THE COMMISSION LAWSUIT EXPLAINED

Grab a coffee or a cocktail. This isn't going to be short.

First, I've been asked many questions:

• "Do we have to wait until July to get the commission savings?"
• "What's the new commission structure?"
• "What will the new commission fees be now that they will be lower?"
• "Won't everyone just start "selling by owner?" 
• "Won't people just stop using buyer agents?"

How it started...

A few sellers from Missouri filed a class action lawsuit, stating that real estate commissions were too high, buyer agents were paid to much, and these sellers claimed that when they were charged "x percent" commission, they were not given a choice as to how much the Buyer Agent would be paid. They stated that they felt Buyer Agent's (and their commission) were obsolete AND ONLY WEALTHY PEOPLE, who could pay for a Buyer Agent out of their own pocket should have buyer agent representation. They also stated that it's "price fixing" to have to disclose to agents what they get paid.

Did anyone else catch that they said ONLY RICH PEOPLE deserved to be protected??

Here's my hot take on the REAL issue:

This was not a case of Sellers feeling Buyer Agents got paid too much. This was a case of Sellers not knowing the backend work done by a skilled Buyer Agent and how that EARNS A SELLER MORE MONEY...& when someone doesn't see the value, they don't want to pay.

Pit Stop: if you've never bought a home, you may not know that in most cases, the Seller pays the commission for "their" listing agent as well as the Buyer agent who helps advise and negotiate for the buyer of the seller's home.

Real Estate agents don't tell detailed stories of what they do because those are the trade secrets and tactics that make their clients successful - and more importantly, IF BUYERS AND SELLERS ACTUALLY KNEW OF ALL THE "THINGS" THAT WERE HANDLED BEHIND THE SCENES, THEY WOULD PROBABLY BE AFRAID TO ATTEMPT BUYING AND SELLING REAL ESTATE.

Historically, the "burden" of paying commission has fallen on a Seller. The Seller can easily see why they are paying for "their" Listing Agent, but they don't see the value of the Buyer's agent. I mean, the buyer agent doesn't SEEM to work for a seller's best interest. Afterall, they are called a "BUYER'S Agent." **Stay tuned for a spoiler alert on this.**

You're still HERE & READING?

Next, (& I'm slightly terrified for the amount of heat I'm going to take for this), but...

There ARE Buyer's Agents, who DON'T bring value. Like any profession, there are all-stars and there are others, who do the bare minimum & are not dedicated to the best results...and it shows. There, I said it. I'm coming back to this.

But there are also highly skilled Buyer Agents, who will do the following to bring benefit AND PROFIT to a SELLER:

• they educate the buyer on the TRUE VALUE of the home: if left to their own whims, most consumers would rely on Zestimates, which ARE SELDOM CORRECT. Here are the WARNING SIGN QUESTIONS of non-counseled buyers: "What did the seller buy the home for? How long has the seller owned the home? Did you look at the pictures from when they bought it? They haven't done anything." These questions indicate that a buyer doesn't understand a current market which presents a major issue for a Seller: the risk to a seller is that the buyer wants to lowball an offer because they don't understand that a seller DESERVES to profit on the sale of a home (just as they will hope to do one day in the future, when they go to sell that home). That value is dictated by the current trends in the market, NOT how much a seller has "done" to the home. A buyer agent gently asks a buyer, "if you owned this home and were selling today, would you want to make less than ALL YOUR NEIGHBORS just because you hadn't owned your home for as long as them or would you want to make as much as your neighbors because your home was the same caliber as theirs?" Skilled buyer agents counsel their buyer through these thoughts so they are able to make worthwhile offers to a seller.

• they will educate the buyer on the PRODUCT of home: if they aren't handy and/or don't have a padded checking account, they don't need to be shopping for an adorable 100 year old bungalow - advising a buyer of this saves them hundreds of dollars on inspections and a termination fee, and it PROTECTS A SELLER FROM RECEIVING AN OFFER FROM "THE WRONG BUYER," WHICH WOULD RESULT IN A FAILED CONTRACT that would stigmatize the listing and ultimately cost the seller money and time after they have to put the home back onto the market 
• they know the ins and outs of the buyer's finances and lifestyle - The buyer's MONEY buys the home. The mortgage lender sees ONE SIDE. They are not peeking into damp crawlspaces or estimating the cost of long repair lists or game planning the future cost of paint and backsplash and flooring. A Buyer Agent understands the full picture of how much money a buyer has to "work with." A skilled buyer agent looks at the BIG PICTURE with a buyer prior to making offers to avoid their client having BUYER'S REMORSE. Sellers lose money (and time) when buyers terminate contracts, and depending upon how far into the contract the buyer is, they will lose hundreds to thousands of dollars getting out of the contract.  

• they explain and navigate the contract: it doesn't matter how intelligent a person is or HOW MANY properties a buyer/seller has bought or sold - consumers NEVER truly under real estate contract, AND there are many contractual clauses that "feel" different in real life. 

REALLY? You're STILL reading? I'm impressed.

THE PRACTICAL PROBLEMS WITH THIS PROPOSED SETTLEMENT (that no one thought of because the lawsuit was never about CONSUMER PROTECTION):

• if a seller won't pay a Buyer Agent commission AND a buyer can't "afford" to pay a buyer agent, sellers and buyers will BOTH lose money as unrepresented buyers are a hazard to themselves and the seller - people often think that a buyer and seller can just "work together," but it's important to address the elephant in the room: BUYERS AND SELLERS HAVE OPPOSING GOALS. The game is on for the buyer to spend the least amount of money and take on the least amount of risk and for a seller to make the most money will doing the least. Uninformed buyers will terminate contracts, and sellers will be left holding the bag

• by making it harder for a Buyer to be represented (because most can't afford to pay if a seller won't), sellers will eliminate buyers from the market, which means...THEY WON'T SELL THEIR HOMES FOR AS MUCH MONEY. There's a buyer for every home - the question is, How does a Seller attract the RIGHT buyer for their home? If you don't remember learning about "supply and demand" in school, then let's recap: when you have a lot of demand (aka buyers) interested in the limited supply (aka a home), they will PAY MORE and offer better overall terms (people always forget that the purchase price is just ONE of many factors that will determine how much money a seller makes when they sell their home). If a seller only has ONE buyer who can afford representation, then they will see slower offers, fewer offers, lower prices and weaker terms...OR BUYERS WILL START OFFERING SELLERS LESS MONEY BECAUSE THEY HAVE TO PAY FOR THEIR REPRESENTATION - so they sellers didn't "save" any money - they just eliminated buyers and solicited lower offers

If you're still reading...

MY HUMBLE OPINION:

Listing Agents have to work HARD to get a listing and prove to a Seller that they are WORTH hiring and being paid. Depending upon the expertise, marketing, investment, list to sale price ratio, overall net to seller, etc, a Listing Agent can prove to a seller that paying them more for their services should warrant a higher fee because they can show proven results that financially benefit a Seller. Sometimes, you spend more to MAKE MORE. Do you know that OUR SELLERS END UP MAKING MORE MONEY BY PAYING A COMMISSION THAN THEY WOULD IF THEY SOLD THEIR HOME "BY OWNER" AND DIDN'T PAY COMMISSIONS? **Ask me for the PROOF of this.**

So, if a Buyer Agent is being paid BY A SELLER (or by a Buyer), should they have to PROVE THEIR VALUE, too? Yes. Have Buyer Agents been proving their value to a Seller? NO. Should they start NOW? Absolutely.

Nineteen paragraphs earlier, I said There ARE many buyer's agents, who DON'T bring value. Like any profession, there are all-stars, who bring value, and there are others, who do the bare minimum & don't truly care about their client or profession...and it shows. 

The REAL focus needs to be on determining the best way for a buyer agent to showcase for a Seller (and a Buyer) what they can offer in their transaction so the seller can determine the agent's value when establishing how much they will be paid.

I'm not even including in this post ALL THE THINGS A SKILLED BUYER AGENT does for the buyer (risk reduction, inspection interpretation, pointing to a BETTER loan product to save money, etc).

HAS THERE EVER BEEN AN AGENT who got a random call from a random buyer and showed them ONE house and wrote an offer and went through a transaction that didn't require a lof of work? YES.

But the percentage of time this occurs is EXTREMELY LOW within the industry.

So what's THE REAL CHANGE?

The "principal" is still the same - but now, a buyer MAY have to come up with the money to get doors opened and make offers on homes...and be represented because some Sellers may choose NOT to pay for a Buyer's Agent.

WORTH NOTING: the fact that this lawsuit occurred is disappointing, when the reality is that if a Seller thought a (buyer OR seller) real estate agent "wasn't worth the money," THEY NEVER HAD TO USE ONE.

Those sellers always could have chosen to sell BY OWNER (and pay NO commission) or they could've said they didn't want to pay a buyer's agent (would that have hurt their chances of selling? Probably. But that's the same fate they are soon to face).

Sellers could also pay a FLAT FEE to have their home advertised in the MLS system (which was previously a system ONLY AVALABLE TO AGENTS, WHO HAVE TO PAY HIGH FEES AND ABIDE BY A HIGH SET OF STANDARDS TO USE THIS SAME SYSTEM) and pay no commission (or be in control of what they "offered").

Sellers could list with "discount brokerages" for a low-low-low cost.

But here's the issue: most sellers KNOW agents will sell their home for more money. They don't want to be troubled by managing showings, when they have to work. Most sellers do not have a background in marketing or are not skilled negotiators. They don't track the economic factors or have the ability to accurately interpret data to know what's "normal, fair or good." They don't know how the real estate contract works or what they have to disclose or how to avoid getting sued. If a buyer makes an offer, outside of the purchase price and closing date, they don't understand the other things they may be agreeing to. They don't understand what they are legally required to disclose to be able to protect themselves so they WANT TO USE A REAL ESTATE AGENT - and they want their agent to offer excellent counsel, early/late/around-the-clock communication AND protect their biggest asset...but they don't want to pay for this service - which simply put, is the PROTECTION OF THEIR GREATEST ASSET (for most people). 

*I don't know this for a fact, but I WOULD VENTURE to guess that the sellers, who sued "for this" had buyer agents when they previously purchased home(s), who offered them advice and protection, when they bought their home(s). They didn't have to be "rich" to hire someone to do that. When they went to buy their homes, their seller paid for their buyer agent, who helped them reduce risk and make certain decisions that clearly benefitted them later in life...but it appears they forgot that.

Can sellers STILL pay buyer agent commissions and have the same results they've had in year's past? YES. Sellers have always had a choice. I will admit that I do personally appreciate how this will force the buyer agent field to level up as they begin woo'ing sellers and explaining to buyers HOW they are protecting them...Hunger Games-style.