Hiring a Buyer-Agent

The commission lawsuits and action by the DOJ will cause buyers to wonder if they need to pay for representation, and what do they get if they do.

It will also be a function of how much it costs. If the service was free, everyone would do it.

It’s been like that in the past, but it also caused buyers to be a little too casual about who they selected, and they tended to just grab someone – which doesn’t always bode well.

  • If the fee was 1% at closing, you’d probably do it – if you liked them.
  • If the fee was 1.5% to 2.0% and the terms were clean and non-exclusive plus the agent made a really good case why he’s worth it, then yeah, maybe.
  • If the fee was 2.5% to 3%, there would need to be some guarantees or real promise that you would get exactly what you wanted, and be very impressed with the service too.

Buyers will be able to include in their purchase offer that the seller pays all or part of the buyer-agent commission. But there won’t be any promises about what a seller might pay – if anything. So buyers should be prepared to pay the entire amount to their agent, as agreed up front.

What should buyers expect? What are the skills that good buyer-agents possess and implement on behalf of their buyers? Here is my quick list:

Overall analysis of general market conditions

Video /audio tours of prospective homes for sale

Pinpoint Home-Value Analyses

Measure up the sellers and listing agents

Winning-price predictions

Offer Strategies

Bidding-War Management

Contingent offers that win

Tough and detailed inspections with free quotes on repairs/improvements

Expert deal management

Foreclosure hunting

Bridge-loan financing

Off-market homes for sale

Sniff out any shenanigans

See the new listings in person every week.

There are also the 132 things agents do for buyers linked here, but the real problem is demonstrating the skills. How will buyers know what they need? How will agents show them what they have to offer?

When you go to the car dealer, they let you take the car for a drive around the block. How can you do that with a buyer-agent?

It would be fruitful for agents to have a blog where they demonstrate how they work, and provide evidence of their results. But that may be asking too much of agents.

We do free consultations for sellers. Let’s do them for buyers too.

Buyer-agents should offer their list of services AND be willing to meet any prospective clients-to-be at a home for sale so agents can show them what they do. A tour of a house to point out the positives and negatives will give the potential buyers a great sense of the agent’s expertise.

Agents – let’s make the free consultation at a home for sale part of the effort to assist buyers. Besides, you want to get a sense of whether you want to work with these buyers too.

Before you get married, you should have at least one date!

What do you look for when you meet your potential realtor at a home for sale to see what they have to offer? If they add to the experience something you didn’t know, then you’re on the right track – ask questions! If they say, “Here’s the kitchen”, it is an automatic disqualification – just run to your car!

Dominance vs. Fiduciary

These Palo Alto guys have been making national headlines since they rolled out their reduced-commission program last week. They are offering a $10,000 fee to buyer-agents, instead of a percentage, AND encouraging buyers to come directly to the listing agent to avoid paying any fees (which is my beef).

Why would a high-end independent brokerage that sold 100 homes in the last 12 months – mostly in the $3,000,000 to $10,000,000 range (with sales of $40,000,000 and $44,000,000 too) – feel the need to effectively shut out their fellow real estate agents? Beats me.

Last week, the Department of Justice stated that commissions should be decoupled and NO fee be offered up front to buyer-agents by the seller or listing agent (though they did agree that buyer-agents can include a seller-paid commission in their buyer’s offer).

What gets lost in the discussion is the 120-year history of broker cooperation – where other agents can sell my listings, and I can sell theirs. It is a terrific system that best serves the sellers and buyers, which is our fiduciary duty.

But greed and market-share dominance is pushing fiduciary duty to the sidelines. Instead, brokerages are taking advantage of the current uncertainty to craft a quasi-single-agency package that effectively shuts out the cooperating buyer-agents under the guise of saving the seller money. Is it in the seller’s best interest to discourage the outside buyer-agents?

This is one of their first listings to hit the open market that offered their $10,000 fee to buyer-agents, and it went pending in seven days:

https://www.compass.com/app/listing/764-parma-way-los-altos-ca-94024/1510956913476773969

Keep this house in mind – I’m listing a house near it this weekend!

Buyer-Agent Compensation

Yesterday, we attended Gov’s annual update on new laws and forms for 2024.

He touched on many topics – including that landlords in California might be agreeing to tenants for life because it’s so hard legally to get rid of them – but the most interesting was his comments on the realtor lawsuits and commissions for the buyer-agents.

To demonstrate the difficulty of coming up with a viable solution, the best the California Association of Realtors can do is to add paragraph G3 into the purchase contract (above) and hope the buyer’s agent already has a written agreement for the buyer to pay the commission. At least paragraph G3 will pass the responsibility of paying the buyer-agent commission along to the seller so the buyer doesn’t have to pay it, but in a multiple-offer situation, all it will do is send your offer to the back of the line.

When in a bidding war, buyer-agents will be forced to omit paragraph G3 and saddle the buyer with the commission payment instead.

What’s worse is that the federal judge presiding over the successful realtor lawsuit will be deciding in May whether or not to make it a national law that PREVENTS the seller from paying the buyer-agent’s commission altogether, or let the current commission structure ride until the appeals process is complete.

It appears that the buyers will be paying their agent’s commission, sooner or later.

In an interesting twist, Gov was describing how the best solution for evicting a tenant is to bribe them with cash-for-keys and we even have a form for it now. But bribing a buyer-agent is completely out of line? A home seller should have the ability to pay the buyer-agent commission if they see fit.

Home Sellers Disclosing Repairs

From our broker of record:

Q. The seller told me that when he bought the property seven years ago there were drainage, soils and foundation issues.  He said he has fixed everything and there have been no issues or problems during his ownership. He said because he fixed everything there is nothing to disclose to a buyer.  Is that correct?

A. No. Past defects, even if repaired by the seller or others, are to be disclosed. Not only that the seller should provide all relevant information regarding the repairs to any prospective buyer but also any improvements or modifications. The information would include but not limited to the person(s) who performed the repairs (i) the property owner (ii) a licensed contractor (iii) an unlicensed tradesman (iv)all paperwork related to the repairs/improvements/modifications to the property.

In addition, the new “Flipper Law (AB 968)” which will become law July 1, 2024, means a seller of a residential one-to-four property who accepts an offer within 18 months from the date when title was transferred must make the following disclosures: 1) The seller must disclose repairs and renovations when performed by a contractor with whom the seller entered into contract; 2) the name of each contractor and their contact information; and 3) any permits obtained (or if not obtained, the contact information of the third party who can provide the permits). It happens regularly that sellers do improvements without obtaining proper permits, so double-check at the city or county to verify.

Net Listing

Sellers can decide their price in the beginning, and I’ll take the rest:

A net listing is used only with sellers, not buyers. It is structured as either an open or an exclusive type of listing. The net listing is distinguishable from all other listing arrangements due to the way a broker’s compensation is calculated.

In a net listing, the broker’s fee is not based on a percentage of the selling price.

Instead, the seller’s net sales price (excluding broker fees and closing costs) to be received by the seller on closing is stated in the listing agreement. The broker’s fee equals whatever amount the buyer pays in excess of the seller’s net figure and closing costs.

However, the broker discloses to the seller the full sales price paid by the buyer and the amount of the broker’s residual fee before the seller accepts an offer on a net listing. Failure to disclose to the client the benefits the broker receives on any transaction leads to loss of the entire fee. [Calif. Business and Professions Code §10176(g)]

For example, if the seller enters into a net listing agreement with a broker for a net sales price of $500,000, the broker will not receive a fee if the seller accepts an offer selling the property for $500,000 or less.

On the other hand, if the property sells for $575,000, the broker’s fee is $75,000, minus the seller’s other transaction costs.

Net listings tend to be unpopular with the Department of Real Estate (DRE) and consumer protection organizations, and have been outlawed in some states, but not California.

Net listings are particularly prone to claims from buyers and sellers that the broker has been involved in misrepresentations and unfair dealings. These claims are generally based on an improper valuation of the property at the time of the listing or a failure to disclose the fee received by the broker when the property sells.

If the seller thinks the broker’s fee is excessive, the seller is likely to complain they were improperly advised about the property’s fair market value (FMV) when employing the broker.

Thus, net listings are used sparingly, if at all. If a net listing is used, sale documentation is to include complete disclosures stating:

  • the property’s value;
  • the price paid by a buyer; and
  • the resulting fee amount.
Link to Article

Non-Exclusive Representation

One more blog post about the coming changes to the realtor environment.

Regardless of how the commission lawsuits are resolved, there will be a push – and possibly a mandate – for buyers to pay their agent directly. Agents will want buyers to sign an agreement to that effect.

Above is a copy of the verbiage on page one of the standard agreement.

If a buyer agrees and signs this form, and then finds a home on his own, he can ‘cancel this agreement by giving written notice to the other’. But only as long as THE BOXES CIRCLED IN RED AREN’T CHECKED.

Will buyers read the agreement before signing, and be reluctant to check the two boxes?

Otherwise the form is reasonable, with the agent being covered for any properties they recommend to the buyer with analysis (paragraph B1).

All that matters is whether the agent will insist on the two red-circled boxes being checked. I think a buyer will pause at agreeing to exclusive representation, but non-exclusive should be acceptable.

I doubt that I’ll use the form at all, unless Compass requires it. Why bother if you can cancel any time?

Happy Thanksgiving!

NAR Settlement Is The Answer

Hopefully NAR is busy in settlement talks right now, because they just don’t seem to get it, or they have trouble putting it on paper. These are their latest explanations:

https://realestatecommissionfacts.com/

However, there might be hope for settling the case:

Regarding the possibility of a settlement in the case, Katie Johnson, NAR’s chief legal officer said, “For NAR, settlement has always been an option.”

If NAR were to settle it would look for two outcomes, according to Johnson:

1. That homebuyers will continue to be able to access and afford buyer representation, and

2. That all liability from the suit’s claims is eliminated for NAR’s members, associations and MLSs.

“Settlements are always an option if we can achieve those objectives,” Johnson said.

Lesley Muchow, the NAR Deputy General Counsel & Vice President of Legal Affairs and Antitrust Compliance also advised agents to stress that commissions are negotiable. In that vein, she urged NAR members to leave compensation fields blank on forms rather than pre-filling them out — a phenomenon multiple plaintiffs emphasized in their testimony during the Sitzer | Burnett trial.

“Those are conversations you need to have with the consumer,” Muchow said.

“There’s no set amount. Sellers can decide and it’s on the Realtor to educate the seller as to why they might want to elect to make an offer of compensation and how that will work to their benefit in the transaction.”

“A Realtor should never suggest to a seller that if they do not make a certain amount of an offer of compensation that other Realtors will steer buyers away from their property,” she added.

Johnson ended by stressing that NAR’s current legal situation represents an opportunity.

“An opportunity to differentiate yourself from others – from your competitors and colleagues in your area – and an opportunity to improve your practices. An opportunity to think creatively and do things differently, using this delta, this point in time, as a launch pad for innovation.”

Realtor Commissions, 2024 Part 3

Zillow CEO Rich Barton weighed in on the bombshell cases in both an investor call and a shareholder letter. Barton’s key comment came early in the call when he said “We also believe complete disruption to the existence of buyer’s agents is improbable for a few reasons.”

Barton reaffirmed his support for buyer agents and the theme of buyers having their own representation. “We believe a well-lit game is cleaner and more equitable. People deserve and need independent representation,” Barton said. “We’ve seen double-siding in the industry, which is clearly a conflict and is at certain times more expensive to the transaction.”

Damien Eales, CEO of Realtor.com said, “I don’t think that from a consumer perspective, they are paying a great deal of attention to what is occurring more broadly in the industry. And as much as these court cases play out, I think it will be in some respects very much confined to the industry conversation as opposed to the consumer conversation.”

During his own investor call, Compass CEO Robert Reffkin pointed to the Seattle region, where sellers have not been required to offer buyers’ agent commissions for several years. Despite that change, Reffkin said, commissions in the area remain in line with the rest of the country — an outcome that suggests the bombshell lawsuits may not radically upend the status quo.

“I don’t think there’s any evidence to suggest that there will be pressure on commissions,” Reffkin said.

The history of steady commission rates will be mentioned in the lawsuit appeals.

Doesn’t the history suggest a conspiracy? Especially when combined with the ascent of home prices? Lawyers for the plaintiffs will note that the annual home appreciation gives the appearance of realtors getting a raise in income every year – including +40% since 2020.

There is no conspiracy on the street. It’s too competitive between agents!

Any pressure on commission rates will come from agents who are desperate to eat. The perfect storm of market conditions should push hundreds of thousands of agents out of the business. As they exit, they might give a seller a deal – if they can find a listing opportunity.

What do sellers and buyers want – the best rate, or the best agent? It’s one or the other.

Hopefully this mess will cause consumers to thoroughly investigate the choices. Otherwise, this will all blow over in a few months – unless the Department of Justice does something permanent.

Get Good Help!

JtR Takes The Stand

I am willing to take the stand if it will help the realtor commission lawsuits, but the defense might have second thoughts. The complaint is that realtors have conspired to force sellers to pay a standard, non-negotiable commission rate to the buyer’s agent. My testimony could go like this:

Plaintiff Attorney: You look like you’ve been around a while. Have you ever sold a house to a buyer that cost less than $100,000?

JtR: Yes

PA: Was the commission rate offered by the seller and publicized in the MLS in the 2.5% to 3% range?

JtR: Yes

PA: Have you ever sold a house to a buyer that cost more than $2,000,000?

JtR: Yes

PA: Was the commission rate offered in the MLS in the same 2.5% to 3% range?

JtR: Yes

PA: Have you ever sold a house to a buyer on the first day you met them?

JtR: Yes

PA: Has it ever taken one to two years to sell a house to a buyer?

JtR: Yes

PA: Were the commissions in both cases in the same 2.5% to 3% range?

JtR: Yes

PA: As a buyer-agent, have you ever negotiated your commission rate with the seller or listing agent?

JtR: No

PA: No? Why not?

JtR: It is strictly forbidden by the rules.

PA: The rules? What rules?

JtR: The NAR Code of Ethics forbids any negotiation of the buyer-agent’s commission paid by the seller.

PA: Is that the strict Code of Ethics that all NAR Realtors abide by, and what makes them different then all other licensees? The Code of Ethics that NAR has advertised on TV ad nauseum for decades?

JtR: Yes

PA: Judge, I rest my case.

Go Direct to Listing Agent


It’s been over two weeks since the verdict was announced on the commission lawsuit, and the response from the realtor community has been tepid, to say the least.

Agents are waiting to see a strong example of how to convince buyers to sign a buyer-broker agreement. It’s easy for management to just say, “Have your buyers pay you directly”. But will you furnish us with anything besides the cheesy 179-point list?

The annual Compass convention starts today in San Diego, and we’ll see what management has to say.

Meanwhile, CoStar senses an opportunity, and have ramped up their advertising of homes.com to agents. They say their search portal had 100 million unique visitors last month, passing realtor.dud and pulling into the #2 slot behind Zillow.

Their pitch? They send buyers to the listing agent directly.

When Zillow visitors inquire about getting more information or seeing a home, they get sent to the call center where Zillow employees scrub the leads, and send them out to agents who have agreed to pay 30% to 40% of their total commission to Zillow.

Homes.com will send those leads directly to the listing agent, no charge.

How long will it be before agents migrate their advertising budgets to homes.com? The buyer-broker agreement should be a complete failure by next summer, and instead the march towards single agency will be well underway by then.

The conversion to single agency will look like an obvious solution to the casual observers like judges, juries, and the DOJ because it will give the illusion that fees are coming down. But it will just add to the trouncing of buyers that has been going on for years.

Just when quality buyer representation will really be needed, the trend will be in the other direction.

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