The National Association of Realtors (NAR) settled a series of lawsuits that is being trumpeted as “a radical change” in commissions paid to real estate agents for the purchase and/or sale of a home. There is so much misinformation being spread on this issue it boggles the mind. Let’s clear up some things.
First, the misconceptions. The seller of the house is paying the buyer’s broker. Yes, the commission comes out of the sale proceeds of the house. But who is paying for the house? The buyer. When you go to a shoe store does the store pay the person who delivers the shoes to the store? Technically, yes; but the buyer ends up picking up that cost as part of the purchase price of the shoes. The buyer always pays.
When the buyer does not use the current system and engages a separate buyer’s broker they will have that much more to come up with at closing. An additional $10,000 or more out of pocket will make the deal that much more difficult to close.
Next, there is no fixed commission at 6%. Agents certainly try to get that rate, but it is always negotiable and can vary dramatically, particularly with increased home prices. Most agents in the area I live in ask for 5%. If you are selling a house for $300,000, will the listing include a 6% commission? Most likely it would be at that rate because the agent incurs marketing costs and more expenses that dictate a minimum amount. Many of the elements of working a deal are the same whether you are selling a $300,000 house, $3,000,000 house, or $30,000,000 house. Rest assured the commission rate is typically reduced for a $30,000,000 house.
The next major misconception is that this settlement eliminates the buyer’s commission from the seller. It does not. The settlement eliminates on the MLS (Multiple Listing Service) any statement of commission rate for buyer’s agents in their common listings of properties for sale. The agent and their agency can list the rate on their website, on the flyers, or anywhere else. They can state a rate for the buyer’s broker.
Are changes coming to the Real Estate brokerage industry for homes? Absolutely. It already has. Sites like Zillow and Redfin provide a substantial amount of information to consumers about available homes. But after a look my own residence found the information dated and insufficient.
Reduced fee and flat fee brokerages have already entered the market as the reality of the changing world caused by access to information on the internet. Having information does not make someone an expert. I tell the story often of someone facing a medical challenge and going into a doctor’s office with their “self-diagnosis.” The doctor looks at the patient and asks, “And where did you get your medical degree?”
I recently advised a client to use my car broker who over a period of 25 years had always saved my clients money and/or on a rare occasion advises them to take the deal they have derived on their own which he cannot match. The client told me he could get the same information my broker was providing from the website of car dealers and did not need my referral. He said, “The prices are all listed on the website.” My guy told me that is true until you read the fine print with all the exceptions. I have not bought a car without his help for me or my family for 25 years. I know I am saving time, money, and aggravation.
One buys a car perhaps 10 to 15 times over your lifetime. Home buying a house is something you may only do twice or three times in your lifetime. It is the biggest asset in which most anyone invests. Ones’ knowledge of what to buy and the shortcomings or strengths of a home are not always self-evident. And most home buyers don’t think in the same way professional real estate investors do. They always think about how to exit their investment, if necessary, i.e., what is my exit strategy? Homebuyers don’t typically think that way. They don’t think that they may need to sell in a down market or in unplanned events like business relocations or family deaths.
A qualified, experienced agent will help a buyer with that. Remember, the buyer who may be buying for the first time or second time and by definition is not going to see that reality from a listing on Zillow or Redfin or walking a property without any guidance.
There are about 1.5 million realtors at this time. That is an increase of 500,000 from 2012. Many of them are inexperienced or part-time individuals. They still need to work under a Real Estate Broker (I am a licensed Real Estate Broker and have been for 35 years, but never a NAR member) who is required by law to properly supervise the agents. Many agents work on teams as they learn the nuts and bolts of the business while they attempt to gain the experience to stand on their own. Many of these people may leave the industry as there are changes coming from this ruling as the industry continues to evolve.
If I did not have 48 years dealing with real estate investments, I certainly would not be negotiating the purchase of another place. I would find someone who is capable of properly advising me on my purchase. I believe in staying in my lane and engaging others who know more than I do in areas where I don’t have expertise. I have told my clients for a long, long, time the key to being successful in business is realizing your own limitations and compensating for them. That means getting the best help you can when buying your biggest asset – your home.
And remember when you see your medical professional to simply provide your symptoms and let them do the diagnosis. You will live longer.
