The California Association of Realtors had to re-write a few of their new forms in order to comply with the DOJ critique. These revised forms get released tomorrow, and they will probably help chart the final path for buyer-agents.
There are two noteworthy points in them.
1. The old listing agreement mentioned the full commission rate the seller would pay at closing, and then in a separate paragraph at the bottom of the same page, it listed how much of that full commission that would be paid to the buyer-agent. The second rate was determined by the listing agent with little if any involvement of the sellers.
The new listing agreement will dictate the commission rate the seller will pay at closing for seller representation only. There won’t be any mention of the seller paying the buyer-agent.
But there will be a second paragraph where the listing agent can add an additional fee for handling the extra work created if the buyer is unrepresented.
In summary: Agents who only use the basic listing agreement can completely ignore buyer-agents, and can also tack on an extra rate or fee for bringing in unrepresented buyers. It will encourage single agency, and buyers will really have to be committed to getting good help!
2. If the listing agent is committed to having their seller offer “concessions” to a buyer that may be used towards a buyer-agent commission, they will need to include a separate and optional form. The form will ask the seller if they want to offer concessions (Yes or No), and if so, how much do they want to offer.
Ed Zorn is the vice president and general counsel of CRMLS, the largest MLS in the state. When asked about the concessions amount, he said sellers should not ‘commit to any kind of number whatsoever.’ Our Compass management agrees.
To the ivory-tower folks, not offering a specific commission rate to buyer-agents sounds safe and compliant. But it will expedite the death march of the buyer-agent.
The listing agreement will be encouraging single agency and if a buyer-agent can find their way to the negotiating table, there won’t be any guarantee of the seller paying anything towards your commission.
Literally, there was a chance for this to all work itself out by using concessions to pay buyer-agents. But everyone is so nervous about future litigation that these revised forms will lead us down the path of eliminating the buyer-agents. Single agency is upon us!
The other real estate reality shows are so full of drama that they are barely watchable. While they do pack some drama into Ryan’s new show, Owning Manhattan on Netflix, they mix in a few examples of him doing a masterful job of negotiating between agents and principals to make deals. Specifically, listen to his verbal discipline when talking on the phone – Ryan says very little, and keeps all the attention on the price – no stories or verbal vomiting.
He demonstrates a realtor’s most important job:
Say the right things, the right way, at the right time.
And he could give you the list of the things to say – it’s saying them the right way, at the right time that makes the difference between highly productive agents, and the rest.
He makes it look easy, but the mental discipline to gently yet succinctly assist people with making the right decisions is an art form and extremely uncommon.
I watched the eight episodes that have come out and thought Ryan’s negotiating was the most accurate representation of high-level agent deal-making that has ever been documented. Ryan also loses three key agents during the first season, which is another part of the business – agents are known to move around, and aggressive recruiting (particularly by Compass) is a constant threat.
This is just the trailer – if you are an agent or big fan of real estate, watch the whole series:
Floyd Wickman said it best. Don’t sell with blah blah, when you can sell with blah.
Oh, the 5-offer bidding war with my buyers? After a week of kicking it around, the listing agent finally called last night. Her sellers decided to not conduct a legit bidding war (even though the listing agent had promised it all week) and instead they sold the house to a neighbor at an under-market price.
It was a great example of how most potential bidding wars get botched by amateur listing agents. The realtor doesn’t take control of the situation and it just goes where it goes – and buyers get screwed.
Hat tip to Carl Streicher, mortgage broker, for sending over this handy chart on allowable concessions, also known as seller contributions. This is how the buyer-agent commission can be included as a part buyer’s mortgage package, even if the seller didn’t sign the optional form with his listing.
If the buyer-agent writes the offer with a 3% or 4% seller contribution to the buyers’ closing costs, then the commission can get paid plus cover some or all of the buyers’ other closing costs too. Sellers typically want to offset with a higher price to compensate, which can make the appraisal more challenging, but once the home has been on the market for a few weeks maybe the seller will take less?
This is the reasonable solution that can solve everything.
Prior to the Frenzy, seller contributions were more common, especially with first-time homebuyers who were tight on cash. But concessions all but went away once bidding wars started breaking out everywhere. If there are multiple offers now, the ones without a request for seller concessions will probably float to the top of the pile.
Why am I skeptical?
Three reasons:
Sellers will have already been told that they don’t have to pay for the buyer-agent.
If there is another offer that doesn’t request a concession, then it will likely be favored.
The seller and listing agent will want to negotiate the amount.
You would think that sellers could just focus on the amount of their net proceeds, but some get weird about paying concessions. If the listing agent is experienced/strong and wants to stand by his fellow agents, then he will explain it in a way that the sellers see the obvious benefit – it gets your house sold.
But it’s not a slam dunk. At least not yet, though a solid advertising campaign by NAR and CAR could go a long ways to making it the palatable solution for everyone in America to transact the same old way that we’ve been doing it for 100+ years.
It was probably obvious that the contracts were drawn up by the realtor attorneys to protect realtors, but there were adequate protections for buyers and sellers too.
This commission lawsuit has changed everything, and now they only care about the realtor associations.
When Docusign pioneered the electronic signature, it was one of the best advancements in the history of real estate. But it causes clients to whip through the signing process without having to read anything! The attorneys make it worse by originating new forms every year, and currently a seller has to initial or sign 18 pages to list their home for sale, and a buyer who makes an offer to purchase has to sign or initial 28 pages!
The coming changes are going to add another half-dozen pages to each, and you better read them now!
BUYERS – You have to hire an agent to see homes for sale, which means signing a contract. It sounds ridiculous, which it is, but we are going to have to get used to it. The key part is how long the buyer is obligated to the agent.
If you don’t read the contract and just sign it real quick, you could be obligated to pay this agent a commission whether they represent you or not when buying a home. Buyers should only agree to sign any buyer-broker contract if it includes a cancellation clause so you can get out of it if things don’t work out.
SELLERS – The basic listing agreement won’t allow you to pay an incentive to a buyer’s agent. Your listing agent will have to include a optional form and have you agree to pay “concessions” which can go towards any buyer expense. I’m guessing that this form won’t be used much, and instead the listing agents will want to be heroes and tell their sellers that they get to save money now because they don’t have to pay buyer-agents any more – even though it’s going to kill the business as we’ve known it for 100+ years.
It may sound like a good idea to not pay buyer-agents in the beginning, but if your house hasn’t sold for weeks or months, you might reconsider. Paying incentives to get what you want is an American tradition.
AGENTS – You better be committed to getting paid, because everyone is going to be looking to screw you out of a paycheck – especially the other agents. The MLS used to protect buyer-agents because once a commission rate was entered onto a listing, the seller had to pay it. The rate was protected, and it became accepted as part of the package.
But it’s going to be different now, and the buyer-agents who include their commission in their offer to purchase will be under attack. If you make an offer that is less than the list price, the first thing the seller will want to do is pay you less, and I doubt that the listing agent will stand up for you. I can imagine it already from listing agents – “Ok, we accepted your buyer’s price but we’re not going to pay you anything!”
It means that any buyer-agent who wants to be paid will have to get it from their buyer. It will be another huge burden loaded onto the buyers, and only the most motivated will endure paying the same fees to which we have become accustomed.
So hey, maybe agents won’t get paid as much, but selling homes is going to be a mess – unless buyers can find a way to Get Good Help!
Due to expected scrutiny from the DOJ, the California Association of Realtors has abandoned buyers, and the buyer-agents. If a listing agent wants to include paying an incentive to buyer-agents, not only do they have to convince a seller that it’s a good idea, but then they have to use an optional form and NEVER call it a commission. Beginning on July 24th:
The Residential Listing Agreement will no longer provide for any offer of compensation from the listing broker to the buyer’s broker. C.A.R. confirmed that they will no longer facilitate broker-to-broker compensation agreements. The Cooperating Broker Compensation Agreement is being retired and will no longer be part of the C.A.R. forms library; the same applies to the Anticipated Broker Compensation Disclosure. The message is clear: C.A.R. will not produce/provide any forms related to broker-to-broker compensation.
The newly revised RLA will only include the agreement between the seller and the listing broker as it relates to compensation. The option for the listing broker to charge an additional fee if the buyer comes to the table unrepresented will remain. This option is available to account for the additional work that may be required of the listing agent when buyers elect to self represent.
In transactions where a buyer is unrepresented it is imperative that the listing agent not act as a fiduciary. The Buyer Non Agency Agreement form must be provided to and signed by the buyer. It is important that listing agents are careful with their words and actions, so as not to imply a fiduciary relationship with an unrepresented buyer.
As it relates to concessions that a seller may wish to offer to a buyer, the listing agreement will not specifically reference such offers. However the Multiple Listing Service Addendum includes the concession language. Paragraph five of “MLSA” will inform the seller as to the option of offering a concession to the buyer. The default will indicate that there are no concessions, however, there will be a checkbox in paragraph 5B2 wherein the seller may agree to consider a concession to the buyer to be used toward the buyer’s closing cost. No amount, either flat fee or percentage, shall be stated without the express written consent of the seller.
It is important to remember that concessions may not be designated for commission rather they are a seller to buyer offer extended solely to assist a buyer with closing costs which may include a variety of fees including broker compensation.
First, the National Association of Realtors botched the defense of buyer agency – allowing the world to believe there has been a conspiracy to inflate commissions – which could not be further from the truth. Now the California Association of Realtors has caved to the implied DOJ threat and revised all their forms to cover themselves, instead of fighting for buyers and buyer-agents. They didn’t even try to fight it – they just caved and revised their forms instead and expect agents to adjust.
In addition, the new listing agreement won’t mention any buyer-agent compensation, but it has a paragraph for the listing agent to include more pay for handling the unrepresented buyer without providing any fiduciary duty. The form is promoting single agency!
This is a disaster. Buyer-agents will be expected to convince buyers that they need to commit in writing to paying the buyer on-agent commission before buyers even find a house. They don’t think they need help finding a house – they have access to Zillow.
They will go direct to the listing agent instead.
SINGLE AGENCY IS UPON US – IT IS HERE, STARTING AUGUST 17TH AT THE LATEST.
It will be the worst thing to happen to real estate ever, yet outsiders will claim that they got commissions reduced so it worked and everything is fine.
Sales will plummet the rest of the year – I guarantee it – but we won’t know if it’s due to buyers waiting it out and/or not knowing what to do, the insane political circus that will only get worse, or if home prices and rates are too high. But that is a wicked triple threat!
We know that the current DOJ wants to de-couple commissions, and have buyers pay for their own help. How does Team Trump feel about real estate commissions? I checked with Project 2025:
Project 2025 proposes significant changes to the traditional real estate commission structure to promote more transparency and direct negotiations between consumers and real estate professionals. Currently, in many U.S. real estate transactions, the seller typically pays a combined commission of 5-6% of the sale price, which is split between the listing agent and the buyer’s agent. This conventional arrangement has been criticized for creating potential conflicts of interest and lack of transparency regarding the actual costs associated with buying a home.
The new guidelines suggested under Project 2025 aim to shift this dynamic. The recommendations encourage a system where buyers directly pay their agents, allowing for more transparent negotiation of services and fees. This change is expected to lead to a more competitive market for real estate services, where commission rates are negotiated separately and may potentially decrease as a result.
One significant component of these changes is the move away from blanket offers of cooperative compensation to buyer’s agents on multiple listing services (MLS). Instead, buyers will negotiate and pay their agents directly, fostering a clearer understanding of the costs involved in their transactions. This is anticipated to lead to a more consumer-friendly environment where buyers have greater control and can choose services that best fit their needs and budgets.
Geez…it sounds identical to the current DOJ solution! It will be the worst thing that ever happens to the real estate market, mostly because weaker agents will oblige.
To clear things up for consumers, we should change one word.
Real estate commissions are NOT negotiable. They are DIFFERENT!
Everyone (especially NAR) is pushing the catch phrase, Commissions Are Negotiable, so they don’t get sued any more. But that isn’t helping anyone. All it does is make the consumer think they just need to find an agent and then work them over for a lower commission rate.
But if we said, Commissions Are Different, then consumers would wonder what is different – and conduct an investigation among agents to determine the differences, and what is best for them. It’s what has been missing all along!
Instead, it will be about beating down agents on their pay, without realizing that an inferior experience will be the likely outcome.
How is the experiment going so far?
It is still legal to advertise seller-paid commissions in the MLS, but some think it’s a good time to try out the idea of offering little or no seller-paid commissions to the buyer-agent to save some money. Here are three active (unsold) listings that have been lingering:
True, there are also hundreds of unsold listings piling up that offer a 2.5% commission so it’s not just the discounters/experimenters who are having trouble with today’s market. We don’t know if it’s the lack of commission or the list price that is causing these not to sell, but after two months on the market, you can expect buyers will want concessions on one or both….or maybe they will just wait until next year.
With the market already stuttering a bit, sellers may want to consider getting it done now while they can still pay a commission to a buyer-agent. It will not be easier to sell during the ‘decoupling adjustment period’ that commences on August 17th. In fact, between the adjustment period and the political circus, the market will be in stallout mode for at least the last four months of this year.
Hopefully there will be an announcement any day about the brokerages suing NAR that might postpone the elimination of seller-paid commissions. Can we at least put it off until Spring, 2025 please?
Our president of the western United States was at our regional sales meeting on Friday. At the end, he announced that Compass has joined with all of the other brokerages who were identified in the NAR settlement as having over $2 billion in sales volume – a group that employs so many agents that it makes up 86% of the total NAR dues.
They have all hired the same law firm, and they are going after NAR. I think it means that the settlement that forced the big brokerages to pay $400 million will get litigated, and hopefully the lawsuit will get appealed too.
Hopefully, it isn’t just a delay tactic. The lawsuit should get appealed because the defense put on by NAR was pathetic and very arrogant – it was like they thought that they just had to show up to pick up their automatic win.
I don’t think any agent will mind if the buyer-agent commission isn’t required to be inputted into the MLS – we will live with that. We’ll probably live with having a required written contract with our buyers too.
But sellers should have the right to incentivize the buyer-agents. Because the DOJ won’t come out and state that clearly – they only hint at it – we will be living in purgatory until someone forces the issue. The brokerages should help defend the practice, and see it through to the end.
Some sellers may not agree with me now, but the market slowdown is coming and you will want additional tools to help sell your house in the very near future. If you don’t want to offer an incentive to buyer-agents, no problem.
Also mentioned on Friday is that they are going after the Clear Cooperation Policy too – the NAR mandate that a listing must be inputted into the MLS within one business day after any public marketing. We’ve come to live with that policy too, but I think it shows that they are bringing all the firepower to destroy the National Association of Realtors and build anew.
The president didn’t say anything about this being quiet, so I would think that there should be an announcement any day now. If this blog post disappears, then it might be a while?
There will be fewer agents, which is a good thing. There are 20,000+ realtors in San Diego County, and last month there were 2,113 sales of attached and detached homes. Hat tip to Greg for sending in this article!
When real estate broker April Strickland looks at her local housing market in Gainesville, Fla., she sees a mismatch. Industry data shows that only a few hundred homes are sold each month, she said, yet there are more than 1,500 local Realtors.
Strickland has seen the ups and downs of the housing market since 1995, when she started managing her parents’ rental properties as a teenager. But she says the business environment of the past two years is the most challenging she can remember — slower even than the years following the 2008 financial crisis.
“Quite frankly, Realtors are running out of money,” Strickland said.
An industry that swelled with newcomers in 2020 and 2021 has recently experienced a harsh slowdown — leaving the field no choice but to downsize, experts say. One widely cited analysis predicts that as many as 80 percent of the country’s real estate agents could find a new line of work.
“Many industry leaders think there are way too many agents and would like to reduce the number so the professionals can service more clients, thus allowing a reduction in commission levels in order to maintain current incomes,” said Steve Brobeck, a senior fellow at the Consumer Federation of America.
By some measures, the exodus has already begun.
The Bureau of Labor Statistics recorded 440,000 full-time real estate agents and brokers in 2023, about 72,000 fewer than the year before.
Realtors will soon face new rules that could result in sweeping changes to how they do business and how they get paid.
Under the new rules starting in August, real estate databases no longer will include offers of compensation for buyers’ agents. That means those agents can no longer count on a cut of the seller’s windfall. Investment bank Keefe Bruyette & Woods has estimated that as much as 30 percent of the total U.S. commissions revenue might be lost as a result. They forecast that changes to the commission structure could cause 60 to 80 percent of U.S. Realtors to leave the profession.
CUNY Baruch College’s Sonia Gilbukh and Yale School of Management’s Paul Goldsmith-Pinkham estimated that about 56 percent of agents would exit the market if one side’s commission remained at 3 percent while the other became competitive, Gilbukh said in an email describing the study. A 2015 paper in the Rand Journal of Economics by Panle Jia Barwick and Parag Pathak predicted that a 50 percent reduction in commissions would result in 40 percent fewer agents.
Experts see a silver lining in a potential exodus of Realtors: Those who remain might be more experienced and competent. “This will be good for consumers because agents on average will be better at their job and will charge more competitive commissions,” Gilbukh said.
A “Realtor glut” has persisted since the industry’s pandemic high point, said Brobeck, who also sees a departure of real estate agents as probably a good thing for home buyers.
Gilbukh, the CUNY researcher, believes that only the most experienced agents will be able to keep charging high commissions.
Agents that survive the upcoming transition are likely to be better connected within their industry, having deeper relationships with professionals such as contractors, electricians, plumbers and appraisers, and “overall better poised to advise their clients,” Gilbukh said.
The proposedNAR deal was met with fear throughout the industry when it was announced in March, Strickland said. But the panic has given way to a “wait-and-see” attitude, she said.
She characterized the NAR deal as a positive thing overall:
“It will eliminate people who quite frankly aren’t up to snuff, who can’t do the work, who don’t want to educate themselves and learn new ways or working. … This will be a good pivot for our industry.”
The U.S. Department of Justice broke its silence in court on Tuesday on the impending changes coming for the real estate industry in the wake of settlement agreements by major brokerages and the National Association of Realtors in what experts say was a statement Realtors should heed.
During a status hearing for a case in Massachusetts, Jessica Leal, an attorney for the DOJ, said the regulator would neither support nor oppose the NAR settlement agreement, which will lead to sweeping rule changes this summer. “We believe offers of compensation should not be made anywhere, but certainly not on the MLS,” Leal said.
Without any advertised commitment to pay them a commission, what will buyer-agents have to endure? At best, the seller-paid commission will be a moving target, and many, and probably most times it will end up being peanuts. Any agent who expects to be a successful buyer-agent will have to become experts at having their buyers pay them.
But even if an agent can get buyers to sign a commission agreement, the process of buying a home around here is very difficult. I have an entry-level buyer right now who is making full price, all-cash offers, and over the last 45 days has struck out six times in a row.
Buyer-agents are being squeezed out by several market forces, and who will mind? The lack of transparency and the games the listing agents play are so unsavory that buyers and their agents will have to be extremely motivated to succeed just to eventually buy something. Agents won’t want to represent buyers under these circumstances, and just quit instead.
The real issue now is that buyers HAVE to hire a buyer-agent in writing to buy a house. Once they figure that out, will they investigate the choices carefully, or just grab someone? Or have Aunt Bea handle it? Or just go to the listing agents? Once the frustration sets in, going to the listing agent will seem like a way to improve their chances.
But the old-school listing agents will cop an attitude and either not want to do dual agency at all, or they will want the buyers to be unrepresented. Progressive listing agents will encourage buyers to come to them directly, and it is inevitable that it will become the prevailing trend. It’s how the commercial brokers do it, and it’s mostly because agents don’t like other agents – not because it is what’s best for the buyers and sellers.
These agents discuss some of the pitfalls here. They have built a realtor team of 51 agents since covid, and have sold 448 homes in Connecticut over the last 12 months – so they are in the game. But they don’t come up with any perfect solutions – because there are none:
In other words, it’s going to be a mess of a market as agents turn their focus on getting buyers to sign an exclusive agreement. It will just complicate further what is already a very challenging environment.
