The latest lawsuit will cause people to consider different pay structures for realtors.
If realtors were paid less, could they at least get some of it up front? Yes, if approved by the commissioner:
Before a broker may solicit, advertise for and agree to receive an advance fee, the paperwork material is to be submitted to the Commissioner of the California Department of Real Estate (DRE) for approval at least 10 calendar days prior to use.
If the Commissioner, within 10 calendar days of receipt, determines the material might mislead clients, the Commissioner may order the broker to refrain from using the material.
To be approved, the advance fee agreement and any materials to be used with the agreement will:
Contain the total amount of the advance fee and the date or event the fees will become due and payable;
List a specific and complete description of the services to be rendered to earn the advance fee;
Give a definite date for full performance of the services described in the advance fee agreement; and
Contain no false, misleading or deceptive representations.
Further, the advance fee agreement may not contain a provision relieving the broker from an obligation to perform verbal agreements made by their employees or agents; or a guarantee the transaction involved will be completed.
It sounds like slipping a few thousand under the table won’t be tolerated! The paperwork involved will probably make the big brokerages shy away from the idea, but we should consider alternative ideas.
Commissions aren’t all the same, just like agents aren’t all the same. Different agents charge different rates because they do different things for the consumer. Commissions/fees range from $100 to 7%. Nice range!
So if all that matters is paying less for your agent, then shop around – there are plenty of discount agents. You might consider hiring the very best agent you can find – one who pays for themselves, and more.
This is the question that has never been answered by the industry:
“If agents employ different skill sets and services, why do they all get paid the same?
It was mentioned in the recent lawsuit, and they presented it as part of their case:
72. Additionally, because the Rule requires a blanket offer, the Rule compels home sellers to make this financial offer without regard to the experience of the buyer-broker or the services or value they are providing — in other words, the Rule treats all buying brokers and their services the same. The seller is required to offer the same fee to a buyer-broker with little or no experience as that offered to a buyer-broker with twenty years of valuable experience. Accordingly, there is a significant level of uniformity in the payments that sellers must pay to buyer-brokers.
73. As a result, there is little relationship between the commission and quality of the service. “Skilled, experienced agents and brokers charge about the same price as agents with little experience and limited knowledge of how to best serve the consumer clients.” In a price-competitive market, less experienced and less skilled brokers and salespersons would be offering consumers lower commission rates, but they have no incentive to do so because of the Rule.
74. The Rule creates tremendous pressure on sellers to offer the “standard” supra-competitive commission that has long been maintained in this industry. Seller-brokers know that if the published, blanket offer is less than the “standard” commission, many buyer-brokers will “steer” home buyers to the residential properties that provide the higher standard commission.
The changes or fines from the lawsuit(s) probably won’t matter much today. Offering no commissions to buyer-agents is a nice idea, and you’d think it would cause agents to publicize the full set of productive services they offer to their buyers to convince them to pay the fee. Don’t get your hopes up.
Ideally, the consumer would research the detailed resumes and work histories of each prospective agent and make an informed decision. The agent pages on Zillow do provide the basics, but based on results, consumers aren’t using them much.
It’s why realtors have a lousy reputation – consumers keep hiring the inexperienced/bad agents, and the industry doesn’t mind because they make more profit off them.
The National Association of Realtors clearly underestimated the chances of losing this case – and the others to come. They must have thought that touting their 100-year old Code of Ethics was all that was needed to impress people, and instead they found out that it doesn’t.
What doesn’t get addressed is the common belief that realtors are overpaid.
It is a wide-spread belief. Even Joe Kernen, a guy who works 15 hours per week and gets paid between $3,000,000 and $22,000,000 per year (depending on the website), has to open his CNBC show today with the declaration that 6% commissions are too much, and 1% would be more like it.
This is what needs to be addressed. Can agents explain their value?
Listing agents are used to making a presentation to homeowners, but 80% of the time, the sellers have already decided on who they will hire so the presentation doesn’t have to be great. Buyer-agents rarely discuss what they do – they just have people jump in their car and go look at houses.
The judge and/or the Department of Justice will rule on future sellers paying the buyer-agent commission. If sellers are allowed to pay a commission to the buyer-agents, then their listing agent can counsel them properly on what rate to offer, and the status quo will endure. But it will be a game-changer if the sellers are no longer able to offer ANY commission to buyer-agents.
With the former, the listing agents will have to discuss the pros and cons in detail to the sellers, and agree to a comfortable amount. With the latter, the buyer-agents will have to create a presentation to convince their buyers to pay them directly. This will be a new practice, and they won’t be very good at it.
By the end of the day yesterday, I had already been notified of three different seminars being offered about using the Buyer-Broker Agreement. It sounds simple enough to the ivory-tower types – just get your buyers to pay you the commission! But they underestimate both sides.
Agents aren’t jumping at the chance to work with buyers in the current market.
It takes months or years for buyers to finally win the right home at the right price, and the abuse from the listing agents is mean and nasty along the way. Nobody plays by the same rules, and multiple offers are mishandled regularly, which delays the buyer finally getting a house.
The 2024 Selling Season will begin with buyer-agents pleading with their prospects to sign a contract to pay them a commission. It will only take a few months for this practice to get exposed. The buyers will be reluctant to sign, and those that do sign a contract will find out that it won’t change the outcome. It is still going to take months to find the right house, at the right price. There will still be the typical aggravations and shenanigans with the listing agents – most of whom now insist on buyers providing a bank statement and lender pre-approval letter just to see a house.
Because the local inventory is will be ultra-low, the desperation will cause buyers to blame their agent. It is a fact of life with both sellers and buyers – if they don’t get the outcome they want, it’s too easy to blame their agent (especially when it is true most of the time).
Will sellers and buyers be more diligent about who they hire?
They never have been – they just grab an agent and hope for the best. They don’t know the right questions to ask; they don’t want to waste time investigating thoroughly; and besides, the buyers just want a house, and the sellers just want their money.
This is where each agent and the industry at large could go a long way towards providing a solution.
If there was an outpouring of explanations on how the business works, what to expect, and why a consumer should pay the fee, it would help. Maybe write a blog or something!
Without a delberate attempt to educate everyone, the business will gravitate to the lowest common denominator – single agency, where buyers go direct to the listing agent, and the benefits of buyer-agency are slowly forgotten. Next year will be the phase-out stage.
It will be the next step towards auctions becoming the way to sell houses!
A federal jury today agreed with the plaintiffs that organizations such as Keller Williams, Berkshire Hathaway HomeServices of America, and the National Association of Realtors had violated the law by conspiring to inflate commission rates.
Their attorney then filed an additional lawsuit against the other large brokerages, including Compass.
There’s enough for several blog posts here! Let’s begin with the first problem:
In this trial, the defense was pathetic, and the realtors will likely lose in appeals court too.
The defense attorneys rode in cocky and notched it up on the first day when they said the plaintiffs have the burden of proving their case…..and the defense may not even call a witness! Then when they did call a witness, it just had to be the CEO of NAR, Bob Goldberg, whose arrogance may be unrivaled.
He offered the following:
The CEO returned to the stand on Tuesday to face cross-examination from plaintiff party’s attorney Michael Ketchmark. During the cross, Ketchmark tried making an analogy — not for the first time — between the allegations facing NAR and the hypothetical of chicken producers inflating prices.
Goldberg argued the analogy was “apples and oranges” because real estate agents offer a service, not a product. When Ketchmark continued his analogy and pressed Goldberg on whether he needs an explanation of antitrust law, the CEO responded, “No. I need you to explain to me the chicken law.”
What the defense never considered was that the jury came into the courthouse with the same biases/prejudices that every American has considered – realtors are overpaid, and it’s a racket. The industry never bothers to educate the public, so you can’t blame the jurors or anyone else for thinking that we need to be taken down a notch…or two.
When Bob made his crack about chicken law it had to make every juror hate him even more. Sure, it was kinda funny but this is no time for wisecracks when billions of your members’ money is on the line!
Gary Keller is a nice guy but his soft-spoken testimony didn’t sway the jury – and you can blame his defense attorneys for asking questions that were too lame and indifferent:
Keller’s was the final testimony in the defense’s bid to argue that broker commissions vary and are not set by real estate companies.
Keller denied in his testimony that a “standard commission” existed, saying agents are responsible for setting their own commissions. He said the company had no say in the commissions charged by agents.
While it is true that realtors are independent contractors and each sets their own commission rates, having a gazillionaire state it towards the end of the trial isn’t going to persuade anyone.
The two most important facts of the case were never brought up:
The sellers should have the right to pay a reward, or bounty, to persuade agents to sell their house.
Every seller pays the listing brokerage the full commission, and it’s the LISTING AGENT who decides how much commission the buyer-agent gets.
For the defense to not bring up these points just shows how arrogant and unprepared they were for this trial. The NAR president didn’t exactly give us a reason to think it might be different next time:
This matter is not close to being final. We will appeal the liability finding because we stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition. We remain optimistic we will ultimately prevail. In the interim, we will ask the court to reduce the damages awarded by the jury.
In court, NAR presented evidence that consumers are better off and business competition is able to thrive because of our rules and how well local MLS broker marketplaces function. In fact, the NAR cooperative compensation rule for local MLS broker marketplaces ensures efficient, transparent and equitable marketplaces where sellers can sell their home for more and have their home seen by more buyers while buyers have more choices of homes and can afford representation. NAR also presented that REALTORS® are everyday working Americans who are experts at helping consumers navigate the complexities of home purchases and advocates for fair housing and wealth building for all.
Is that all you got? With leaders like this, any future trials will be decided in the same 2.5 hours that it took the jury to decide this one. The only hope is that Compass will hire our own attorneys, and they call on a part-time blogger from San Diego to testify!
Many think this won’t change much about commissions. They might have to go higher to pay for the damages!
A jury in Kansas City, Missouri, sided with a group of homeseller-plaintiffs Tuesday, ruling that real estate’s biggest names participated in a conspiracy that helped keep agent commissions inflated.
The jury found that all of the defendants, which include the National Association of Realtors as well as franchisors such as Keller Williams and Berkshire Hathaway participated in the conspiracy.
The jury awarded $1,785,310,872 in damages, which will be automatically trebled to $5.356 billion.
Just minutes after jurors sided with the homeseller-plaintiffs in the Sitzer | Burnett trial Tuesday, their attorney Michael Ketchmark filed a new class action lawsuit against another group of big-name real estate industry entites.
Ketchmark filed the suit on behalf of three new homesellers, who like those in Sitzer | Burnett claim to have suffered from a real estate industry conspiracy that inflated agent commissions. In this case, however, the suit names as defendants Compass, eXp World Holdings, Redfin, Weichert Realtors, United Real Estate, Howard Hanna, and Douglas Elliman. The suit also names the National Association of Realtors as a defendant.
Ketchmark said, “Our hope and goal is to free the grip they have on homesellers across the United States. It’s time that the free market and the internet is allowed to do its work and to bring the savings to homeowners that they’re so entitled to when they sell their homes.”
“This is an earthquake,” said Jason Haber, a real estate agent with Compass who has been one of the most outspoken critics of N.A.R. in recent months. “I’m disappointed in today’s verdict and I’m even more disappointed in N.A.R. This was their Super Bowl and World Series rolled up into one and not even Taylor Swift could have saved them.”
Mr. Haber, who created a grass-roots organization demanding the resignation of N.A.R.’s top leadership after the sexual harassment allegations came to light this summer, said he believed that there was no conspiracy when it comes to agent commissions, and that N.A.R. had let down its members by failing to present a stronger defense in court.
I have mentioned repeatedly that the buyer-agent is a dead man walking. All forces within the industry are combining to push the buyer-agent out of the equation, and home buyers will be worse off because they will only have faux representation when buying directly from the listing agents.
Everything is negotiable……well, except the buyer-agent commission. From the Code of Ethics:
The Code of Ethics Standard of Practice 16-16 prohibits buyer-brokers from “using the terms of an offer to purchase to attempt to modify the listing broker’s offer of compensation.” Thus, the buyer-broker cannot attempt to condition the purchase of a home on the seller-broker’s agreement to adjust the amount of compensation offered to the buyer-broker.
Second, the Code of Ethics’s Standard of Practice 3-2 requires that any modification in the compensation offered to the buyer-broker “must be communicated to the [buyer-broker] prior to the time that [buyer-broker] submits an offer to purchase the property. And once a buyer-broker “has submitted an offer to purchase the property, the listing broker may not attempt to unilaterally modify the offered compensation.”
Third, Case Interpretation #16-15 advises that any negotiations regarding the buyer-broker’s commission “should be completed prior to the showing of the property.”
The buyer-agent is NOT allowed to negotiate their commission during the offer process!
What’s worse is that any negotiation of the commission must happen BEFORE the home is shown to the buyer. How many listing agents will agree to pay more commission before the buyer sees the home? The answer is zero.
The pending lawsuits against realtors are all about the seller being required to pay the buyer-agent’s commission. Miraculously, ReMax and Anywhere have already settled, and the whole thing could get resolved shortly. But it has been univeral among observers that the end result will be that home sellers will not be required to pay ANY commission to the buyer-agents. It will be optional instead.
Two things will happen:
The buyer-agents will be even more likely to steer their clients to where they can get a commission.
There will be even more shenanigans by listing agents.
Rob lays it out here, starting around the 26-minute mark:
It means that the buyer-agents will have to either live with the commission that the seller is offering (if any) and steer their buyers to those homes, or have an agreement with their buyer to be paid directly by them. While that sounds nice, it is a complete change to the business and most agents won’t be able to justify being paid for their services. When buyers can just go direct to the listing agent for free – which the listing agents will be advertising – they will be very reluctant to be contractually obligated to pay a buyer-agent.
Another phrase you regularly see in the MLS descriptions is, “NO BUYER LOVE LETTERS”.
What is the underlying meaning?
Listing agents are perfectly capable of discriminating on their own, and they don’t need your help.
As long as the buyers’ names are on the contract, discrimination is probably happening. It might be so blatant that sellers make decisions just based on their names, but the more common practice is for sellers to google the buyers’ names and learn everything they can about them from the internet.
It may seem subtle, but make no mistake – homeowners want to sell their house to someone they like. They will decide their favorites early on, especially when the listing agent is a contributing factor.
Here’s an example.
My buyer and I attended an open house on Sunday that appeared to be an ideal match. As we entered, the seller was just leaving and she had the look on her face – and I knew something big was happening.
I already knew that the listing agent had not sold anything in a long time – no sales in the last 12 months. Within the first minute, she mentioned that an all-cash offer had already been received and she said it with the usual agent tone that ‘this deal is done so you are just wasting your time’. She also said she was going to shut down the open house early.
I walked my client out to the car, and then went back in to discuss. I told the agent that we were going to make an offer, and asked, “will that make your afternoon more exciting?”, to which she blurted out, “NO”.
Exactly what I expected.
Knowing that we would need to make a powerful offer just to get her attention, two hours later I sent her an all-cash offer that was 8% over the list price with an 11-day close and free rentback.
Everything that happened after that made it obvious that she had already built up the first offer in the mind of the seller – heck, she even told ME about those buyers!
Once an agent has gushed all over their seller about an offer, it means any other offers don’t have a chance. When a listing agent describes a set of buyers in great detail, it is subtle discrimination because those buyers get favored status – and it’s mostly because the agent is inexperienced or just plain lazy and doesn’t want to field any more offers.
The only hope for any other buyers is to submit a love letter! Give everyone a chance to win!
It is common to see the same words or phrases in the MLS descriptions.
A few years ago, the fancy new buzz word was ‘boasts’; a word realtors would use to describe the home’s best features. The word got overused, and eventually we would read that a home “boasts three bedrooms, and two baths”, as if that was something special.
There are two buzz-phrases you hear regularly these days.
Watch how many times you see, ‘this one checks all the boxes’ and ‘this is the one you’ve been waiting for’.
For those who have access to the confidential remarks, you will see a third phrase currently that is very curious: “Reviewing Offers As Received”
Isn’t that what you are supposed to do? Isn’t that required by law? I think so!
The phrase is probably a response to inquiries from buyer-agents wondering about their full-price offer they just sent in. Sometimes the listing agent will tell you that they have a specific date in mind to review offers with the sellers, or they are reviewing them as received, one by one.
What the buyer-agents really want to know is….when are you going to respond? How long will my buyers and I have to sit on pins and needles while you dink around with no strategy or game plan and instead just play around with the process?
The reason buyer-agents don’t like asking that question is because they cringe at the thought of having to hear one more time the same answer given by listing agents in almost all cases: ‘I don’t know’.
You get a very specific answer from me: “Should we have multiple offers, everyone will receive a highest-and-best counter-offer from us on Monday, and we hope to select a winner by Tuesday night”. It gives buyers and agents alike a specific idea of what to expect, and they can start planning their response.
It’s part of the slow-motion auction – full transparency includes an clear outline of the process, and how to win the game. Our counter-offer will level the playing field by balancing out the other terms, and ensure that everyone knows the winner will be determined by price.
It may sound simple and obvious, but I haven’t seen any other agents embracing full transparency.
I have another example happening now. The listing agent said they have already received one offer and expect a couple of more. When I asked how they will handle it, I got the usual uncomfortable laugh and a vague, joking response of doing something about it next week.
Agents are supposed to maintain a good working knowledge of the purchase contract, and every year we go to the C.A.R. review to keep up with the changes. But I don’t remember discussing this paragraph that was added in 2021, and expanded in the most recent version of the contract.
We had an interesting test case on it recently.
The buyer wanted to cancel their purchase, but they knew someone who was also interested in buying the property too. They claimed that Paragraph 23 gives them permission to plug in the new buyer, and the seller can’t ‘unreasonably’ withhold consent.
The way that paragrah reads, they might have a case. If they were able to provide a pre-qual letter and properly notify the seller and listing agent, it looks like they would have complied with the criteria expressed in this paragraph.
Do I want to get into a battle over it?
Luckily, they did not produce the documentation, and instead bowed out gracefully. But for a minute, I thought we might be stuck with the assignee, who had said that he flipped homes in the past. I cringed at the thought of the usual discount that flippers demand after their home inspection.
From now on, we’re going to counter out #23 before we enter into an agreement.
The critical point in this video is when the second seller dropped 7% to make the sale after just three weeks on the market……even though that was 10% under the last sale that backed to power lines.
This is what can happen. Did they have bills to pay? Did the agent press them to take it? We don’t know, yet we consider every comparable sale equally and base our opinions on price alone.
The seller of the $2,225,000 sale had purchased it in 2013 for $1,109,000 and his mortgage amount was under $300,000. What’s a hundred thousand in either direction to him?
The previous high sale of this model was $2,100,000 in December, 2021.
The high sale before that was $1,750,000 in 2020.
The high sale before that was $1,320,000 in 2019.
Are we binary simpletons? Will the next seller and listing agent consider all of these variables? Or just go with $2,200,000 as the latest sale/current value and hope for the best? Or check the zestimate?? 😆
The next sale could go 10% to 20% in either direction, depending on the agent.
