The multiple commission lawsuits impacting the real estate industry will change how home buyers, home sellers and real estate agents interact. If a home seller opts not to offer a co-op compensation, how will home buyers pay agents after the commission lawsuits? That’s a question rippling through the agent ranks and one that home buyers might also want to consider. While the legal wrangling over commission questions may take years to sort out, the impact will be felt regardless of how the appeals play out. There will be unintended consequences and the hit will likely be to those least able to afford it both financially and in terms of home buying experience.
Home Buyers Will Not Use an Agent
Affordability is the single biggest obstacle to ownership and no group is being hit harder than first time buyers and first move up buyers. Many buyers in this group are hanging by a thread when it comes to qualifying; subtle changes in interest rates, debt to income ratios, credit scores, etc can be the difference between loan approval and rejection. While they may want an agent to represent them, they may not be able to afford one. In this case, they go through the process unrepresented as the listing agent represents only the seller. An added wrinkle is how involved listing agents will get; dual agency is especially dumb for any seller to agree to since that listing agent is being paid to represent the seller’s best interest. The likelihood for major issues is very high, agents may find themselves dealing with various complaints from buyers that feel exploited – even though they chose not to be represented.
"Use a lawyer" will be tossed about. Their involvement may vary by state, but in GA, most attorneys have no desire to get involved in sales and negotiations. They tend to focus on closings and for them, this is a methodical and steady paycheck. Some might, but the logistics and cost of that are significant unknowns.
Home Buyers Pay Agents by the Hour
This is a popular idea being tossed about on social media and chat boards, pay your agent by the hour for specific tasks. Once the “yeah, that’s how I pay my lawyer or CPA” chatter dies down, the idea bogs down. The
challenges here are:
- Establishing a rate. What’s an experienced veteran worth; what’s a novice worth? Is there a charge for showings and mileage? Are different tasks billed at different rates?
- What is billable? Skilled agents work 24/7, is there a premium for nights and weekends? Are texts, emails, calls all billable?
- How do agents charge? Daily? Weekly? How do buyers pay? Will agents need to take credit cards? How will that impact them with accounting and taxes?
- What happens if buyers don’t pay? What happens if buyers fail to find a home? Is a retainer taken? How much and held by who? Is that legal? Does it conform with agent/broker/industry guidelines?
Some chatter entertains “specific” roles; research, showings, writing offers, negotiation, all by specific agents billed at different rates. The idea would be large teams or small companies to do this, but how would that work between agents, management, and administration. There is a lot more to the “pay as you go” idea. Buyers could find themselves quite annoyed paying out money for an extended period or being required to deposit a retainer. Agents could find themselves awkwardly asking to be regularly paid, having to set up an accounting system for this and possibly (almost certainly) having to chase unpaid invoices.
Home Buyers Pay Part of the Commission
This might be the easiest and most familiar way forward. An exclusive buyer brokerage agreement is required in many states prior to an agent showing homes to a buyer. The buyer and agent decide on a commission for representation, with the buyer understanding that that a co-op commission is not legally or otherwise required to be paid by the seller. The buyer brokerage agreement will state that any compensation collected from the seller or seller’s broker will be applied to the agreed upon brokerage fee with any remainder owed by the buyer, to be paid upon closing. Best practices would be for the agent to inform the buyer of the commission offered by the seller on any home the buyer wishes to see. Buyers will then decide whether to visit or pursue those homes.
There will be unintended consequences to all of this, felt primarily by the most vulnerable home buyers. There's plenty of blame for the problems that led to this lawsuit, most belongs to the National Association of Realtors (NAR). They commissioned a study back in 2016 that addressed major issues they were likely to face over the next decade - the images in this post are snippets from that report. NAR did nothing, continues to be driven only to increase membership and fees; it really is all about the money. Based on the lawsuits, sellers feel that they were not advised that the fees they paid also included the buyer's agent; they felt they were paying for someone competing against them.
Listing agents failed miserably in being transparent and explaining how the commission process works AND making certain that the sellers understood that every aspect of the fee is negotiable. Sellers pay what they want to whom they want; that this basic message was not made clear seems to be the genesis of these lawsuits. Nothing is legally settled, appeals will likely last for some time. How this shakes out remains to be seen but it takes a lot of work to make a transaction look boring and uneventful. Buyers and sellers must question and properly vet agents; this is not difficult. In the end, the proliferation of hobby/hack agents encouraged by NAR may end up costing consumers more than they bargained for.
Posted by Hank Miller on
Leave A Comment