July Conversations (Or Sooner)

On Friday, the Plaintiffs’ counsel filed a Motion for Preliminary Approval of the commission-lawsuit settlement agreement with the federal court, so the two new rules will go into effect in late July, apparently. The plaintiffs have requested a hearing on final approval of the settlement by the court to be held on November 22, 2024.

The second rule about buyers having to hire a buyer-agent before touring a home is a done deal, mostly because nobody is objecting. At least not yet. It will become a major headache for all.

The first rule about home sellers not being required to pay a buyer-agent commission will be affected by the overall market conditions. Red-hot markets like Silicon Valley will likely be seeing zero percent (or close) being offered as a reward to buyer-agents. The demand is so strong there, the inventory is so thin, and the buyer-agents are so desperate that the sellers will get away with it. How much will buyers be willing to pay to hire a buyer-agent there? Not much – 1% tops – but the entry level there is $3,000,000.

But other markets will have different challenges – especially those that are slowing (or buckling under) from a heavier load of unsold listings and stingier demand.

The conversations will go like this:

Seller: It’s been thirty days, how come my house isn’t sold?

Listing Agent: I feel good, and it should be selling any day now. People are looking.

Seller: What are you doing to sell my home?

Listing Agent: I’m showering every day now in case someone wants to show your home.

Seller: Are you advertising in SF, LA, and NYC where all the rich people live?

Listing Agent: We are advertising world-wide.

Seller: Then what do you suggest we do?

Listing Agent: You should lower the price and pay more commission to the buyer-agents.

Seller: The last thing I’m going to do is lower the price. Aren’t I paying 4% commission already?

Listing Agent: Yes, because you saw in the news that realtors imploded, so commissions are less now.

Seller: You’re saying 4% isn’t enough?

Listing Agent: Correct, because I work for 3% and that leaves only 1% for the buyer-agents. You should increase it to encourage more buyer-agents to show it.

Seller: It sounds like you’re backing into a 6% listing.

Listing Agent: I’m sorry you feel that way, but yes. But hey, you got to try out lower commissions!

Seller: Well, I guess you got me because I want to sell. Knock off $5,000 off my price too.

Listing Agent: Off your $3,000,000 listing?

Seller: Ok, ok, knock off $10,000, but that’s it. I’m Not Going To Give It Away!

Realtors will still be holding all the cards, and will game any system you throw at them. I said this will blow over quickly, and a softer market will help keep the status quo. Listing agents may appreciate buyer-agents (finally), though paying them more won’t be an obvious solution for many. Expect a slower market instead.

NSDCC First Quarter Comparisons

The first quarter of 2024 is the only 1Q in recent history to have increases in BOTH the number of listings AND the median list price. Previously, increases in pricing had a corresponding dip in the number of listings available for buyers to consider.

If you are like me, you’ve seen a noticeable surge in seller optimism in 2024. It’s not just the median list price that is up 8%, doesn’t it seem like everything is $200,000 higher than last year?

Buyer-Broker Agreements Required

While the media has been stirring up their hysteria over the commission decoupling…..this from CNN:

It’s the second part of the settlement that will likely frustrate buyers even further:

Let’s call it, The Return of the PEAD!

When Covid broke out, it was decided that the only way we could safely show homes again was if every buyer and agent submitted a form to the listing agent that declared they didn’t have Covid, and weren’t exposed to anyone who did. It was a joke of an exercise, but we had to do something.

Because this is a business where the competency of the listing agent is many times just measured by their ability to complete the forms, the gathering of the PEADs became almost militant in nature. Listing agents demanded that a buyer-agent MUST provide their PEADs before even thinking about scheduling an appointment to show the home!

Do you remember how in the minutes/hours it took to send the PEADs over to the listing agents, it caused just enough delay to allow shenanigans to take place behind the scenes? Listing agents would declare with glee, “Oh, you took too long to submit your PEADs and I already sold the house to someone else!”

The same thing will happen with the buyer-broker agreements. I’ve already had a Coldwell Banker agent tell me that if I was going to submit an offer on his listing, to make sure I include a copy of my buyer-broker agreement. It’s not required until July, but hey, it’s never too early to bust the chops of the buyer agents!

Secondly, think about the buyers who haven’t found a buyer-agent they liked yet, and just want to attend an open house that looked semi-interesting online.

The new rule says you can’t see the house without a buyer-broker agreement.

Open-house agents will be manning the front door with their “sign-in” sheets. But now those sheets will be committing the buyer to a buyer-agent commitment too. Will the agents mention that part? How many unwitting buyers will attend an open house in July and then find themselves in a 3-month or 6-month commitment with an agent they just met?

The legit agents will at least designate their agreement for this house only, where the buyers are committed to the agent if they buy the open house. But those buyers will be giving up their name, address, phone, and email so if you don’t buy this one, the agents keep contacting you until you buy or die.

Oh, you don’t like that program?

Chuck had the best reply so far, “Hey, it’s the DOJ”.

(tomorrow is a day off – I’ll be back Thursday!)

$1,142,000 Over List

This was going to be the big test.

The controversial local brokerage in Los Altos was offering a measly $10,000 commission to the buyer-agents on their listings, most of which were $4,000,000 and up. They listed a similar house on a quiet street about a mile away for $2,988,000 and then marked it pending a week later.

So I followed their lead and priced my listing at $2,995,000 even though mine needed EVERYTHING and was on a heavily-traveled street.

My video tour of my listing HERE.

I wanted to prove that paying 2.5% commission to the buyer-agent would cause a better result.

Theirs closed for $4,200,000 (and was put up for rent for $2,900/mo).

Mine sold for $4,200,000 too, but then our buyer-agent volunteered to cut 1.5% of her 2.5% commission and deduct it from the sales price. In those cases, the lender has to get the appraiser to re-issue their appraisal at the revised price – but she forgot, which delayed closing for another week. I’ve never prayed so hard for an earthquake not to happen!

I don’t know if the agent on the other sale only got paid $10,000 to support her buyer with paying $1,200,000 over their list price, but she deserved more.

But combined with my buyer-agent being so generous, and the other comments at open houses, the agents around the Silicon Valley are so desperate that they are begging for business. The amounts buyers pay over the list prices indicate the same.

I still think my result was better than the $10,000 guy due to our harsh condition and busy street. But I can’t say that the 2.5% made any difference at all.

We can probably come to this conclusion though. In a scorching-hot entry level market, you don’t need to pay much to a buyer-agent, if anything at all. If the buyer-agent is smart, they will have their own agreement with their buyer to cover it.

In areas where the actives-to-pendings ratio is 4:1 or higher (Rancho, I’m looking at you), paying a reward or bounty to a buyer-agent is worth considering. Is that steering? No, it’s America, where paying incentives to get what you want should be legal and encouraged.

Reducing Commissions

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?

  1. 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.
  2. 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?

Jim’s Two Winners

How thin is the margin between winning and losing?

I heard this story yesterday about a house for sale in Carmel Valley.

It had 14 offers.

The sellers selected what they thought was the best offer, and headed off to escrow. But the buyer and their agent had made offers on other properties, and chose a different home instead.

A month later, the subject property is still for sale.

It was unethical what that buyer-agent did, but you gotta keep the losers hanging around, just in case.

Our New Listing in Terramar!

5450 Los Robles Drive, Carlsbad

3 br/2 ba, 2,700sf

YB: 1976

7,200sf lot

No HOA or Mello-Roos fees

LP = $2,900,000

Open 12-3pm Saturday and Sunday, March 16&17.

Check out this ultimate retro-mod beach house at the quiet end of Los Robles Drive and at the highest point in Terramar, which means ocean and sunset views to the west, and flower-field views to the east! Wide-open floor plan with massive kitchen that has high ceilings and skylight, new light-tan colored hardwood floors, new roof, two fireplaces, bedroom/bath on ground floor, killer primary suite with big walk-in closet, and a fantastic backyard with sauna too! Forget those three-story sterile boxes – come dig this ultra-cool beach classic and enjoy the sights and sounds of the liquid blue enchantress just 100 yards away! Plus you have the private Terramar landing on Shore Drive too (last two photos).

If you prefer a single-level, this is for sale down the street: LINK

Moving Towards Single Agency

It’s been obvious that the entire real-estate-selling business has been deteriorating towards single agency. I see it every day on the street, and I’ve posted evidence of the shift regularly.

The trend is moving quickly now on multiple fronts.

The DOJ is going to decouple commissions, which will prohibit sellers from offering to pay the buyer’s agent. The buyers can include it in their offer, but it likely won’t get that far. The buyer-agents who are left will want a written agreement to get paid by the buyer if the seller won’t pay. How many agents will be able to demonstrate why they are worth it? Not many, but maybe the buyers won’t ask too many questions.

Homes.com is spending millions and billions on advertising their website to compete with Zillow. Their twist? They funnel all the leads back to the listing agent, instead of farming them out to the highest bidders like Zillow does. I’ve been called by several phone jockeys from Homes.com to sign up for their enhanced listing packages, and I’ll sign up. Robert Reffkin responded positively to the Homes.com program, and you can see how Gary Keller feels about it above.

Agents are giving up on representing buyers because it’s too hard and doesn’t pay enough. Most of the unsold listings are grossly over-priced and the occasional deal gets multiple offers within minutes. Agents have to spend months or years working with their buyers before they get lucky, only to then get a reduced commission from the listing agent. Now I have to convince the buyer to pay the commission too? Great, thanks.

Listing agents are advertising for buyers to avoid paying the buyer’s-agent commission by coming directly to the listing agent instead. Realtor cannibalization is what we deserve. (link)

This house priced at $1,985,000 in Rancho Penasquitos received 15 offers and likely sold for 15% to 20% over list (an offer that was 12% over with free rentback wasn’t enough).

I remember when $2,000,000 got you a decent house in Carlsbad!

Zillow Local Forecasts

Last month their annual appreciation guesses were in the 3% to 4% range, now they are up to 4.9% to 6.3% for the next 12 months!

We’ll probably exceed those in the first quarter of 2024!

Carlsbad NW – 92008

Carlsbad SE – 92009

Carlsbad NE – 92010

Carlsbad SW – 92011

Carmel Valley – 92130

Del Mar – 92014

Encinitas – 92024

Rancho Santa Fe – 92067

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