Change is inevitable, except from a vending machine! The Real Estate industry is changing rapidly and dramatically. Tech companies are invading the space and capturing the supply of buyers. Now they are working hard on capturing the supply of Sellers. What’s next, go after commissions as well?
Whats happening now
That’s exactly what is now happening! There are as many as 9 major law firms in the US that have joined in a lawsuit challenging our system of commissions. They have sued the major MLS systems, NAR as the Mothership, and all the major Franchise firms as co-conspirators. Those firms believe that a firm, the MLS, or the Mothership requiring a listing agent to “offer” cooperative compensation is anti-competitive and artificially increases the cost of selling a home. To help with their claim, they note that this system “prevents” Buyers from negotiating with their agents for the services they provide.
The Dept of Justice is now looking into MLS data to determine how many agent searches begin with or include cooperation commissions. This is to determine how anti-competitive cooperative commissions really are. Results could be that sellers save the cost of paying commissions to the buyer’s agent and leave the Buyer to negotiate what his/her agent will be paid. That becomes an additional cost for the Buyer that would need to be built into the loan system or will increase out-of-pocket cash costs to the Buyer.
Here’s how it could change…
Do you know a few buyers who won’t seek an agent’s help if they have to pay cash for services? I certainly do! More importantly, what amount will Buyer’s be willing to pay for the services we can provide?? How many will willingly pay $6,000 for your services to purchase a $200,000 home? Unless I miss my guess, and I haven’t missed many, how Buyers agents get paid IS going to change, and probably dramatically. The very least of changes will be total full disclosure from the agent to the Buyer of how much the agent is being compensated. This will be only if there is some sort of Seller participation. If not, you will have to negotiate your compensation with your Buyer before beginning your representation. Are you confidant enough in what expertise you bring to a transaction to set across the table from a first time home buyer and tell them they will be responsible for paying you 3% of the cost of whatever they purchase?
Many firms have tried to avoid these pitfalls by having their agents negotiate with their buyers at the beginning of representation and complete a Buyer’s Representation Agreement. That is a significant step but how many of you have managed to get a buyer to sign a Buyers Representation Agreement only by telling them they don’t have to worry because the Seller will pay it? I’ll bet many of you have even told Buyer’s that if you collect less than what you agreed to on the Buyer’s Representation Agreement you will settle for whatever the Seller paid!
The results of these lawsuits are going to at the very least require significant disclosures of what you get paid to represent the buyer (no more cloak of invisibility because the Seller paid it) and more likely will require both front end negotiation and full disclosure. If you are primarily representing Buyers, ask yourself if you would willingly pay for the services you provide to a buyer what you want them to pay. Should you answer yes, get what you provide down on paper so you can build upon that with other buyers. If you wouldn’t pay for your services, you need to re-think how you represent buyers and discover what you would want to make it valuable enough, then implement it! Don’t make it about what you get paid, make it about what your buyer needs and wants!