Recent “seismic shifts”,[1] as celebrated by the media about the housing market have unleashed a tsunami of uncertainty, driven by legal settlements such as the NAR settlement in the Sitzer/Burnett case and the Moehrl and Nosalek suits. Speculation runs rife about the demise of the “automatic 6% broker fee,”[2] with promises of sellers reaping the entire benefit. However, beneath the surface lies a labyrinth of complexities, challenging conventional wisdom.
The once-revered Multiple Listing Service (MLS) cooperative compensation model, initially hailed as a shield for buyer representation, now stands accused, triggering a legal maelstrom aimed at stripping away compensation. Amidst this legal turmoil, the fundamental nature of real estate commissions is under scrutiny, revealing a murky landscape where negotiation is king and transparency a fleeting illusion.
Consumers stand on the precipice of change, facing a future where the very essence of home buying is upended. As the lexicon shifts from “commission” to “compensation,” buyers find themselves thrust into a world where certainty evaporates with each passing day. NAR’s mandate for written agreements with buyers signals a new era of accountability, demanding clarity amidst the chaos.
This can play out in several ways, but none are mutually exclusive options:
- The seller offers the buyer’s agent compensation (like before).
- The Buyer pays their agent’s compensation at closing: This is the most expensive out-of-pocket option for a buyer.
- The buyer pays the seller more for the home, and a credit is given back to the buyer’s agent for compensation: This model is likely a sustainable one as the additional capital gains to the seller is a zero-sum event—offset by the compensation. And for Buyer, they’re essentially only paying 20% out of the pocket of the commission as it’s built into the purchase price of the home, and 80% is funded by the lenders—as it always has been. See the similarity between options 1 and 3?
- The buyers request that the seller’s agent represent them too: Many buyers will certainly attempt this, as they do today, not fully understanding how fiduciary duties work. The problem is that the seller paying the compensation loses the exclusive agent fiduciary, and the buyers receive the same neutral agency where neither party can be provided advice to the detriment of the other party.
- Buyers represent themselves: As the old adage goes, “The man who represents himself has a fool for a client.” That applies even more so to buyers who may try to navigate the home purchase without representation. Savvy sellers and listing agents won’t allow this to happen, as a naive buyer without representation is prone to initiate a lawsuit down the road.
The looming question of how buyer’s agents will be compensated casts a shadow over the industry. With buyers burdened by mounting costs and sellers eyeing profits, a titanic struggle ensues over who bears the weight of compensation. Amidst this struggle, visions of buyers navigating the treacherous waters alone or agents toiling without recompense haunt the collective psyche.
As the landscape shifts, fear grips the hearts of buyers and sellers alike. The prospect of sellers clutching their profits tighter, unwilling to yield, looms large. The belief that home prices will plummet remains a distant hope for buyers, overshadowed by the harsh reality of an uncertain future.
In this tumultuous landscape, one thing remains clear: uncertainty reigns supreme. As buyers and sellers brace themselves for the storm ahead, the true impact of these changes remains shrouded in darkness, waiting to be unveiled.
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[1] World News Tonight with David Muir. March 23rd, 2024
[2] By law, real estate comission have always been negotiable and have never been set by the industry.
Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC in Belmont, CA. They have assisted buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award and ranked among the top 50 agents nationwide and the top 3 in Northern California. To contact them, please call (650) 508.1441 or email info@morganhomes.com.
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This article provides educational information and is intended for informational purposes only. It should not be considered real estate, tax, insurance, or legal advice; it cannot replace advice tailored to your situation. It’s always best to seek guidance from a professional who is familiar with your scenario.
BROKER | MANAGER | NOTARY DRE# 01124318 | 0117404
