What's Real About the Recent Real Estate Headlines?

The residential real estate industry has been dominating the headlines in recent weeks with all sorts of claims about the industry and the fallout from a large class action lawsuit that began in Missouri.  I thought it would be helpful to give you my take on it.

For everyone who has ever had personal proximity to a story, it is always enlightening to see how misleading and sometimes outright wrong, the headlines can be.  The recent settlement of the lawsuit against the National Association of Realtors has birthed a thousand such headlines across the country and I have yet to see one that is accurate.

As a qualifier, its important to know that this lawsuit while national in the scope of the fall out, involves many issues that were particular to the region in which the suit was filed.  Its fair to say, they do things differently in Missouri than we do here in CA. 

With that said, the most common and glaring inaccuracy that every article I have read gets completely wrong is that the commissions are too high and this ruling slashes commissions.  There is nothing whatsoever in the ruling about slashing fees.

This settlement has been about decoupling the listing commission from the Buyer’s agent compensation.  The price fixing claim (commissions are too high) has never been about the commission rate but rather the lack of transparency to the Buyer.

As an aside, I have never in over 30 years in the business represented a Buyer or a Seller, where I could not refer them to 100’s of agents who would represent them for 1% or 1.5 % or even a half point.  Discount brokerages have also been around for over 20 years and agents willing to work for less are everywhere.

The price fixing part of this is if you wanted to hire me to sell your home and told me “I do not want to offer the Buyer’s agent compensation”, the MLS would not allow me or you the flexibility to do that.
 

There are three changes coming … one which is GOOD… one which is GREAT and one I think is DUMB and will at some point be changed.

First, Sellers will now have the flexibility to offer whatever compensation they want to buyer’s agents (nothing new) including $0 (that’s new).  This is GOOD, as the MLS should not dictate to Seller’s how they choose to sell.  In the vast majority of circumstances, I do not think its in the Seller’s best interests to not offer compensation, but that is separate and apart from whether they should be allowed to do so.

Second, every Buyer will need to sign a Buyer Representation Agreement to see properties that stipulates that they agree to pay their agent’s fee if the Seller refuses to do so.  This is GREAT.  The big boxes make almost all their profits from part time agents who do 1 or 2 transactions per year and have big splits with the brokerage as a result.  Many of these agents have been trained to say my services are free (not true) because the Seller has already agreed to pay them.  This change will be an existential threat to part time agents and the Big Boxes whose profits are driven by these less professional, low frequency…high split agents.

Third, the Seller’s choice to offer or not offer compensation will be invisible to Buyers and Brokers… meaning it won’t be listed in the MLS…( this one is DUMB). 

Buyer’s, particularly on the low end, have limited downpayment resources and whether or not Seller’s are offering compensation can and will impact their purchase decision.  The practical application is every agent representing a Buyer will be asking listing agents whether the Seller is offering compensation.  There are other work around’s.  Information on compensation is allowed to be published everywhere except the MLS including property websites, signs, ads, personal websites, even aggregator websites like Zillow and Redfin.  Most offers moving forward will include language like “Seller agrees to credit Buyers 2.5% for Buyer’s closing costs” as an example.  The irony is in a lawsuit critical of the lack of transparency, the proposal is less transparency with regard to this issue, again just DUMB. 

The state of Washington has been operating under changes 1 and 2 for 5 years now and it has been largely positive for consumers and professional brokers and fees as a percentage have remained unchanged.

Redfin has been around for 15 years and has .02 market share in the US.  There is a reason for that.  Buyers and Sellers have always placed significant value on professional representation.  When the MLS information went from being proprietary to agents only to being on everyone’s iphones, the headlines all proclaimed that this meant the death of all buyer’s agents.  In truth what happened is the number of buyer’s who sought buyer’s representation increased significantly. 

The take away is most of these changes are a positive for the consumer and the brokerage business.  But it’s much closer to rearranging deck chairs, than the sea change it is being billed as.   It will have significant impacts on less professional part time agents and will as a result hit the big box firms that survive off of them.