A few years ago, I mentioned in passing to my wife Heejin that we might want to consider living in a state other than CA.
So, she promptly went out and bought 5 houses in three different states – 1 in Nevada, 2 in AZ, and 2 in TX – so we could see which area we liked best.
And yes, it was just like that. Our lives were whirlwinds. I rarely saw Heejin (or even knew where she was) as she flew from house to house to house to manage contractors and movers, to remodel, to decorate, to furnish, and to set up Airbnb listings (for when we were not at the homes).
We had huge furniture boxes showing up every day at our various offices and homes, and I was constantly getting texts and emails with flooring, paint, and furniture ideas with questions that said, “do you like this?” I always just said, “yes,” because I had no clue which house the various samples were for.
Anyway, this went on for about two years until Heejin got tired of it all and sold the homes and ended up clearing seven figures for her efforts. She then came home, made me a big pan of tuna casserole, and flew to Hawaii with her niece (true story 😊).
I tell this story because Heejin could never have pulled all of that off or made that much money without the help of several extremely skilled, competent, and very deserving real estate agents.
These agents showed Heejin numerous homes, they knew the listing agents in the area, they knew contractors, they knew vendors, they knew how to find areas that would most appeal to Heejin, and they knew how to negotiate aggressively – and not one of them was “overpaid.”
Having been connected to the real estate space for 30 years now and having bought and sold over a dozen homes, there is no bigger defender of agent commissions than me – as I personally have benefitted hugely from their knowhow and skill, and I see how hard they work (something most people miss).
As most of my readers know, the class action lawsuits are against major brokerages and the National Association of Realtors, and this HousingWire article explains what is taking place, focusing on the RE/MAX settlement. From HousingWire: “The two lawsuits take aim at NAR’s Participation Rule, which requires listing agents to make a blanket offer of compensation to buyers’ agents in order to list the property on a realtor-affiliated multiple listing service (MLS). According to the plaintiffs, commission sharing inflates the costs for consumers, in violation of the Sherman Antitrust Act. NAR contends that the current commission structure, which has been in place for over 100 years, actually helps consumers.” Anyway, the class action attorneys think it is unfair that sellers are forced to pay the commissions for buyers’ agents.
I was not going to weigh in on this, given how touchy it is, and given that I am outside of the industry and not particularly qualified to opine in any case. But, I had to comment when I saw this WSJ editorial today: Realtors Face an Antitrust Reckoning – A federal trial starting Monday could yield major benefits for home buyers.
Whether this will be a benefit for home buyers remains to be seen, but as I illustrate above – buyers can strongly benefit from a highly motivated and skilled agent. If commissions are cut too thin (particularly if buyers’ agents are forced to ask buyers to pay their commissions), I suspect much of that skill and motivation will be watered down and buyers in need of information will be left in the dark – and I am not sure who will fill the void?
Anyway, I have no idea how this will all shake out, but I have a few observations.
Who Benefits?
- Trial Lawyers. While sellers are the ostensible plaintiffs or harmed parties, it is the trial lawyers who will actually benefit, given that they could earn as much as 1/3 of the final settlement which could be in the billions. Individual sellers, however, who are part of the “class,” will be lucky to get a check for a few bucks, as is the case with most class action lawsuits. The lawyers do an awesome job of pretending to care about consumers, but they are really just after their share of a giant settlement.
- iBuyers. Per this NerdWallet article, “an iBuyer, or “instant buyer,” is a real estate company that uses algorithms and technology to buy and resell homes quickly. When selling a home to an iBuyer, you may get a cash offer in as little as 24 hours.” They could benefit hugely if the traditional real estate agent model is upended. But – what is ironic is that there are numerous studies that show that sellers end up paying much more in total fees when they use an iBuyer instead of listing the home in the traditional manner with a listing agent (with the buyer’s agent commission baked into the listing agreement).
Who Gets Hurt?
Sellers could get hurt, as I suspect the trial lawyers and the WSJ don’t fully understand how much sellers can potentially benefit from offering healthy commissions to what is one of the most effective sales forces on the planet (a huge pool of qualified buyer’s agents). And buyers can of course get hurt too if there are not enough qualified people with the motivation to help them in the many ways that they need help. And also, is it better if buyers end up dealing directly with listing agents without an agent on the buyer’s side?
What The WSJ Gets Wrong.
The WSJ insists that total commissions have remained at 6% for decades. But we rarely see full 6% commissions now (in our markets at least) and it is obvious that sellers have been able to and are negotiating lower total commission levels without risking getting kicked off the MLS system.
What’s Really Interesting: Lobby Power!
The NAR remains a powerful lobby and that is something the WSJ focuses on heavily in its editorial. But, lobbies themselves are last year’s news, as billionaires and other interests now dwarf NAR’s total contributions to Congress via other avenues. So, while NAR itself ranks very high as a specific lobby, spending $23 million this year alone, it is dwarfed by other spending and lobbying efforts that are not lobby-specific. The pharmaceutical industry has spent close to $200 million this year alone for example. And god knows how much big tech, big labor and our billionaire class spend through their various super PACs and other cloudy organizations. Open Secrets illuminates much of this.
My broader point though is that NAR is longer the force it was, and that is probably why these lawsuits are getting so much traction.
Why Lenders Are So Worried.
This is probably obvious to most readers, but most lenders get most of their qualified buyer leads from buyers’ agents. Losing them will upend the lending industry as well as the real estate industry. In addition, most lenders see how hard agents work and work for commissions themselves – so they probably support healthy commissions every bit as much as I do.
What Will Happen?
I have talked to several brokers who are still operating status quo despite the fact that the MLS system apparently no longer mandates offers of compensation to buyer’s agents. I doubt buyers will be interested in paying commissions directly too, particularly when many are so cash-strapped. So, what we might see is a fixed fee, or hourly rate, or even a practice or standard where “seller credits” for commissions are part of most contracts. Listing agents too may become more involved with the buyside of transactions, but I am not sure that will benefit buyers, as I mentioned above.
Anyway, I am probably far less qualified to comment on any of this than about 99% of the real estate industry. So, I would love comments and feedback.
Sign up to receive our blog daily
