer-agents being eliminated. I’m calling it single agency for now.

Here is this week’s installment on the evidence supporting my theory. Even though I suspect this is BS like most of the things he says, he put this out for public consumption:

Kelman, for one, doesn’t seem too concerned about the settlement’s impact on his business.

“We’re just getting more aggressive about selling homes directly to consumers,” Kelman answered in response to a question about how Redfin is adjusting in the aftermath of the settlement. “There are so many people who called us over the weekend after the news of the settlement broke and said, ‘I don’t want to pay a buyer’s agent. I want to hire you to sell homes directly to homebuyers.’”

The new search portal, Homes.com (who wasn’t kidding about spending boatloads of money on advertising) is making a campaign out of Your Listing, Your Lead. They direct all buyer inquiries back to the listing agent, instead of sending to a third-party agent who pays for the lead.

But look at how much they are charging!

The only listing agents who are going to pay this money are the big teams – who will then be more excited about selling their listings directly to their own buyers, rather than co-op with buyer-agents via the MLS.

Forty percent of the NSDCC listings since March 15th (the day the NAR settlement was announced) have a buyer-agent commission under 2.5%. We saw the Berkshire Hathaway listing that didn’t offer any commission to a buyer-agent.

Being a buyer-agent is so tough that they aren’t going to do it for nothing – they will quit instead. Will buyer-agents convince buyers to pay them a full commission directly? No – they will quit instead.

It’s only a matter of time.

It isn’t what is best for buyers, and when buyers are harmed, it isn’t good for sellers either. Especially if the market slows. But here we are!

Zero Commission Offered

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! 😆

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