03/18/2024
So, there's not actually a lawsuit settlement that “cuts real estate agent commissions.” As a former news reporter, I find the coverage of this issue shockingly bad. Particularly because there’s no real discussion, including from the embarrassing NAR, about who stands to lose the most from some of the settlement terms: Consumers.
As long as I’ve been in real estate, there have been no set / standard commissions. My own commissions have fluctuated by several percentage points year to year, house to house, depending on market conditions, specific situations at various homes, and other circumstances. The biggest change as a result of the lawsuit(s) is that buyer agent commissions will be “de-coupled” from listing contracts, so future contracts will no longer assume that sellers will pay the buyers’ agent fees [an amount that was always negotiable].
It seems that paying this is something a seller could still choose to do. Buyers may have to request it as part of their offer to purchase the home, much like one might request closing cost contributions or other upfront concessions. But sellers have always factored commission into the price they are willing to accept, and in that sense, this would be no different. [This also means Buyers, in reality, have always “paid” for representation, too, we just never had to talk about that].
The main obstacle moving forward is that mortgages do not allow buyers to roll agent commission into their loans. For a cash-strapped buyer, this could leave no real option for actual buyer representation. True buyer agency could become something that only the elite can afford. Changes to buyer agency will also have an effect on sellers as well.
For instance: more buyers may work with listing agents on their home purchase, in “Limited Agency,” where those agents have already worked out their commissions with sellers. Of course, then neither buyer nor seller actually gets the benefit of full representation, even though it’s the only affordable option for many clients if they want any agency at all. (Weren’t REALTORS actually sued for this decades ago, before creating buyer agency as a solution?)
Other possibilities: Yes, some buyer agents may set their fees lower than what they’re accustomed to, in order for their buyers to afford them, or to be more attractive to a seller when asking for a contribution.
Yes, Listing agents will likely write contracts for less commission than they do now, because they will only be able to collect payment for their own service and not another agent’s. But it’s not clear that this would lend itself to listing agents taking a pay cut for their side of the transaction. May actually be the opposite for some!
It is clear, though, that the more a buyer qualifies to finance, the more they can pay for a home, and I have seen some news articles predicting that housing prices may fall when these guidelines are implemented. Who knows. But these articles, at least, seem to get that “less seller commission” does not necessarily = more seller money.
What’s not happening, as the media is leading many to believe, is some kind of mandated commission slashing. What will happen is that most agents will adapt to the new policies, and the market will then dictate who is willing to pay for what. Moreover, some agents who adapt early and implement creative solutions likely will make more money than they ever did.
We may also lose agents who got into real estate thinking it was easy money, or who don’t want to have those harder conversations about the money they make. Indiana soon will implement required buyer-agency contracts so that these conversations can’t be easily avoided. This solves some aspects of the lawsuits, and ultimately is better for consumers that we are transparent about these financials.
But I do worry about the first-time home buyer who can’t afford their own agent, who stands little chance at winning a house against buyers who aren’t asking for agent commission to be paid. I also worry that some sellers who focus on paying less commission won’t fully understand the consequences of working with a buyer in limited or no agency.
One thing NAR can still do: Fight for mortgage industry changes so that buyers can choose to finance agency commission. It won’t totally solve the consequence of putting buyer agency in jeopardy, but it could significantly mitigate the damage. At the very least, it would be nice to see NAR fight for something worthwhile and win!
[Disclaimer: this Facebook post speaks only for myself, not for my company or for any other agents, yada yada yada].
[Also, an informative podcast, with several episodes dedicated to the lawsuits and the resulting changes to the MLS and agency, can be found here: https://www.facebook.com/RealEstateInsidersUnfiltered]
