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.
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.
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!
The commission lawsuits and action by the DOJ will cause buyers to wonder if they need to pay for representation, and what do they get if they do.
It will also be a function of how much it costs. If the service was free, everyone would do it.
It’s been like that in the past, but it also caused buyers to be a little too casual about who they selected, and they tended to just grab someone – which doesn’t always bode well.
Buyers will be able to include in their purchase offer that the seller pays all or part of the buyer-agent commission. But there won’t be any promises about what a seller might pay – if anything. So buyers should be prepared to pay the entire amount to their agent, as agreed up front.
What should buyers expect? What are the skills that good buyer-agents possess and implement on behalf of their buyers? Here is my quick list:
Overall analysis of general market conditions
Video /audio tours of prospective homes for sale
Pinpoint Home-Value Analyses
Measure up the sellers and listing agents
Winning-price predictions
Offer Strategies
Bidding-War Management
Contingent offers that win
Tough and detailed inspections with free quotes on repairs/improvements
Expert deal management
Foreclosure hunting
Bridge-loan financing
Off-market homes for sale
Sniff out any shenanigans
See the new listings in person every week.
There are also the 132 things agents do for buyers linked here, but the real problem is demonstrating the skills. How will buyers know what they need? How will agents show them what they have to offer?
When you go to the car dealer, they let you take the car for a drive around the block. How can you do that with a buyer-agent?
It would be fruitful for agents to have a blog where they demonstrate how they work, and provide evidence of their results. But that may be asking too much of agents.
We do free consultations for sellers. Let’s do them for buyers too.
Buyer-agents should offer their list of services AND be willing to meet any prospective clients-to-be at a home for sale so agents can show them what they do. A tour of a house to point out the positives and negatives will give the potential buyers a great sense of the agent’s expertise.
Agents – let’s make the free consultation at a home for sale part of the effort to assist buyers. Besides, you want to get a sense of whether you want to work with these buyers too.
Before you get married, you should have at least one date!
What do you look for when you meet your potential realtor at a home for sale to see what they have to offer? If they add to the experience something you didn’t know, then you’re on the right track – ask questions! If they say, “Here’s the kitchen”, it is an automatic disqualification – just run to your car!
These Palo Alto guys have been making national headlines since they rolled out their reduced-commission program last week. They are offering a $10,000 fee to buyer-agents, instead of a percentage, AND encouraging buyers to come directly to the listing agent to avoid paying any fees (which is my beef).
Why would a high-end independent brokerage that sold 100 homes in the last 12 months – mostly in the $3,000,000 to $10,000,000 range (with sales of $40,000,000 and $44,000,000 too) – feel the need to effectively shut out their fellow real estate agents? Beats me.
Last week, the Department of Justice stated that commissions should be decoupled and NO fee be offered up front to buyer-agents by the seller or listing agent (though they did agree that buyer-agents can include a seller-paid commission in their buyer’s offer).
What gets lost in the discussion is the 120-year history of broker cooperation – where other agents can sell my listings, and I can sell theirs. It is a terrific system that best serves the sellers and buyers, which is our fiduciary duty.
But greed and market-share dominance is pushing fiduciary duty to the sidelines. Instead, brokerages are taking advantage of the current uncertainty to craft a quasi-single-agency package that effectively shuts out the cooperating buyer-agents under the guise of saving the seller money. Is it in the seller’s best interest to discourage the outside buyer-agents?
This is one of their first listings to hit the open market that offered their $10,000 fee to buyer-agents, and it went pending in seven days:
https://www.compass.com/app/listing/764-parma-way-los-altos-ca-94024/1510956913476773969
Keep this house in mind – I’m listing a house near it this weekend!
Yesterday, we attended Gov’s annual update on new laws and forms for 2024.
He touched on many topics – including that landlords in California might be agreeing to tenants for life because it’s so hard legally to get rid of them – but the most interesting was his comments on the realtor lawsuits and commissions for the buyer-agents.
To demonstrate the difficulty of coming up with a viable solution, the best the California Association of Realtors can do is to add paragraph G3 into the purchase contract (above) and hope the buyer’s agent already has a written agreement for the buyer to pay the commission. At least paragraph G3 will pass the responsibility of paying the buyer-agent commission along to the seller so the buyer doesn’t have to pay it, but in a multiple-offer situation, all it will do is send your offer to the back of the line.
When in a bidding war, buyer-agents will be forced to omit paragraph G3 and saddle the buyer with the commission payment instead.
What’s worse is that the federal judge presiding over the successful realtor lawsuit will be deciding in May whether or not to make it a national law that PREVENTS the seller from paying the buyer-agent’s commission altogether, or let the current commission structure ride until the appeals process is complete.
It appears that the buyers will be paying their agent’s commission, sooner or later.
In an interesting twist, Gov was describing how the best solution for evicting a tenant is to bribe them with cash-for-keys and we even have a form for it now. But bribing a buyer-agent is completely out of line? A home seller should have the ability to pay the buyer-agent commission if they see fit.
The gradual phasing out of buyer-agents is underway, and it shouldn’t be long now.
Zillow’s new format features the listing agent’s phone number under the main photo!
The three-headed agent display was removed and now when a reader clicks on the right side for Request a tour or Contact agent, they are linked to the Zillow call center instead. There they get processed/qualified on the phone by Zillow employees, sent to Zillow Mortgage, and then get assigned to an agent who is paying big money to Zillow for the privledge.
Buyers will figure it out pretty quick. By clicking on the right side, you get a 3rd party agent who isn’t the listing agent and has never been to the home. With the listing agent’s phone number now prominently displayed, it is inevitable that buyers will call the listing agent next time.
If they need a prompt, they will get one when they start clicking on the photos – which every viewer does immediately. This is what they will see now:
Yep – the listing agent is in the upper-left corner of every photo!
https://www.zillow.com/homedetails/2533-Camulos-St-San-Diego-CA-92107/16966353_zpid/
With the threat of buyers having to pay a buyer-agent a hefty commission out of pocket, it will be irresistible for them to contact the listing agent to see what they have to offer – in hopes of avoiding a separate payment due to a buyer-agent. The listing agents will be happy to oblige because they will already have their full fee packed into the listing side.
By the time the realtor lawsuits get resolved, it will be too late – there won’t be any need for a buyer-agent.
Zillow is offering a full marketing package to listing agents too.
Package Includes:
The Listing Placement Boost on Zillow?
Listing agents who purchase a marketing package will have their new listings displayed first in the home’s area for seven days – a very nice feature for agents looking to capture buyers for their listings.
While the rest of the industry was grumbling about lawsuits over the last few months, Zillow created a new format that will solve everything. But nobody knows what fee the listing agent charges because it is never disclosed to anyone but the seller – the person who just wants to hurry up and get their money.
One more blog post about the coming changes to the realtor environment.
Regardless of how the commission lawsuits are resolved, there will be a push – and possibly a mandate – for buyers to pay their agent directly. Agents will want buyers to sign an agreement to that effect.
Above is a copy of the verbiage on page one of the standard agreement.
If a buyer agrees and signs this form, and then finds a home on his own, he can ‘cancel this agreement by giving written notice to the other’. But only as long as THE BOXES CIRCLED IN RED AREN’T CHECKED.
Will buyers read the agreement before signing, and be reluctant to check the two boxes?
Otherwise the form is reasonable, with the agent being covered for any properties they recommend to the buyer with analysis (paragraph B1).
All that matters is whether the agent will insist on the two red-circled boxes being checked. I think a buyer will pause at agreeing to exclusive representation, but non-exclusive should be acceptable.
I doubt that I’ll use the form at all, unless Compass requires it. Why bother if you can cancel any time?
Happy Thanksgiving!
Hopefully NAR is busy in settlement talks right now, because they just don’t seem to get it, or they have trouble putting it on paper. These are their latest explanations:
https://realestatecommissionfacts.com/
However, there might be hope for settling the case:
Regarding the possibility of a settlement in the case, Katie Johnson, NAR’s chief legal officer said, “For NAR, settlement has always been an option.”
If NAR were to settle it would look for two outcomes, according to Johnson:
1. That homebuyers will continue to be able to access and afford buyer representation, and
2. That all liability from the suit’s claims is eliminated for NAR’s members, associations and MLSs.
“Settlements are always an option if we can achieve those objectives,” Johnson said.
Lesley Muchow, the NAR Deputy General Counsel & Vice President of Legal Affairs and Antitrust Compliance also advised agents to stress that commissions are negotiable. In that vein, she urged NAR members to leave compensation fields blank on forms rather than pre-filling them out — a phenomenon multiple plaintiffs emphasized in their testimony during the Sitzer | Burnett trial.
“Those are conversations you need to have with the consumer,” Muchow said.
“There’s no set amount. Sellers can decide and it’s on the Realtor to educate the seller as to why they might want to elect to make an offer of compensation and how that will work to their benefit in the transaction.”
“A Realtor should never suggest to a seller that if they do not make a certain amount of an offer of compensation that other Realtors will steer buyers away from their property,” she added.
Johnson ended by stressing that NAR’s current legal situation represents an opportunity.
“An opportunity to differentiate yourself from others – from your competitors and colleagues in your area – and an opportunity to improve your practices. An opportunity to think creatively and do things differently, using this delta, this point in time, as a launch pad for innovation.”
Zillow CEO Rich Barton weighed in on the bombshell cases in both an investor call and a shareholder letter. Barton’s key comment came early in the call when he said “We also believe complete disruption to the existence of buyer’s agents is improbable for a few reasons.”
Barton reaffirmed his support for buyer agents and the theme of buyers having their own representation. “We believe a well-lit game is cleaner and more equitable. People deserve and need independent representation,” Barton said. “We’ve seen double-siding in the industry, which is clearly a conflict and is at certain times more expensive to the transaction.”
Damien Eales, CEO of Realtor.com said, “I don’t think that from a consumer perspective, they are paying a great deal of attention to what is occurring more broadly in the industry. And as much as these court cases play out, I think it will be in some respects very much confined to the industry conversation as opposed to the consumer conversation.”
During his own investor call, Compass CEO Robert Reffkin pointed to the Seattle region, where sellers have not been required to offer buyers’ agent commissions for several years. Despite that change, Reffkin said, commissions in the area remain in line with the rest of the country — an outcome that suggests the bombshell lawsuits may not radically upend the status quo.
“I don’t think there’s any evidence to suggest that there will be pressure on commissions,” Reffkin said.
The history of steady commission rates will be mentioned in the lawsuit appeals.
Doesn’t the history suggest a conspiracy? Especially when combined with the ascent of home prices? Lawyers for the plaintiffs will note that the annual home appreciation gives the appearance of realtors getting a raise in income every year – including +40% since 2020.
There is no conspiracy on the street. It’s too competitive between agents!
Any pressure on commission rates will come from agents who are desperate to eat. The perfect storm of market conditions should push hundreds of thousands of agents out of the business. As they exit, they might give a seller a deal – if they can find a listing opportunity.
What do sellers and buyers want – the best rate, or the best agent? It’s one or the other.
Hopefully this mess will cause consumers to thoroughly investigate the choices. Otherwise, this will all blow over in a few months – unless the Department of Justice does something permanent.
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