New Rules for Realtors

Rianne

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Several family members are realtors. I'm not sure I completely understand the new rules set to take place in July this year. How I understand it:

Selling agents can no longer set their commission, it's a negotiation between agent and seller that excludes the buyer. The buyer's agent is paid based on a negotiation between the buyer and the agent. There is no longer a direct relationship between the buyer's agent and the seller's agent.

The 6% is no longer an agreed-upon commission. It's whatever the buyer and seller decide to pay. I'm not sure where MLS comes into play. I understood MLS was supported by real estate companies. Maybe there will be more for sale by owners? How will your property get advertised?
 
The key to selling a house is to get maximum exposure, usually this is done with a listing in the MLS. The local MLS system is supported by Realtor dues in that market area. Realtor.com, Zillow and Redfin are ancillary websites that show photos and phone numbers directing the prospective Buyer to a licensed Agent.

A commission of 6% was a rarity. Mostly it was 5% to be split between the Seller's Agent and the Buyer's Agent. Of that 2.5% each Agent has to 'kick-up' about 1% to the Broker-in-Charge of their Office.....sometimes high-producers get a better split with their Broker. But for the most part, the Agent you are engaged with is working for about 1% of the final Sales Price (after deducting his/her expenses for Staging, Photography, Advertising, buying food for Open Houses).

In the most recent two years, Homes in my Market were selling with less than 7 Days on Market, often with only Cell Phone Photos and no Public Open Houses. Bidding Wars Over-Asking Price was a common occurrence. Sales Prices were typically in the $450 - $500K range.

A $5,000 payday for this level of effort was a pretty nice gig.

It will be interesting to see where the dust settles on this new fee structure.
 
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I don't entirely get it either. In the NYC "luxury" market, the norm was 5% (split 50/50 buyer/seller agent commission), but the entire 5% was paid by the seller. Brokers claimed this was necessary to attract seller agents to show the property. So, I'm wondering, what's really different now? Will buyers have to foot the bill for the buyer's agent? I bet it will it be business as usual regardless of the new rules.
 
... I bet it will it be business as usual regardless of the new rules.

Yes, perhaps a change in form but no change in substance. After all, is each seller going to want to negotiate with each buyers broker? It might allow sellers to negotiate commissions more... perhaps average commissions will gravitate downward.

What has always been strange to me is that the agents get twice as much compensation for selling a $1m house as for selling a $500k house, and I can't imagine that the work effort involved is that disproportionate. Perhaps commissions rates will be lower for more expensive homes to adjust.

ETA: The house that we are closing on next week had a 5% commission split evenly between the buyer and seller agents.
 
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I live in an area with very high housing prices (mostly houses other than my modest little bungalow are over one million dollars) and the houses to that come on the market sell quickly. Even today, they still sell relatively quickly compared to several decades ago.

The big difference is that there aren’t 15 offer to consider after being on the market for four days. Now it may take a few weeks, and one may have to suffer through a few low-ball offers. It’s hard to imagine any sales organization doing enough to earn $60,000 on the sale of a million dollar 3 bd 2 bath home in my area.
 
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I think it may reduce overall costs for sellers. Or a bigger change could be going to a fixed fee type commission, rather than a percentage of sales price. Some of the low-fee options work this way, but you have to do more work as the seller. Also the MLS is a big monopoly that will probably be cracked open.

In a hot market, real estate doesn't take much marketing or time. In a normal or slow market, agents do have to do more and have more apparent work for their resulting commission check.
 
I imaging it'll be like travel agents. Now that everyone can book on-line, that industry really dried up.

I know a few realtors, and a family member was one. I'm sure they hate change, but I think it's inevitable. Take that example of getting twice the income for the $1M house than the $0.5M one. There's no logic there.

What I find truly irritating is that some realtors are starting to add new, frivolous fees to their contracts. I don't have a lot of specifics, but what I've read is disappointing. I'll be reading the fine print if I ever have to deal with a realtor again! Or maybe just go with FSBO and FB Marketplace.
 
But wasn't a lot of it always open to negotiation? You want my listing, I'm gonna let you have X%. Now, that works better in a seller's market of course, but I have always thought it was somewhat negotiable.
 
I sold a couple houses and was able to get the real estate agent to knock off a half point to 5.5% but never better. What I tried to do with my last house is just get the agent to sell it exclusive for 4%. The wouldn’t do it. Being the main agent in the area, I think they could have. Maybe there might be more interest in an arrangement like that in hot markets going forward.
 
I'm not sure if anything really changes -- the commission has always been negotiable. My last home sale was at 4.5%. I would guess most sellers don't even attempt to negotiate with listing agents. I have sold by owner a couple of times and prefer to go that route if in an area with a decent market.
 
I'm sure they hate change, but I think it's inevitable. Take that example of getting twice the income for the $1M house than the $0.5M one. There's no logic there.

Something else that was not logical. Say 2 buyers both buy a $500K house that had a 6% commission structure (3% to buyer's realtor). The buyer's realtors both earn $15K.

Now assume the first buyer looked at 2 houses over the course of a week before buying, and the second buyer looked at 20 houses over the course of 6 months before buying. Much different work for the same pay.

If I get 20 trees cut down, I would expect to pay more than my neighbor who had 2 trees cut down.
 
Yes, perhaps a change in form but no change in substance. After all, is each seller going to want to negotiate with each buyers broker? It might allow sellers to negotiate commissions more... perhaps average commissions will gravitate downward.

What has always been strange to me is that the agents get twice as much compensation for selling a $1m house as for selling a $500k house, and I can't imagine that the work effort involved is that disproportionate. Perhaps commissions rates will be lower for more expensive homes to adjust.

ETA: The house that we are closing on next week had a 5% commission split evenly between the buyer and seller agents.


Agreed. One more form to fill out. My guess is making it clear it's negotiable. Basically making it easier for people, uncomfortable asking for a reduction, to get it reduced from 6%. Minor deal would be my guess.
 
I think it will move to a fixed-price a la carte market. Listing and promotion with MLS $$$, Staging $, photography packages $ or $$, closing services $. Buyers will not commonly hire agents at all except possibly in very hot markets.

The dollar value of a home has almost nothing to do with the work required to sell it. Attorneys and CPAs do not charge based on the value of a transaction. They charge based on the value of the work they perform. Real estate will go the same way.

I saw an article speculating that half of real estate agents will fall away. Probably.
 
The seller will have to negotiate 2 commissions separately instead of up front with listing agent - first the listing agent commission when getting listing , then when the buyers agent commission submits an offer.
Also the buyer agents will begin to insist on potential buyer signing an exclusive buyer agent contract before showing any house. Buyer will not be able to just call a number of agents before committing to one buyer agent. Plus buyer agent won't know ahead of time how much of a commission seller is willing to give resulting in more offer negotiation time.
 
I think it more likely that sellers will negotiate a commission with the selling agent and then in effect offer the same commission to buyer's agents and if the buyer's agent is unwilling to accept that level of commission then take your buyers elsewhere.
 
My thinking it is beneficial to all involved. More competition makes people work harder to earn the dollar, lower costs and will give both the seller and buyer more in their pockets at the end of the sale.

Change will be the worst but once it gets going it will be good for all.
 
How much really does it cost to sell a $100k house than a $600k house? Seems like the same amount of work ,regardless. So why a vast amount in money paid to brokers and agents? Ive bought /sold properties with/without realtor who did nothing but gum up the works sometimes. my last RE encounter was drug out an additional 6 weeks, resulting in a higher purchase price and a higher interest rate.
 
Is this a state by state thing?

Here in pricey San Diego 2.5% to each side has been the norm for a decade at least... with less if you use a discount selling agent like Redfin (they charge 2%). I've seen listing that will specify the buyer's agent percentage in the listing if it's anything other than 2.5%.

Median price of all homes (condos, townhouses, and single family) was $940k in February. Single family was $1.22M. Even 2% of that size sales price is a good paycheck. We've earned the title 'most expensive place to live in the US"... Fortunately, we don't have a mortgage, and didn't pay current market when we bought 20+ years ago.
 
But wasn't a lot of it always open to negotiation? You want my listing, I'm gonna let you have X%. Now, that works better in a seller's market of course, but I have always thought it was somewhat negotiable.

That's the way it's always been here, AFAIK. The seller negotiates with his agent. Maybe part of the negotiating was a little bit "under the table" (I don't remember), but that's what happens here.
 
It's just another domino falling like travel agent fees and stock commissions. Technology has made them mostly obsolete and competition has driven them to zero.

With real estate there is still a small amount of inevitable friction that will keep commissions from going to zero but they will almost certainly go way down to between 1.5% and 3%. That's a personal estimate but agrees with what I have seen the NAR predict. The friction will come from the need to show properties in person and some legal hand-holding that some buyers and sellers need. I am personally savvy enough to never pay a buyer's agent. We might see more piecemeal fees to sellers like fees for photos, staging, showing, and so forth. That's fine with me.

I'm not sure where things will go but I suspect there will be far fewer real estate agents but their professionalism will go up dramatically since only the best will survive. But time will tell.

Incidentally, from what I read, it is unlikely this settlement will get watered down. It was driven by a huge loss the NAR suffered in a lawsuit in November when it was found to have committed fraud and fined $1.8 billion in damages. Since it was a result of fraud that gets automatically tripled to $5.4 billion. That's a death sentence for NAR and most MLS systems if they do not strictly comply with the new rules.

There was also mention of refunds to people who bought or sold houses the last few years. It will be interesting to see where the funds for that will come from. Might we see agents forced to disgorge commissions from 10 years ago under threat of jail? Just wondering. The last time I sold a house and paid a commission was about 8 years ago so I doubt I will see anything.
 
Is this a state by state thing?

Here in pricey San Diego 2.5% to each side has been the norm for a decade at least... with less if you use a discount selling agent like Redfin (they charge 2%). I've seen listing that will specify the buyer's agent percentage in the listing if it's anything other than 2.5%.

Median price of all homes (condos, townhouses, and single family) was $940k in February. Single family was $1.22M. Even 2% of that size sales price is a good paycheck. We've earned the title 'most expensive place to live in the US"... Fortunately, we don't have a mortgage, and didn't pay current market when we bought 20+ years ago.

It's nationwide. They will no longer be able to offer a buyer agent commission in MLS. It's a lawsuit settlement after NAR lost. So if they cheat there is a huge hammer that the plaintiffs can slam down. I think everything we know about the real estate environment will change in every market.

In short, the lawsuit concluded that the way real estate agents operate in the United States has been fraudulent for decades and must fundamentally change.
 
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I imaging it'll be like travel agents. Now that everyone can book on-line, that industry really dried up.

I know a few realtors, and a family member was one. I'm sure they hate change, but I think it's inevitable. Take that example of getting twice the income for the $1M house than the $0.5M one. There's no logic there.

What I find truly irritating is that some realtors are starting to add new, frivolous fees to their contracts. I don't have a lot of specifics, but what I've read is disappointing. I'll be reading the fine print if I ever have to deal with a realtor again! Or maybe just go with FSBO and FB Marketplace.

When we bought our current house over 10 years ago we found it on Zillow. We liked it and wanted to see it. We actually had a buyer's agent that was helping us but we had no formal agreement with her. We asked to to show us the house 3 times and she kept blowing us off and all but refusing because it was FSBO. Finally we contacted the owner, looked at it ourselves, liked it, drew up a contract in the living room and bought. Our agent was furious. It turned out she had failed to see that the seller was offering a 3% commission to buyer's agents.

If she had arranged the showing and actually helped us I would have happily paid her in the way of a higher price for the house. But after having to do all the work of arranging a showing ourselves and drafting/negotiating a sales contract (we required seller rent back from us for 2 years because we were not ready to move), I did not feel too bad about her missing out on the commission.
 
It's nationwide. They will no longer be able to offer a buyer agent commission in MLS. It's a lawsuit settlement after NAR lost. So if they cheat there is a huge hammer that the plaintiffs can slam down. I think everything we know about the real estate environment will change in every market.

In short, the lawsuit concluded that the way real estate agents operate in the United States has been fraudulent for decades and must fundamentally change.

What if as a seller I want to offer a buyer agent a commission to induce the buyer agent to show my listing to their client over listing that don't have such an inducement?

Or would we shift to a model where the seller pays a commission to the selling agent and the buyer pays a commission to the buyer agent?

Even so, as a seller I might want to juice traffic on my listing by offering an inducement to the buyer's agent to gain an advantage.
 
What if as a seller I want to offer a buyer agent a commission to induce the buyer agent to show my listing to their client over listing that don't have such an inducement?

Or would we shift to a model where the seller pays a commission to the selling agent and the buyer pays a commission to the buyer agent?

Even so, as a seller I might want to juice traffic on my listing by offering an inducement to the buyer's agent to gain an advantage.

I'm guessing that all these different arrangements will be up for grabs and not dictated by RE companies (agents). Since you own the asset and are selling it, you can arrange the sales process, similar to a used car sale.
 
What if as a seller I want to offer a buyer agent a commission to induce the buyer agent to show my listing to their client over listing that don't have such an inducement?

Or would we shift to a model where the seller pays a commission to the selling agent and the buyer pays a commission to the buyer agent?

Even so, as a seller I might want to juice traffic on my listing by offering an inducement to the buyer's agent to gain an advantage.

This sounds like when you search for a item on Amazon and the first few results are sponsored items, not really what you want but what was paid to be put in front of the line.
 

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