Commissions Part 3 - Buyers and Their Agents

Part 3:  Buyers and Their Agents 

As in other industries, once a class-action suit is successful, more suits will follow. There is one now in Pennsylvania that is brought by Buyers, not Sellers. Their complaint is similar. NAR and the big real estate companies have price-fixed the industry and often the services are not compensatory with the pay. They also add that buyers are told, “that such services do not cost home buyers anything”. When I first entered the business this is what I was taught. On one level this is true. My buyers were not having to pay me out of pocket and my commissions didn’t show up on their end of the Settlement Statement at closing. However, the price of the home had my commissions ‘baked into it’. So they were paying more for the house because of this arrangement. 

This lawsuit and I’m sure there will be other copycats will continue to scapegoat NAR and the big companies for the rising housing prices. But I wonder if a lot of their complaints will be minimized because of the remedy proposed by Sitzer. We’ll soon learn if this is true and I’ll update once this lawsuit progresses. 

One area that I believe is in the best interest of everyone is not having this compensation show up in the MLS.  The MLS is the most robust search engine for finding a home. It was possible, and some agents did, screen homes they would show their buyers based on the commission rate identified in the MLS. This is disgusting and wrong! We have always taught at Due South Realty that you find the home that your clients need and want. Period. Do not let compensation influence you. Plus you can negotiate it if you have a fiduciary responsibility to your client. But find the home first. 

Since for most people, purchasing a home is often their largest asset, you need a professional, knowledgeable guide along your side to make the best and wisest decision. This ruling could weed out the agents that shouldn’t be in the business. 

A caveat for all buyers, real estate agents are not the same! Evaluate agents that you may end up working with. Do they have a system? Do they genuinely have your best interest at heart? Do they have the mindset of a counselor or a salesman? Counseling helps make better decisions and a salesman spends too much effort to persuade you to spend your money. Not wise! 

Once you have selected your agent, then agree on their compensation. No one will work for free! Find out if they will be a fiduciary and ask about their strategies to ensure that you are not having to pay for them directly out of your pocket at the closing table. 

Challenges on the buy side of this ruling:

1. For first-time home buyers, this could be a challenge for you. You need assistance to navigate the gauntlet of buying a home. An experienced agent can provide the needed wisdom and guidance for you to succeed. Do not forgo assistance!  If you have read everything in this blog up to this point, you will see the logic for the seller to include compensation in the sale price of the home. Your agent can negotiate that payment into the contract. Trust the process.  
2. These new adjustments may harm VA loan users as well. It is specified in the VA loan that agents can’t request compensation from the buyer. Currently, they have suspended this requirement, but even if they do not, my conversations with lenders say that there is a legitimate workaround. Again, our veterans should not go unrepresented. I believe there are ways to make this work and from my initial conversation with a couple of lenders, they believe it will work as well. 
3. Your request for compensation to be paid by the Seller will be included in the offer. Just like when you ask them to provide you with a carpet allowance or buy a new roof, you will ask for them to pay the commissions of your agent. During a seller's market, this may be more difficult. During a buyer’s market, I would be surprised if the seller isn’t offering to pay this amount upfront. 

Future Impact on Real Estate

I agree with a variety of pundits who think that there will be three distinct levels of impact on the industry. 

First, this could see an exodus of agents who are not a good fit for this occupation. If your service is poor, maybe now more buyers and sellers realize that there are better, more professional agents out there that they could work with. 

Next, we will probably see a growth of ‘discount brokerages’. These are brokerages that charge a set fee for their services. Many will require this to be paid upfront or at least a retaining fee paid before you ever go looking at a home. 

Finally, you will see the ‘full-service brokerages’ distinguish themselves by their quality of service. I think there will be more of a ‘concierge mentality’ to ensure that the buyers and sellers we are working with are highly satisfied with the service and care provided.

Good luck in finding the home that meets your needs and fits your budget!