It was early in my real estate career. I was happy to have a new listing in the South Park Hill neighborhood. But It was not an easy assignment.
The house was a 1910 Victorian, beautiful on the outside but extremely dated on the inside. The paint, floors, windows, and doors were ancient. The kitchen was original.
I contracted out and managed a full kitchen remodel, which seemed to help. Soon a buyer came along: an energetic young couple with ambitions to redo the whole house.
Eventually I drew up a seller “net sheet” for my out-of-state clients, showing the expected selling costs and proceeds. It should have been done sooner. Like I said, I was new.
My clients examined the figures, which included my commission and (as is customary) a commission for the buyers’ agent.
They were incensed. “You mean we have to pay BOTH agents?” said the husband.
“Yes,” I said sheepishly.
He asked a tough question. “Why?”
I fumbled for an answer. “Because…that’s just…how it works.”
His follow-up question was even tougher. “Why is that?”
I labored on. “I mean, all properties in the MLS offer some kind of buyer’s agent commission.”.
A more experienced agent might have elaborated. The National Association of Realtors (NAR) has a century-old policy that requires listing agents to make a blanket offer of compensation to buyer-side agents. That is, in order to advertise on a Realtor-sponsored Multiple Listing Service.
But that practice may change, thanks to recent class action lawsuits. More below.
A more experienced agent might have added this: Sellers have emerged as the commission-paying party because, it’s assumed, they’ll have the cash. Meanwhile buyers may be straining to cobble together a down payment.
It’s like what Willie Sutton said when asked why he robbed banks. “Because that’s where the money is.”
I did have the presence of mind to mention our listing agreement, signed months earlier. The Exclusive Right to Sell document itemizes commission payments.
My clients accepted reality, grateful at least to have a buyer. We closed the deal and life went on. I am now, incidentally, a more experienced agent.
Compulsory commission-sharing has been challenged in court—successfully, to some extent—in cases versus NAR, RE/MAX, Keller Williams and other major broker franchisors. The suits allege anti-competitive practices in violation of anti-trust laws.
Think about it. Currently most buyers do not pay their own agents directly. In many cases they don’t even know what their agent is making. Yet ultimately they are sharing a cost, it seems, in the form of a higher purchase price so that the seller can pay his expenses—including compensation of the buyer’s agent.
That’s the case made by plaintiffs, who also say it’s anti-competitive as hell.
Certain defendants have already settled out of court. Settlements of a combined $138.5 million were reached with RE/MAX and with Anywhere Real Estate, the parent company of Coldwell Banker and Sotheby’s. NAR and Keller Williams have vowed to fight on.
RE/MAX and Anywhere denied wrongdoing. But both agreed to change their ways. Their offices will no longer be required to insert buyer-side commissions in their listings.
But so what? Listing agents will still be free to make their own decisions. Buyers can still request concessions from sellers, including agent compensation. They can hire their own agent or ask the listing agent to serve both sides as a transaction broker.
In recent years, buyer-side commissions that were simply lower (much less absent) proved detrimental to sales. A 2017 study said rates below 2.5 percent made properties less like to sell, and they took longer.
I checked a few local RE/MAX listings and saw nothing new in terms of buyer agent compensation.
But things are definitely shifting, in ways that could affect everyday home buyers and sellers.
- Some buyers may have to pay their own agents out of pocket. I don’t expect it will be a finance-able cost to be rolled into the loan.
- At what rate, who knows? But it could be a big bump to the already high cash-to-close cost on a buyer settlement statement.
- Will competent agents even be interested in acting as buyer-paid, buyer-side brokers? Buyer repping is often thankless work as it is.
Some observers say all real estate agents may go away, replaced by artificial intelligence and non-fiduciary middlemen employed by Wall Street forces such as Zillow.
(Similar predictions are swirling about Wall Street taking over home ownership itself. One presidential candidate has a plan to stop it.)
I believe those prognostications about real estate agents fail to understand their full, true value—in terms of neighborhood knowledge, negotiation, and connections with other agents.
Agents are not high on the list of most-admired professions. But if they go away, our children may be left longing for the good old days.