It’s inevitable that the amount of the commission paid by the seller to the buyer-agent will be made public.
Because the existing rules forbid the MLS companies from disclosing the commission amount to the public, it sounds like the consumer is being wronged. The lawsuits filed against major brokerages are building their case on the lack of transparency about that commission, and when they settle, it’s likely that this will be among the big wins for them – they got the buyer-agent commission disclosed to the public.
Let’s jump ahead.
Once revealed, the public will come to two conclusions about the buyer-agent’s commissions:
The vast majority of sellers offer a 2.5% commission/bounty/reward to buyer-agents to sell their house.
We’re excited to be hosting our first ever ZOOM meetup with James Harris (Million Dollar Listing Los Angeles & Founding Partner, ThePLS.com). We’ll be discussing Los Angeles real estate market trends for Q2 (and beyond) and James will be sharing his take on things.
There was a CB realtor from Santa Monica who said his market has slowed down, with many price reductions, fewer multiple offers, and longer market times. A discussion ensued – my takeaways:
A. The market is level (at best) and sellers need to be realistic. You can spend a million dollars on advertising, have the best photography and videos, and do open house every day, but if the price isn’t right, it still won’t sell.
B. James thought open houses are a good way to expose a property to the market, and for knowledgeable agents to impress the attendees about the value.
C. James also said that when it’s slower, it’s better to test pricing off-market first. (But wouldn’t it be natural for sellers to say, ‘let’s test the price on the open market to find out for sure.’)
D. When a home is on the open market but not selling, it’s better to lower the price in weeks, not months.
Those sum up the basic fundamentals for today’s market.
I suggested that to enhance the value of private-listing clubs, they should limit membership to the top agents only, but they didn’t want to get into it. They did like my idea of having more webinars where agents can discuss topics and listings.
The club hasn’t made much of an impact yet in the San Diego area. There are only 34 listings county-wide on the website, and some are older and/or already sold. Curiously, one had been on our MLS this year, but expired and is now on the PLS only as an off-market opportunity at virtually the same price.
The other large private listing club, Top Agent Network, is limited to the top 10% of agents in a region (based on volume). They were thinking of opening in San Diego, but I haven’t heard any updates lately:
There may come a day when the private listing clubs have an impact, but it would take their leaders to constantly sell the benefits to agents – and those are people who have become wary about the benefits from the traditional MLS (if any). If an agent wants to pursue an off-market sale, then it’s too easy for them to throw a sign in the yard and wait (if the price is right).
Brokerages are finding new ways to convince sellers to do in-house deals – an excerpt:
According to Charles Williams, CEO of Buyside, “the software we supply to Metro Brokers unlocks the power of their buyer data for agents so they can win more listings, become more profitable and command greater control over their inventory.”
Buyside’s core products include Home Valuation landing pages, which combines multiple automated home valuations with visualizations of real-time buyer intent; Buyer Match™ dashboard, which intelligently pairs homebuyers and sellers within a brokerage; and Real-Time Buyside Market Analysis (BMA), which arms a brokerage’s agents with insights on buyer demand to help them close more listing presentations.
“Our affiliation with Better Homes and Gardens Real Estate provides our firm with outstanding analytics and business intelligence tools that are the cornerstone of excellence in any leading real estate firm today,” says McClelland. “We have tremendous success marketing properties for sale and leveraging the Zap platform for maturing homebuyers. Today’s homebuyers are shopping for about 240 days before closing. When securing a new listing, our agents use Buyside to explain that the likely buyer for that property has already been working with a Metro Brokers agent for months. The value proposition of our firm’s listing presentation is not how we will find buyers, but the number of homebuyers that we have looking for their home today. We don’t believe that any other brokerage in Georgia has more home buyers than Metro Brokers.”
I haven’t seen an article yet where the reporter gets the other side of the story, so I’ll address these fallacies below at green paragraphs. Hat tip to all who have sent in this story!
Why should a home seller have to pay for the buyer’s side of the transaction, especially when the buyer’s expenses include negotiating against the seller?
That apparent conflict of interest is at the heart of an escalating legal battle that pits the National Association of Realtors (NAR) against a group of law firms that filed a class-action lawsuit on behalf of home sellers against the NAR and four large national real estate brokers: Realogy, HomeServices of America, RE/MAX and Keller Williams Realty. As of May 22, the Department of Justice joined the fray when it demanded information about residential estate commissions from CoreLogic, a California-based data analysis firm.
JtR – Why? Because it is in the seller’s best interest to offer a bounty/bribe to the buyer agents.
The fight is forcing into the open many of the hidden factors that dictate how realty agents are paid and common practices that make it difficult for home sellers to effectively negotiate the commissions they pay.
It is standard for multiple listing services — data bases owned by realty agents — to require that the entire commission be paid by the home seller. Typically, the commission is 5% to 6% of the sale price of the property. Then, the commission usually is evenly split between the broker representing the seller and the broker representing the buyer.
That means that the seller directly pays for the transaction costs for the other side — even when, as is common, the other side negotiates for a better deal. The net result is that the seller is forced to pay for those working against him or her. The core of the lawsuit is that “the rules are, in effect, anti-competitive,” said Brown. “It’s a very strange way to run a market.”
JtR – The MLS does not require that the entire commission be paid by the home seller. They require that the listing broker offers compensation to the buyer’s agent, and it can be any amount.
The NAR filed to dismiss the lawsuit, partly based on the fact that it supports many types of business models for its members, said Rene Galicia, director of MLS engagement for the NAR. “The MLS doesn’t set commission rates. That’s left up to individual brokers and consumers, depending on the transaction,” he said. “Consumers should look at their level of comfort with real estate and what they want to accomplish. It’s highly competitive right now. Lay out your goals and find which broker will meet your needs.”
The actual commission structure has not been tackled head-on until now, say real estate experts.
JtR – The commission structure gets tackled every day on the street – without pads and helmets! We should do a better job of disclosing how much commission, and why, to all parties.
The split-commission structure causes confusion when sellers try to negotiate how much they will pay, because any reduction must be negotiated with everybody involved, explained Gary Lucido, president of Lucid Realty Inc., a Chicago broker that offers rebates on commissions. For instance, if the seller’s agent agrees to take less money, the buyer’s agent might not agree to a discount.
JtR – The commission isn’t negotiated with everyone involved. The listing agents decide how much they are willing to pay buyer-agents, and then present the commission package to the seller for approval or negotiation. The buyer-side cut comes out of the total commission negotiated between listing agent and seller – the only choice the buyer-agent has is whether they will show the house.
Also, the baseline costs of selling are not always obvious to consumers, said Lucido, which means that home sellers often don’t have the information they need to effectively negotiate. The cost of listing a house in the MLS, which feeds national listing sites such as Trulia and Zillow, is the same regardless of the asking price. A higher-end property might require additional marketing services and associated costs, such as a drone video or a fancy broker’s open house.
But usually, said Lucido, the additional cost of marketing does not justify the richer commission on a higher-end property. That is why, he said, agents are more willing to reduce their commissions on more expensive properties than on those under $200,000: Once the fixed costs are covered, it doesn’t take that much more work to sell an expensive property than a moderately priced property.
JtR – This is the common ploy by discount agents – that it doesn’t cost that much more to sell the higher-end properties. It suggests that all agents offer the same skill set, which is the true issue that needs to be examined – and maybe in court. Because the supply-and-demand of higher-priced homes is in the buyers’ favor, the sellers should hire agents with advanced sales skills and resources.
The class-action lawsuit and DOJ involvement might be enough to bring Americans in line with the rest of the world in terms of how real estate fees are calculated and paid for, said Timothy S. Becker, director of the Kelley A. Bergstrom Real Estate Center at the University of Florida in Gainesville. “The 6% model is ridiculous compared to how real estate is bought and sold in the rest of the world,” said Becker. “The agencies are set up to work for the transaction and for the agents’ own interests, not for consumers.” Real estate commissions around the world vary, but often are as low as 1.5%.
JtR – The media insists on quoting outsiders incessantly on this topic, but never explores further. You pay peanuts, you get monkeys.
It is significant that the class-action lawsuit is brought on behalf of property sellers, because they are the ones who pay the entire cost of the transaction. “The buyers currently don’t pay anything,” said Becker, “There should be a correlation between what you get and what you pay for.”
JtR – If buyers don’t pay anything and, as a result, can choose any agent to represent them, you’d think they would search out the very best. Why don’t they? The internet has made the homes for sale more available to consumers, but has it educated them on the nuances? No, and the industry is to blame. This lawsuit won’t change it, either.
The camera was rolling today – here are a couple of short home tours with commentary along the way:
We lost a pillar of our industry this week when Mike Evans, broker/owner of Sea Coast Exclusive Properties passed away. He began his brokerage in 1985, and it grew into three offices with 150 agents before he sold it to First Team in January. RIP
Realtors are fighting the idea of open bids? Agents prefer no rules:
Ontario real estate agents are lobbying the province against the mandatory disclosure of offers among competing home buyers in transactions involving multiple bids.
The Ontario Real Estate Association (OREA) sent a bulletin to its 78,000 members this week urging them to contact their MPPs to oppose the compulsory sharing of offer prices and conditions among competing buyers. That’s something the province has said it is considering as part of its planned update to the 2002 Real Estate Business Brokers Act (REBBA).
“Buyers and sellers should have the choice of using an open, transparent process,” said the OREA email.
It says that sharing information about competing bids could lead to the disclosure of personal financial information to any interested parties.
“The government should not force consumers to gamble their life savings in an experimental, mandated open offer process,” said the OREA email signed by association president Karen Cox.
“Hard working realtors like you would face increased red tape,” it warned.
Under the current rules, a real estate agent can only share the details of offers with the property seller.
But consumers should have a choice if all the buyers and the seller agree, said OREA CEO Tim Hudak.
Making the disclosure of offers mandatory “would be a radical change in the real estate market that does not exist anywhere else in North America,” he said.
“This would invoke a brand new process for every real estate transaction where brokers would have to distribute offers to all the other buyers,” said Hudak and that means sharing prices, deposit and closing information, right down to who gets the fridge.
The buyers’ addresses would be included in each of the offer documents, as well as conditions around the need to sell another home or the amount of cash that buyer has on hand for a deposit.
Some sellers would agree to share offer information based on their ideas of fairness for buyers, said Hudak. But all sellers should seek the advice of their realtor, he added.
At least one Toronto agent says his advice would depend on whether he was representing a buyer or seller.
“If I were representing my seller I’d say, ‘no.’ Unless I was mandated to do it, I wouldn’t do it. It’s our job to protect our clients,” said Royal LePage’s Desmond Brown. “If I had a buyer I would want to know as much information as possible.”
Among its 28 recommendations for modernizing the real estate act, OREA is proposing that the government eliminate bully bids — offers that pre-empt the time the seller has set to look at bids on their home. It is also recommends the elimination of escalation clauses, offers that specify the buyer will exceed the best bid by a certain amount.
The Toronto Real Estate Board (TREB) said it understands, “the fairness angle,” of disclosing competing offer details. “But this will also be a tricky area for the government to attempt to legislate,” said a statement attributed to board CEO John DiMichele.
“Disclosing bids puts realtors in conflict with their seller clients,” he said.
In regard to bully bids, the government would need to either require sellers to look at all offers as they come in or not accept any until a certain date.
“We prefer less government intervention in the marketplace,” said the statement.
The percentages are quite a bit higher this year. The title of the graph could be ‘Sellers Who Are Having No Showings’ because most are (overly) optimistic this early in the selling season and hold tight on price until later. Something must be rattling them – like no showings.
An excerpt from the UT article:
Home price reductions are still common when the market is red hot. It is sometimes a selling tactic — although not usually considered a good one — to price a home higher and then come down so the buyer feels like they are getting a deal. But, the number of reductions recently shows a big change.
For instance, 8.5 percent of homes had price reductions in November 2016. In November 2018, there were 29.4 percent.
Jason Cassity, a real estate agent based downtown, said the industry has a problem shifting when there has been a big change — such as a downturn in sales at the end of last year. He said some agents are operating like there will still be a bidding war.
“If you continue pricing like it is 2016, it is going to sit on the market a long time,” he said. “Or you are going to be one of those 20 percent (in February) that have to price reduce.”
He said a lot of the reductions he has seen were listings marked up too high out of the gate, something a lot of agents could get away with for years. He said sometimes homes are priced overly high just to meet sellers’ expectation of a huge payday, not the actual value.
Cassity said he presents news articles about the real estate market to clients before they decide on what price they are going to market with.
Here’s a good example of what makes us old-school agents good at our job – we know the inventory. Seeing the new listings every week enables us to recognize the features/nuances of each home and how they compare to other active, pending, and sold listings. It also gives us a chance to network with the other agents, get tips, and build alliances – and find good matches for our buyers.
You never see discount or disrupter agents on tour – ever:
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
by Ann Romanello
"Jim educated us, helped us find the perfect house, and then negotiated us a great deal. I would hate to be sitting across the negotiating table from ... more "
"Jim is thorough and will be brutally honest about the homes he shows you. He provides great service and follows through until the very end and even ... more "
"I highly recommend Jim as a buyer’s agent. Working with Jim, we closed this week on a San Diego condo. Jim prepared a list of comparable sales to ... more "