Commission Settlement

“If it bleeds it leads!”

I had never truly understood how true this statement was, until my entire industry was the target of this strategy. I am frankly struck with how blatantly these headlines are flat out inaccurate, made simply to entice people to click. So, for my clients and future clients, I am going to share what has actually happened.

“6% Commissions SLASHED!"

While this headline I am sure creates curiosity - that is not what has happened. Shocker, I know. This settlement actually has no dictation on what agents are actually paid. So, let’s look at what this settlement actually proposes:

Essentially there are 2 main changes:

Agents cannot advertise buyer agent compensation on the MLS
Buyer agents need to have written agreements with buyers about compensation prior to showing a single home

So... what’s all the fuss about? Good question. Headlines are meant to attract readers, apparently not so much the actual facts.

Moving forward, what will these changes look like for buyers and sellers of real estate?

Well, let’s first look at why this has come about, and clear up a couple of main points.

So, what is the MLS?

The MLS is the compilation of listing information shared amongst agents. Listing agents share their listing information on this platform with other MLS subscribers. It was created to help consumers by allowing agents to show homes that were not just THEIR listings. This was a big deal - previously agents would only have their listings and show buyers what inventory they had.

Opening of the MLS was to encourage collaboration among agents and to ensure the best experience for consumers. In order to collaborate with the other agents, listing agents offered a portion of their already negotiated commission to buyer agents for these listings. That way agents didn’t need to only show their listings in order to get paid. This worked out for buyers and sellers as both parties had their interests represented ( rather than previous dual agency - one agent representing two competing interests ), while also ensuring the most exposure for the sellers, and most options for the buyers. Feeds like Zillow and Redfin pull their listing information from this agent created platform.

Why are these changes proposed?

1) MLS commission advertising - The NAR settlement is proposing a “de-coupling” of the buyer agent commissions on the MLS. Meaning any offered commission cannot be posted within the MLS site. This, in theory, was to prevent

1) buyer agents to steer buyers to higher commissioned properties and 2) prevent the appearance of non-negotiable commissions for buyers.

So, what does this mean?

It’s simply the advertisement of buyer agent commission on the MLS that would be prohibited. That being said, agents and sellers can advertise the compensation on other platforms, just not the MLS.

So, sellers won’t be paying buyer agent commissions?

No, seller’s can absolutely pay buyer agent commissions. As it always has been, it is an option and a negotiation piece. In my opinion, it is in their best interest to offer a buyer agent commission, for multiple reasons, but here are the two main ones:

- Their protection - by ensuring a buyer is properly represented you can limit the possibility of buyer’s feeling slighted after the fact. The majority of seller/buyer lawsuits in the State of California are from dual agency ( when an agent represents both parties)
- Smooth escrow - If a buyer couldn’t afford an agent and were unrepresented, most buyers have no idea how to conduct themselves in a transaction. Buyer agents also know how to properly prepare an offer, advocate for their clients abilities, and navigate the hurdles within an escrow. Less headache and uncertainty for the seller

Any professional listing agent understands the benefits of cooperating with a buyer agent.
For these, and many other reasons, I will continue to be recommending to sellers to offer buyer agent compensation, as I always have.

The key take away from all of this though, is that for one reason or another - there was a feeling it was not clear enough to consumers that commissions were not negotiable. No consumer should feel that way - so let’s be clear - it's all negotiable. It’s negotiable for the consumer and for the agent - when an agreement between the two on compensation isn’t coming together, parties can walk away.

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2) Buyer Broker Agreements - This settlement is about making it crystal clear how and

what buyers agents are paid. To promote this, there would be a requirement to have a written agreement between the buyer and agent for how and what the buyer will be paid, prior to even showing a single home. THIS IS A GOOD THING. This prevents buyer

agents from running around and focusing time on those that just like to view homes in their spare time, and from consumers being uninformed about the process and having a clear say in how/what their agents are paid.

In practice it will be really interesting how platforms like Zillow and Redfin will adjust to these new requirements, seeing as they actively work to show properties ASAP to consumers with eligible agents that are willing to show them the quickest.

Clear Roles

This change would also encourage the consumers to be able to fully understand what an agent is to do for them, to set their expectations of the agent before the actual employment of them.

As a team, we have always had a buyers consultation to walk the buyer through not only what searching for a home and an escrow looks like, but what we as agents are to do for them. This agreement allows parties to feel confident in their agreement, and know not only what the cost is, but what each other’s roles are.

Weird... nothing in there about slashing commissions? But this headline explicitly says that?

Unfortunately, this is the click bait nature of our ‘news’ industry. Even our local KSBW got it wrong... twice. Headlines don’t just include the “slashing” of commissions, but proposing “slashing” of home prices... let’s dive into this

Will home prices be affected?

I am flabbergasted by such an outlandish headline like that. For those that don’t know common principles: prices are determined by supply and demand, not real estate commissions. For a headline like this, they would need to be making several wild assumptions:

1) Home prices would reduce, seemingly, the cost of a buyer agent commission. However, considering potential buyer agent commissions, I am not sure that would constitute “slashing?”

2) For 1) to be true, that would mean these authors are assuming seller’s would not be offering a buyer agent commission. For reasons stated above, I just don’t see that as likely. It is in the best interest of the seller to offer a buyer agent commission, in my professional opinion ( I say this with 10 years in the business and 100+ transactions closed).

This headline misses what these two premises would then cause:

3) Either buyers needing to fork out additional out of pocket costs to pay for a buyers agent making it less affordable for buyers ( consider the out of pocket cost vs any potential monthly mortgage cost change between potential reduction in purchase price), buyers could negotiate the commission to be included in the purchase price ( so, not slashing) or worse - unrepresented buyers in arguably one of the most important decisions of their lives. The purchase of a home can determine the wealth trajectory of one’s future - that is not an exaggeration.

Wouldn’t sellers and buyers jump at an opportunity to “save money”

How would it save money by not having representation as a buyer when 10’s of thousands, even hundreds of thousands of dollars are negotiated everyday in real estate transactions? To not have guidance to navigate offer terms, investigations, escrow, protections, renegotiations, etc? To be totally transparent - I have talked more buyers out of NOT buying a home than I ever would encourage to do so. When representing a buyer it is our duty to act as their fiduciary, and put their needs ahead of our own. We give them the tools, experience and guidance to make educated decisions on their biggest financial investment. Every buyer benefits from the experience of an agent to guide them through market conditions, negotiation terms, contract protections and tools, investigation recommendations/ navigations, and so much more. In my opinion it wouldn’t “save” money not having a buyer agent - it would cost a consumer much more.

For a seller, would it actually save you money to not have a buyer represented to ensure a functioning escrow? Or to have the peace of mind that a buyer is represented well enough to limit potential ill will or litigation down the line? Any seller would understand the benefit of having a buyer represented to ensure a smooth escrow and protection of all parties.

For those consumers that would just look at the upfront cost rather than the long term gain, there are ALWAYS a portion of the population that would be that way. People seem to forget that there have been “discount” brokerages around for decades. Time and time again consumers choose personalized, exceptional service.

What to do from here?

This is a PROPOSED settlement, nothing is actually finalized. These changes, if agreed to, take place this summer. In all, I don’t think these changes are a bad thing. Better transparency is always good. It is our job as agents to shine a light on the entire process, so this is what it’s all about.

If you are curious what this means to you - call me.

Kaelin Wagnermarsh

Realtor DRE 01945819

831.419.6538
ROOM Real Estate