They are only three months into their mega-launch of Homes.com, and CoStar founder and president Andy Florance is already taking victory laps. He is also the #1 cheerleader for buyers going directly to the listing agent, which will be the end result of all the changes underway. Here’s Andy talking in front of a group of realtors:
Florance said Homes.com’s “Your Listing, Your Lead” model was the antidote to agent and consumer frustrations, as evidenced by triple-digit traffic growth during Q3 2023 that gave them a contested lead on Realtor.com as the second-most-trafficked residential portal.
“In the rest of the world, when an agent has a listing, their name is on the listing, their phone number is on the listing, and there’s branding happening,” he said to riotous applause. “Only in the United States is it the portals’ brand goes on the listing rather than the agents’ brand. That’s bizarre.”
Although CoStar didn’t reveal its exact plans for Matterport, Florance did outline a plan to capitalize on digital twinning, a term used to describe hyper-realistic 3D listing experiences.
Florance said digital twinning could enable homebuyers to visualize what their current home furnishings would look like in a new home, play with renovation options for a fixer-upper, or walk with a virtual agent through a virtual listing.
“In residential focus groups, homebuyers are telling us that they prefer listings that offer 3D digital twins so that they can best understand the property,” he said. “Adding virtual reality to Matterport, you can take a virtual tour of the property with your virtual agent who will walk into the space with you.
Florance spent a few moments of the call focusing on buyer-broker commissions and reiterated Homes.com’s potential value when NAR’s settlement terms go into effect this summer. Florance said Homes.com will give buyers an avenue to directly connect with listing agents to view a home, bypassing the potential pressure to sign a representation agreement before they’re ready.
“Currently only 30 percent of buyer agents ever get a written agreement at any point in the transaction process,” he said. “Homes.com connects homebuyers directly with the listing agent, so they can arrange to see the house with no paperwork or commitments.”
“We are increasingly confident in our ability to build out the number one residential marketplace in terms of traffic revenue and profitability in the years ahead,” he added.
CoStar owns LoopNet, the website for commerical listings, as well asten-x.com/which is an online auction house for commercial properties. It won’t be long before they bring auctions to the residential market, will it?
Yesterday, it was announced that CoStar is buying Matterport. Excerpts:
I look forward to welcoming Matterport to the CoStar Group family and believe that we will be stronger together, in pursuit of our common mission,” said Andy Florance, Founder and CEO of CoStar Group. “The world has changed and today a Matterport is the new open house or property tour. People now select their next home, apartment, office, store, hotel, or warehouse on their mobile device often without ever visiting the property. There is no better way to remotely experience space than via Matterport. CoStar Group intends to support and invest in research and development opportunities to further develop Matterport’s spatial technology, including the application of AI and machine learning to extract information from the 3D spatial data library as well as using generative artificial intelligence to imagine and reimagine physical spaces.”
CoStar Group operates some of the most effective and widely recognized real estate information solutions and online property marketplaces in the world including Apartments.com, LoopNet, CoStar, and Homes.com, all of which feature Matterport’s 3D virtual tours.
In March 2024, there were over 7.4 million views of Matterport 3D Tours on Apartments.com, with consumers spending 20% more time viewing an apartment listing when Matterports were available. CoStar Group intends to utilize Matterports in a similar fashion on Homes.com to further enhance the most comprehensive agent, seller and buyer friendly residential portal on the market.
Great timing! Just when a new rule is going into effect that requires home buyers to hire an agent before touring a home, CoStar will be pushing their 3D tours as a way to experience the home virtually. Buyers who haven’t signed with an agent or those who wish to be unrepresented will have a great tool to use to preview the homes online without commitment.
But then what?
What will happen when a buyer who has only seen the home online wants to buy it?
The renegade buyers will have their attorney draw up a contract. Good luck with presenting that to the listing agent! Others will finally grab an agent friend and comply with the new rule to tour the house in person with their hired buyer-agent.
If you are going to wait until the last minute to hire a buyer-agent, then make sure to check their Zillow profile to see how many buyers they have represented in the last 12 months. It won’t do much good to hire an agent, only to find out the hard way that they aren’t very good at getting buyers to the finish line.
The Unrepresented Buyer
Between the advanced online tools and the realtor implosion, more and more buyers will resist hiring a buyer-agent, especially with the real threat of having to pay them a big fee out of pocket now.
By now, you know where this is going.
More buyers will be going direct to the listing agent – a practice which listing agents will be encouraging!
But the buyers will be divided into two camps.
Those who want to go direct to the listing agent to ‘save the commission’, and those more desperate buyers who just want to buy the house. Guess which one will get the house.
But let’s say there is only one buyer, and he insists on being unrepresented and wants to save the commission. The conversation with the listing agent will go like this:
Buyer: I see you are offering a 2% commission to the buyer-agents, and I’m unrepresented so I want to save the 2%. Will you knock it off the price or give me a credit for closing costs?
Listing Agent: Every buyer has to be represented, sorry.
Buyer: Ok, adios.
Listing Agent: Now hang on, maybe we can work something out. I’ll talk to the seller.
Listing Agent to Seller: I have an offer of $2,940,000 on your $3,000,000 house. Close enough?
Seller: It’s only been 30 days – is that all we got?
Listing agent: Yes, and rates are going up and Trump will be tweeting from jail soon. You should take it.
Seller: Ok, but I want to take my $4,000 toilet.
Listing Agent to Buyer: Ok, I got you the house for $2,940,000.
Buyer: Did you knock 2% off your commission?
Listing Agent: That’s between me and the seller.
The listing agents will be charging their regular commission rate well beyond July when the new rules take effect. They hope more buyers will be coming direct to them to buy their listing. At first, they will want all buyers to have their own representation (dual agency) so they can keep both sides of the commission.
If the buyer wants to be unrepresented, that will be ok too. The listing agent will keep the full commission and just get the seller to eat a little discount instead – and commissions are never disclosed to the buyer.
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.
For the newer readers, Donna and I have two daughters.
After Kayla graduated from the University of Oregon, she worked with us for five years and then moved to Manhattan where she’s been a realtor there for the last six years.
Natalie has always been a dancer, and she graduated from UCLA with a degree in dance. Since then, she has lived in Los Angeles doing smaller gigs in hopes they would lead to a full-blown concert tour with a major artist. She got her break last year, and has been on tour with Karol G. since August.
For those who aren’t familiar with Karol G., she has been called the latin Beyonce. The tour will conclude in Madrid, a city where she is bigger than Bruce Springsteen and Taylor Swift:
While it has been the dream tour of a lifetime for Natalie, it will come to an end in July (not June – the wiki clip above has the wrong month), after which she will continue to pursue her dance career. Stay tuned!
At the same time, she has also been our full-time marketing director. She authors our email newsletters and handles all of our social media accounts!
Because dance careers tend to be limited to younger people, we anticipate that Natalie will take over our business at some point. She handles Kayla’s marketing too, and if it all goes right, the future of the Klinge Realty Group will be bi-coastal and continue for decades!
Attention realtors who don’t have kids taking over their business. We can help you! When the times comes for you to exit the realtor business, we will buy your database, and take care of your people! Contact me when the time is right for you.
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):
No commission is being offered to buyer-agents.
Some commission might be offered, but you have to call to find out.
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.
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?
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.
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?
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!
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! 😆
From the CEO of a large Sotheby’s brokerage based in Florida:
Last week the National Association of Realtors announced a settlement agreement in the Sitzer Burnett case that would take effect in July. For those who missed the declarations in the media that this outcome will render transacting real estate almost free, protect consumers, and make homeownership affordable once again, the settlement does none of that.
Here’s the truth.
1. The settlement forces brokers to reduce their compensation. False.
The settlement in no way establishes a standard or limitation on Realtors for what they may charge, nor services they elect to deliver. Those fees have always been negotiable and there has never been any collective bargaining. In every market, there is a wide variety of fees, just as there are levels of marketing, service and competence.
2. The settlement will, for the first time, allow sellers to no longer pay compensation for an agent bringing the buyer. False.
There has never been an obligation for a seller to pay buyer agent compensation, yet it is a practice that’s worked well. A past rule requiring an offer of some amount of compensation was a rule of display on a Realtor-owned MLS, yet it could have been as low as $1. That limitation was removed and today the MLS accepts all listings, regardless of buyer agent consideration.
3. The settlement prohibits sellers from paying a commission to a buyer’s agent and relieves sellers of the financial burden. False.
The mandate restricts properties with an offer of buyer agent compensation from displaying on association-owned MLS, yet the practice can’t be restricted in any other form of marketing. Sellers may still elect to pay buyer agent compensation to differentiate their properties. While sellers can elect not to pay buyer agent compensation, that doesn’t mean they will avoid the economics as buyers may write into any offer a contingency requiring the seller to cover the cost or request other concessions.
4. The settlement will serve to meaningfully lower prices and make homeownership affordable again. False.
Values in real estate are determined by supply and demand. Fees in a real estate transaction represent additional expenses, yet these include not only commissions but many other related charges. Should real estate commissions be reduced by 1% because of compression, that $500,000 home will now cost $495,000. Not only is the potential impact marginal at best, but do you think the seller now believes the home is worth less and will happily give the difference to the buyer? The reason home ownership is increasingly less affordable is that homes in our market have significantly risen in value these last few years.
5. The settlement is a win for buyers who will now be able to negotiate the fee for representation. Questionable.
For readers who have purchased homes, it is more than likely you were happy to have the seller compensate your agent so you didn’t have to. For buyers who had to provide the down payment and closing expenses, having the commission paid by the seller and incorporated in the home price allowed them to finance the amount over time instead of coming up with additional cash at closing.
6. The settlement will result in significant restitution to consumers who were “harmed” over recent years in their transactions by Realtors. False.
The settlement is huge, yet when one divides the amount by the number of potentially qualifying consumers it works out to about $10 per person. Those benefiting are the attorneys who have submitted a request to the court for over $80 million in fees.
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As a real estate professional for over 40 years, I have had the privilege of working with Realtors who represent the public in what is likely their largest investment. What I have witnessed are the countless situations where an agent has gone above and beyond to help buyers realize their dreams and sellers maximize their returns, often serving in ways far beyond their job description.
Everyone would like to see costs lowered yet I do not see the Department of Justice going after attorneys or other professions we wish would charge less. I always believed in the concept of free enterprise. If one is willing to assume the risk of running a business, one may do so at rates that allow a reasonable return for the capital investment and time. As my dad would say during his 60-year career, you wake up every day unemployed and have to find a job. Then you spend out of pocket and don’t make a cent unless you achieve someone else’s goals.
The brokerage community has always adapted to best represent buyers and sellers whenever there is a shift in the environment. And we will again. Yet when an industry I love is singled out and the justification is for false reasons, I will not be quiet.
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.
