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.
First, let’s identify how realtors get their business.
Either they earn the business (#1&2 above), or they buy the business (#3 above).
They earn it by creating relationships with friends and family that turn into sales. Those results create word-of-mouth endorsements that will hopefully be the foundation of the realtor’s business.
Or agents can buy the business through advertising.
There are several realtors in our area who spend $25,000 to $50,000 per month on advertising, which means they need to charge the higher commission rates – and that probably won’t change.
Billboards, bus benches, trailers in movie theaters, grocery store carts, etc. all lathered with realtor advertising that supplement their online ads, social media, and mailers to the neighborhood. These realtors hope to subconsciously create a positive image in the homeowners’ minds, which causes them to reach out to the ‘local expert’ when the time comes.
Which realtor will help you the most, and be deserving of their pay?
The best part of the realtor lawsuits is that they might cause consumers to investigate the choices more thoroughly. It is a daunting task because of the number of realtors out there, and the lack of hiring knowledge available. It’s why 80% of consumers hire the first agent they meet – they haven’t moved in a while, and in the microwave society they just want to grab an agent and go. Plus, the realtor industry provides virtually no guidance on the selection process, so you’re on your own.
My General Tips:
Those who spend the big money are vunerable to investigations – they hope that you grab and go instead. Once a team gets to 10 people or more, you have to wonder who is doing the heavy lifting. There are many top producers now in North County who have retired – but you wouldn’t know it because they leave everything in place, and just let the assistants run the machine. See if you can get the team leader on the phone, and check their reviews on Google and Zillow to see which agent is being acknowledged for the work. It’s not a bad thing to work with the assistants, but you’d like to know that up front.
The bigger the team, the less personal attention you will get. Their expertise will hopefully make up for it, but you should know that if your sale doesn’t work out, it’s not going to change their lifestyle.
Realtor websites look the same – brags about their sales, a button to search for your ‘dream’ home, and another for a computerized value of your home. With both buttons, you give up your contact information so they can pester you. Do they provide any helpful content on their website or social media? Their published content is a direct reflection of their expertise, and awareness of current market conditions.
Are they too busy for you? Simple way to find out. Call their phone number, and see what happens.
Every agent has their sales history on Zillow (whether they like it or not, because Zillow auto-loads them). If you are looking to conduct a full analysis, you’ll have fun with this data. One sale per month is a good sign, and check their mix of buyers and sellers, mix of price points, the SP:LP ratio on their sold listings, their listing presentations (quantity/quality of photos) and days on market. It’s takes work, but time well spent.
Do you want to hire the local expert? Rarely do they go into detail on what that means for you, and besides, every agent calls themselves the local expert.
Do you want to hire a long-time veteran? Only if they are still on their game (minimum one sale per month, etc.). More than half of all realtors are 60+ years old, and you don’t want to be their last sale.
Are they available? Deals are being done 24/7, so how the agent handles that is important.
Can they put a few sentences together to describe the current market conditions? It means you have to talk to them live, but it’s a terrific way to judge a realtor’s competency.
My big hope is that the realtor lawsuits give consumers the idea that they should shop around more, and they search for the best combination of quality realtor and commission rate. My guess is that the commission rates won’t change much, and they sure won’t be advertised. It should mean more scrutiny on what a realtor does for you – which is a great thing, and how the decision should be made!
A simple analogy for realtor commissions is a long-distance flight abroad.
Someone who was booking a flight from San Diego to Phoenix probably wouldn’t be too concerned about the quality. Because the flight only takes an hour, most can endure the inconveniences…..mostly due to the generally lousy service we get in every industry. We’ve become accustomed to not expecting much.
But when it comes to a long-distance flight, we might look harder at the differences.
Buying or selling a higher-end home is like flying to Australia.
A non-stop flight from LAX to Sydney, Australia is 15.5 hours, which should make people think harder about the choices. Not only does the airline, the staff, the type of airplane, the quality of the food, reviews, etc. get more scrutiny, but so does the seating chart.
Sitting in the economy section can be endured for an hour on a flight to Phoenix, but will you put up with screaming kids, the barking dog, and the guy who fills up more of his share of the seat for 15.5 hours?
Or do you deserve first class?
The problem with realtor commissions is that the agents all get paid the same, regardless of the quality of service provided. It’s as if everybuyer and seller pays for a first-class seat, but then only 10% to 20% of them get that level of service. It’s why there are so many complaints about realtors not being worth it – most don’t live up to the expectations, or their fee.
The commission lawsuits intend to change that, and they think they will cause the rates to go down.
But realtors intend to convince you that they are worth the usual fee by improving their presentations. The consumers who are willing to investigate will probably find something like this:
The exceptional realtors probably aren’t too interested in lowering their fee, so let’s examine the hiring of a realtor in the post-lawsuit era. Note that after years of using a pixel phone, I have finally switched to the iphone15promax – my first video with the new phone will start the inquiry:
Did you know that none of the jurors had sold a house before?
It was part of the screening too, and the defense attorneys were so cocky that they didn’t think it would matter. Their witnesses were a smart-aleck NAR CEO on his way out the door, and an elderly gazillionaire. Is anyone surprised we lost?
This is the American legal system, so there will be talk of settlement. Two brokerages already settled before the trial, and the other two would be smart to settle now – and leave the NAR to pay the bill. If NAR has to pay the entire amount, there will be trouble. They only have half of the money.
Given how quick the plaintiffs settled with ReMax and Anywhere (for only $130 million), a settlement could come flying down the pike any minute. Who knows? Are the NAR attorneys seeing the big picture, and crafting a settlement agreement that solves all the problems?
Probably not.
Can we package up all the things that can be manipulated into class-action lawsuits while we are at it?
Dual agency ensures that every buyer and seller in a transaction gets represented by an agent. But just the sound of ‘dual agency’ is nebuous – it sounds like realtors are up to something. There isn’t anything wrong with dual agency – in California, it is legit, legal, and practiced regularly by me and others. We like it!
But as we enter the single-agency era, only one agency/brokerage will be handling the sale. There will be two agents, but they are both employed by the same brokerage.
Today it’s called dual agency – because the broker represents both parties. The agents can give sound advice separately to their clients which qualifies as legitimiate represention, but lawyers could make it sound shady in front of inexperienced jurors.
If there will eventually be the Big Settlement, let’s find a way to include dual agency in it too so we can get on with the future of selling homes.
Going forward? After a settlement that absolves all previous dual agency, we should better describe the choices. In Colorado, there are transaction agents who don’t represent either side, but that sounds like it could cause a smaller commissions. Can we find the in-betweener that makes everyone happy?
As more buyers go direct to the listing agent to avoid paying a buyer-broker fee, they will be assigned a junior agent for assistance. A box needs to be checked here. Currently, you have to call it either single agency where that buyer is officially unrepresented, or call it dual agency.
While the listing agent is fully representing the seller and their best interests, the buyer only gets enough help from the junior-agent to make it to the finish line. Instead of dual agency, it’s more like single+ agency. Call it Agency 1.5.
Later a buyer could claim dual agency was the cause of all his troubles in the world, and sue realtors to get even. Did he get full representaion from his junior-agent that was comparable to the representation provided to the seller by the agent’s boss? It would sound unlikely and beg of another class-action suit.
Are agents going to call it single agency (only one side represented) and hope for the best?
Because it’s more than single agency, but not strong enough to be called dual agency.
Let’s add a third box for when the buyer gets the in-house junior agent: dingle agency.
If we don’t, we’ll be facing more class-action lawsuits shortly.
The first week after the realtor-lawsuit verdict went as expected – chaos, doom, and no sexy alternatives. It will take years to appeal, but it won’t matter how it turns out. Buyers are going to be paying their agents.
If sellers aren’t obligated to pay any commission to the buyer-agents, will they appreciate the benefit of incentivizing buyer-agents with a bounty, or reward? Probably not, unless their listing agent makes it very clear, and insists on it.
It is more likely that listing agents won’t push it, and because sellers naturally will want to pay less commission and not more, they will list for 2.5% or 3% and hope for the best. Both will shrug it off, and joke about how it’s about time commissions came down!
It will be a grave mistake.
Why? Because the buyer-broker agreement is a disaster:
Buyers won’t like it.
Agents won’t like it.
The market won’t like it.
Today’s buyers are picky, and you can’t blame them. They’ve had to endure +40% on prices, +200% on interest rates, and -50% on inventory…..talk about challenging!
The buyer-broker agreement will be a disaster because both agents and buyers will sign a short-term arrangement and hope the seller might kick in some of the commission. But then everyone will go back to doing it the same way we always have – refreshing your feed every hour and praying!
The real opportunity will be for buyers to hire an aggressive buyer-agent who does more than just watch the MLS. When a seller hires a listing agent, they get a thorough marketing campaign to source every potential buyer in the market. Buyer-agents can do the same, in reverse!
The buyer-agents who offer a rifle-shot soliciting of specific homes that fit the needs perfectly of their buyers will eventually find one. If an aggressive buyer-agent brings the complete package to the seller’s table without having to mess with a full listing, they will likely get an audience. It could even take the place of listing agents!
Because auctions aren’t close yet, this could be what changes the world of residential resales!
It will mean more off-market sales, which means more fuzzy comps because not much if anything is known about the home’s condition. But if it catches fire and the MLS or a rogue search portal insists on buyer-agents reporting everything about their sales including photos, we could still have a database full of accurate market data. But if we don’t, we don’t – good luck everybody!
A good example of the places that could be undervalued is Terramar in Carlsbad. It’s a neighborhood of 240 homes near the beach, and the living is so good that there is rarely any turnover. Without a flow of recent sales, who knows what the market will bear – especially when every house has been uniquely customized.
Two months ago we set out on our journey of price discovery.
The sellers have a genuine reason to move, but wanted to really test the market on price. When you have active oceanfront listings of $12,750,000 and $25,000,000 in the neighborhood, the curiosity is real!
Everyone gets attached to their zestimate. In this case, my seller had her eye on the zestimate range, and suggested that we start at the high end, which we did:
But you have to read the room, and adjust accordingly.
All we had to do was follow my List Price Accuracy Gauge:
If you are getting showings and offers, then the list price is within 5% of being right.
If you are getting showings but no offers, then the list price is 5% to 10% off.
If you’re not getting any showings, then the price is more than 10% wrong.
Lowering the price early and often is prudent too. The initial urgency wears off quickly, and once a home has been on the market for months, it invites lowball offers because buyers know it’s just a sitting duck.
We lowered early and often, and in meaningful amounts:
This topic came up in my 45 hours of continuing education, and Donna agreed that rarely do listing agents comment on their seller’s disclosures – do they even read them? A focal point as we transition into single agency:
To complete the disclosure process, the seller’s agent filters property information provided by the seller before it is provided to the prospective buyer.
Accordingly, all property information received from the seller is reviewed by the seller’s agent for inaccuracies or untruthful statements known or suspected to exist by the seller’s agent. Corrections or contrary statements by the seller’s agent necessary to set the information straight are entered on the disclosure forms before the information is used to market the property and induce prospective buyers to purchase, collectively referred to as fair and honest dealings.
The extent to which disclosures about the physical condition of the property are to be made is best demonstrated by what the seller’s agent is not obligated to provide. Everything else adversely affecting value and known to the seller’s agent – material facts – are to be brought to the attention of prospective buyers as a matter of law.
As a minimum effort to be made before handing a prospective buyer information received from the seller, the seller’s agent is to:
review the information received from the seller;
include comments about the agent’s actual knowledge and observations made during their visual inspection of the property which expose the inaccuracies or omissions in the seller’s statements; and
identify the source of the information as the seller.
Currently, every listing agent is required to offer some sort of buyer-agent compensation on the MLS. Zillow and Redfin publish those commission amounts on every listing now, so they are all out in the open.
Today, there are 79 homes for sale between La Jolla and Carlsbad in the $2,000,000-$3,000,000 price range. Thirty percent of those listing agents are offering less than 2.5% commissions to the buyer-agents.
Outsiders who see that will assume that commissions are finally starting to drop, after all these years.
But the vast majority of those listing agents are probably still taking 5% to 6% commissions, and offering 2% or less to the buyer-agent (and more for themselves).
If the listing agent is supremely talented and brings special skills to the transaction, then it would be understandable. But I’ve been a buyer-agent on listings that are offering less than 2.5%, and they’re not different. Virtually every listing agent still practices the Three-P marketing plan: Put a sign out front, Put it in the MLS, and Pray.
There are hundreds of multiple listing services in America. So far, only a few have removed the requirement of offering a buyer-agent commission. But the NAR lawsuits are going to change that, and soon every MLS will permit 0% commissions to be offered to the buyer-agents (hoping buyers will pay their own agent).
The listing agents who have little or no repsect for the buyer-agents will keep offering them lower and lower commissions. Eventually, their rate will get down to zero or close.
Will sellers figure it out?
Sellers focus on the total commission. They don’t do enough transactions to know that the amount the listing agent pays to the buyer-agent will impact the sale. It is a bounty offered to encourage the sale of the house, and when market conditions are soggy, it is better to pay buyer-agents more commission, not less.
In the lawsuits, they will discuss agents steering their buyers to homes that pay higher commissions. It’s why the search portals publish the commission rates now so buyers can track whether their agent shows any bias based on the commission rate being offered.
It’s why the industry will be racing towards 0% commissions offered to the buyer-agents.
Eventually, the DOJ will probably step in and insist that ALL sellers pay 0% commission to the buyer-agents to insure there is no chance of steering. Instead, listing agents will just offer them spiffs under the table in a softer market or when the house is ‘unique’.
Until then, the listing-agent teams are going to keep offering lower and lower commissions (if any) to the buyer-agents – who will then try to get their buyers to pay them something….anything!
At the same time, the listing agents will be encouraging buyers to avoid paying a buyer-agent commission altogether by coming direct to the listing agent instead. Their in-house assistant-agents will attempt a faux representation of the buyer but it will just be a novice clerk who processes their paperwork.
Boom! The seller didn’t have to pay a buyer-agent commission – making these lawsuits worth it – and instead the listing agent keeps the whole commission. If buyer-agents can somehow wedge themselves into the deal, then great, but will the buyer pay them too, when it doesn’t seem necessary?
Mark my words – this will be standard fare in the next year or two.
People are asking about the NAR lawsuits – hat tip to Susie, Gerry, and Carl!
The lawsuit that began this week contends that realtors force sellers to pay a commission to the buyer’s agent. Two defendants, ReMax and Anywhere (Coldwell Banker, Sotheby’s, etc.) have already come to settlement agreements, though they haven’t been approved by the judge yet. The other two brokerages, Keller Williams and Berkshire Hathaway, plus the National Association of Realtors are the remaining defendants. Their attorney started the proceedings by declaring that the plaintiffs have the burden of proof, and the defense may not call a witness. It is that type of arrogance that got them into this mess!
A summary:
In their trial brief, the plaintiffs in the suit allege that NAR’s Participation Rule, which they refer to as the Mandatory Offer of Compensation Rule, is “a market-shaping and distorting rule” that stifles innovation and competition.
“The Rule requires every home seller to offer payment to the broker representing their adversary, the buyer, even though the buyer’s broker is retained by and owes a fiduciary obligation to the buyer (who may be told, falsely, that the services of the buyer broker are “free”),” the brief said.
They argue that the current practice of the seller’s agent splitting their commission with the buyer’s agent, who typically negotiates for a lower selling price for their client, works against the seller’s interest and only exists due to the alleged anticompetitive rules. The plaintiffs also note that the NAR rule in question requires a blanket offer of compensation for the buyer’s broker regardless of their experience or the level of service they provide the buyers with, and that the compensation offer was only visible to the buyer’s agent and not their clients, until very recently.
“This artificial and severed market structure created by Defendants’ conduct deters price-cutting competition and innovation, resulting in inflated commissions,” the brief states. “The Mandatory NAR Rules impede the ability of a free market to function in the residential real estate industry, and the plain purpose and/or effect of the Rules is to raise, inflate, or stabilize commission rates.”
In the brief, the plaintiffs claim that the other defendants in the suit colluded with NAR to enforce this and other NAR and MLS policies.
“The Corporate Defendants compel compliance in multiple ways, including by requiring their franchisees, subsidiaries, brokers, and agents become members of NAR; writing the NAR Rules into their own corporate documents; and requiring that their franchisees, subsidiaries, brokers, and agents become members of and participants in the Subject MLSs — entities that compel NAR membership and adopt the mandatory NAR Rules,” the brief reads.
The brief notes that Craig Schulman, the director of Berkeley Research Group and professor of economic data analytics at Texas A&M University, will be an expert witness for the plaintiffs at trial. In studying transaction data from NAR and other parties, the brief states the Schulman has concluded that “(a) the NAR Rules have anticompetitive effects; (b) the NAR Rules caused a seller to pay his adversary (buyer broker) and that, but for the conspiracy, a seller would not pay the buyer broker; and (c) all class members were impacted.”
The brief also notes that Schulman will testify that NAR’s rules have stabilized commission rates at an “anticompetitive level,” noting that commissions have remained at 6% for several years.
Unfortunately, none of the reality of what happens on the street will get introduced during the trial. Instead, it will be ivory-tower guys hoping to persuade the judge and jury (one of which has to breast-feed her infant every 1.5 hours) that the whole commission thing is out of control and someone is to blame.
But the defendants have a good point:
NAR also argued that the plaintiffs do not have the ability to sue for damages —which some believe could reach as much as $4 billion in this case — because under federal and Missouri antitrust law, only “direct purchasers” can be allowed to sue and the plaintiffs have not bought anything directly from NAR or the other defendants.
“And, according to those same Model Rules and listing agreements, Plaintiffs did not directly pay cooperating agents, NAR, or the other Defendants; sellers only directly pay their listing agents and only directly receive services from their own agents,” the brief states. “Therefore, at best, Plaintiffs might claim that they paid their listing agents (who are not parties to this case) who, only then, paid Defendants. But such an indirect claim is prohibited by Supreme Court case law.”
Home sellers pay the full commission to the listing brokerage. It is the listing agent who declares in the original listing agreement of how much of the full commission they are willing to pay the buyer’s agent. None of this will be discussed during this trial, but it’s the most important part!
The plaintiffs should be suing the individual listing agents – good luck with that!
In the end, the defendants might be found guilty, and they will appeal for years – the American way! Or it’s more likely that they will settle in the next couple of weeks because the ReMax and Anywhere settlements were only $55 million and $85 million, which is pennies.
Part of the settlement package will be that the MLS will no longer be obligated to display ANY commission to be paid to the buyer’s agent. It will cause two things to happen:
MORE steering by the buyer-agents to the homes that are paying a healthy commission (bounty).
Buyer-agents trying to convince their buyers to pay them the buyer-side commission.
Kayla is faced with this dilemma in New York City. Did you know that 2/3’s of the population in Manhattan are renters? It’s a big business! But the listing agents don’t offer a tenant-agent commission, which means Kayla has to get paid by her tenants upon finding them new home to rent.
The results:
She has had the landlord’s listing agent pull aside her potential tenant and tell her to ditch Kayla and save the money, and go through him directly. Apparently they aren’t concerned with their reputations!
She has also had her potential tenants be reluctant to sign an tenant-agent agreement because they see apartments being advertised by the listing agents. They want to reserve the right to go direct to the listing agent, and usually they do. As a result, Kayla only works with those who appreciate her advice.
The idea that home buyers will hire and pay their own buyer-agents is a great idea…..in theory.
The reality is that buyers will go direct to the listing agents when they see an interesting new home for sale. Those listing agents will be advertising to those buyers directly, and flat-out encourage them to get a better deal by going through them.
Remember when Doug said that buyers these days want something special? With all the domestic and international conflicts, mortgage rates at 16-year highs, and ultra-low inventory making the house-hunting almost unbearable for most buyers, there are still homes selling – the ones with something special.
We received four offers and closed escrow in two weeks with a cash buyer who paid $75,000 over list!
