How will the World of Commissions change in August of 2024 when it comes to real estate?
This will be a very interesting time for residential real estate transactions.
Of course, the national media is already weighing in with attention grabbing headlines saying agents will be out of business. Yes, some will. The reasons behind the changes are really another government overstep into a functional marketplace that didn’t need fixing. I’m still not seeing where collusion was occurring in an endless world of options and fees when it comes to transacting real estate. Nobody had to use an agent, it’s called “For sale by owner”. There are also many flat fee services, limited service brokerages and everything in between. Some brokerages will even buy your home and happily take your equity as a ‘convenience’ fee. There has never existed an industry standard as the media and ill-informed government officials have eluded. Every market functions differently and so does every broker. If there are practices of collusion then those would be the smallest of cases and they should be pursued.
Sadly, some real estate practitioners told people “they work for free and the seller pays everything”. This is misleading and inaccurate on so many levels. First, if you’re getting paid in a transaction then you’re certainly not working for free. Thankfully, we’ve been a very transparent industry since the days closing statements existed and you could see exactly what each party was getting paid. The timing of awareness of what someone was making may or may not have been a surprise to some people, but it certainly wasn’t free. Second, everyone needs to stop saying the seller pays all the commissions. That’s either ego or ignorance, take your pick. Who brings the money to the table? The buyer does and if they have a lender then the lender and the buyer bring the money. I’ve yet to see a seller pay all the commissions upfront because what do they need? That’s right, the buying side’s money. The buyer isn’t paying all the commissions either. It’s clearly a shared responsibility. If I buy a six pack of beer at the store, I as a consumer know there are distribution fees, commissions, taxes and other fees included in the price of the beer. I’m certainly not just paying for beer and a buyer isn’t simply just paying for property. Also, the seller knew what they agreed to pay from the agreement they made with the broker to sell the home and they took that into account when figuring out their net. The buyer knew what they were willing to pay for the property. I’ve personally been approached many times by ‘unrepresented’ buyers looking to automatically cut a perceived amount off the top of the asking price of a property because only one agent would be involved. If a seller and buyer are willing to allow for dual agency and only one party representing both, then that could happen. Then, you have to ask yourself, is either party really being represented well?
So what are the biggest changes coming in August? Buyers will have to have a written agreement in place with any agent showing them property. It’s the same as with a seller. If there’s a sign in the yard, they should have an agreement in place with the brokerage on the sign. The buyer having an agreement in place with their agent isn’t a bad thing at all. Most importantly, the buyer’s agent should be able to outline exactly those services being provided to help the buyer and their interests and truly assess the value they’re receiving or should expect in return. The second change makes zero logical sense at all. Neither the seller nor the seller’s broker will be able to articulate the commission being offered to an agent bringing a buyer in the Multiple Listing Service, aka MLS. The seller and seller’s broker can still offer compensation, they just can’t do it in the most seamless way to transparently convey the information, the MLS. Brokers and buyers will have to ask from property to property as to whether they’re offering anything at all. Brace yourselves for a true rodeo of misunderstandings, calamity and potential disputes. We’ve removed ‘order’ from the process and taken away a seller’s right to offer what they’re offering no matter where it’s offered. If someone can explain how this makes sense, I’ll be here the rest of my career. Hopefully common sense comes in and allows a seller’s offer to be displayed anywhere they please. At least when it’s in the MLS, the seller can also monitor and verify it’s the accurate compensation offer (if any) they’ve chosen, without alteration or a filter.
What will it look like on August 17th and what can you expect?
Here are my predictions:
None of this will have any effect on home prices, ZERO. An unrepresented buyer will want a reduction magically off the asking price if not represented and the sellers will want to see this as a potential time to have a higher profit. Yes, there are two sides to every transaction and these scenarios have ALWAYS existed. Yeah, no change in home prices.
Sellers offering little to no compensation will be sitting around with crickets. Keep in mind, buyers and buyer’s agents will have more representation agreements in place than ever. The buying public, to a large degree, will have a contract in place with their agent and will most likely be requesting that fee from the seller when making offers, if short of their agreement. It will potentially be another form of seller concession and one more point of negotiation while trying to purchase property. Also, you can expect buyers to eliminate properties from consideration if it creates a hardship other properties don’t. Less buyers means less interest, means less showings, means less offers, means dropping price or removing it from the market. Yes, buyers will care.
You can also expect opportunistic agents and models to tell sellers they don’t need to pay anything. That’s true AND it has always been true. This isn’t anything new. Will it be successful? Probably as successful as it has been in the past. This will be an area where selling agents overplaying how much they’ll save sellers will be about as helpful to a seller as overpromising a home price they know they cannot achieve in order to get an agreement in place. Get the seller to agree to work them and then grind them down on price over time. Get the seller to believe they’ll never pay anything to a buyer’s agent knowing they’ll be seeing it on purchase contracts in most cases. The truth will ultimately work itself to the surface but at what expense for misled sellers? But hey, they’ll net thousands more and live in their home for free until they feel like moving. The top question I would have if I’m a seller for someone promising this is what their strategy was before? If you could have done this all along then why did the agent or brokerage wait until this to do it? Didn’t they believe in what they were doing and how they were counseling sellers before? Hey, is that ‘integrity’ calling, because it appears they’re not answering?!
Who will be the most compromised in all of this? Yes, there will be intended and unintended consequences. The most compromised will be those who don’t currently have a home and those with the least resources or funds to pay for representation. Yes, this may very well hinder the likelihood of homeownership in minority groups. Homeownership in minority groups rose the largest amount in history during COVID and that was a great sign for our country. Now, the Department of Justice just took steps backwards on that front. How did this get missed by the Civil Rights arm of the DOJ and Civil Rights leaders across the country? I’ve rarely encountered racism in real estate. I know others don’t feel as fortunate and have experienced it many times. If people can be profiled when buying, then don’t you think this also opens a door to profiling those representing buyers and a potential to play with compensation offerings? Combine all that with first time home buyers and the lowest level of affordability we’ve seen and give them yet another hurdle.
Effectively the American Dream of home ownership may have far more downside from these decisions than benefits. The future will be telling and maybe, just maybe, everyone’s tummy will settle down and notice there really is great value to having professional, balanced representation in most real estate transactions. It’s not like you’re spending hundreds of thousands of dollars on your future investment of home and financial net worth, right?! Hire the best you can and sleep well.
