Powerful Realtor Group Agrees to Slash Commissions to Settle

[neverfstop]

Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits

The National Association of Realtors will pay $418 million in damages and will amend several rules that housing experts say will drive down housing costs.
GIFT www.nytimes.com/2024/03/15/realestate/national-association-realtors-commission-settlement.html?unlocked_article_code=1.dE0.huJy.VxSaV2rRxeDD&smid=url-share 


I'll be really curious to see how this goes.  I've long thought this flat fee was crazy for variety of reasons- no difference between a $200K house vs. a $800k house, no difference in the services provided, no way to do a "bare bones" vs. "full service" type of realtor, that the internet hadn't revolutionized this business in many ways.

I've used a flat fee listing service/agent for about a decade but still had to pay the 3% to a buyer's agent.  As a consumer/buyer, I can browse listings on my own.  But I can also see how many first time buyers would need more services/help like walking them through the inspections, appraisal, mortgage process, etc.  or would want an agent who can steer them more towards finding a neighborhood or schools (out of towners, etc.)

[lilac05]

I agree that it’s time for an overhaul of the system. Often the started homes require more work from an agent because they are first time sellers/buyers vs the homes that are 10X the price, but both parties have bought and sold more (and just know more about the process because they’re often older and have learned stuff over time).

[aurora]

I was surprised to see this since I was unaware of the lawsuit, but it makes total sense to me. It's just simply not true that a $1M house in a HCOL area takes 5x more work to sell than a $200k house in a LCOL area. And all the rules about what fees being tied to ability to list in MLS never made sense for home sellers and buyers, just for Realtors. Of course realtors should be paid for their work, but I would prefer more of a fee-for-service model than percent commission.

[basilosaurus]

Mar 16, 2024 9:40:28 GMT -5 aurora said:

I was surprised to see this since I was unaware of the lawsuit, but it makes total sense to me. It's just simply not true that a $1M house in a HCOL area takes 5x more work to sell than a $200k house in a LCOL area. And all the rules about what fees being tied to ability to list in MLS never made sense for home sellers and buyers, just for Realtors. Of course realtors should be paid for their work, but I would prefer more of a fee-for-service model than percent commission.

I remember reading, or maybe watching on something like adam ruins everything, years ago the justification that % will encourage agents to work harder on their clients' behalf. And that's absolutely not true. They'll go for a quick sell at less favorable prices because their cut changes not as much but their roi increases by accepting quicker sales.

I wish I could remember my sources. 

[loira]

basilosaurus, I've read about this too, and it makes sense. The faster they make a sale, the more quickly they can move on to the next one. If commission is 3% and they sell for 300k, they would get $9,000. If the sellers were really pushing for 330k, commission is only $900 more at that price. It's a big difference for the sellers, but not a huge difference for the agent. Better to convince your sellers to take the lower price so you can move on and make another $9,000.

In BC, the sellers pay the commission and it's split between the buying and selling agent. Great for first time homebuyers, not as great for sellers, although prices are so expensive here that it probably doesn't matter much in terms of who it favours when making the deal.

[neverfstop]

Mar 16, 2024 11:43:12 GMT -5 loira said:

In BC, the sellers pay the commission and it's split between the buying and selling agent. Great for first time homebuyers, not as great for sellers, although prices are so expensive here that it probably doesn't matter much in terms of who it favours when making the deal.

That's how it works in most of the states I'm familiar with - 6% total, split between buying and selling agent (who then split that 50/50 with their broker).  I just have a hard time justifying that it should cost a seller $30K to sell at $500K house....  T

[basilosaurus]

Mar 16, 2024 11:43:12 GMT -5 loira said:

basilosaurus , I've read about this too, and it makes sense. The faster they make a sale, the more quickly they can move on to the next one. If commission is 3% and they sell for 300k, they would get $9,000. If the sellers were really pushing for 330k, commission is only $900 more at that price. It's a big difference for the sellers, but not a huge difference for the agent. Better to convince your sellers to take the lower price so you can move on and make another $9,000.

In BC, the sellers pay the commission and it's split between the buying and selling agent. Great for first time homebuyers, not as great for sellers, although prices are so expensive here that it probably doesn't matter much in terms of who it favours when making the deal.

And that's if they're not working for an agency that may take a large chunk of their commission.

[clairebear]

Mar 16, 2024 12:00:19 GMT -5 neverfstop said:

Mar 16, 2024 11:43:12 GMT -5 loira said:

In BC, the sellers pay the commission and it's split between the buying and selling agent. Great for first time homebuyers, not as great for sellers, although prices are so expensive here that it probably doesn't matter much in terms of who it favours when making the deal.

That's how it works in most of the states I'm familiar with - 6% total, split between buying and selling agent (who then split that 50/50 with their broker).  I just have a hard time justifying that it should cost a seller $30K to sell at $500K house....  T

I disagree slightly with that. I'm a realtor in central Florida where the average home sale is $350,000. However let's say I list a 1.2 million dollar home. I'm going to pay for professional photography and video tour ($600), broker's open with catered lunch ($800), regular open houses on the weekend until it sells ($200 each time in food, signs, etc), mailers out to potential buyers ($400), and other misc advertising on social media and print ($1000) plus a nice gift to the seller at closing ($250). Versus a home that I just listed for $299,000. I spent $250 on professional photos, put it in MLS and called it a day. But honestly the difference isn't huge between the two in actual money($3850 vs $250 in selling expenses) but then you also have to consider the labor hours of marketing the more expensive house. The biggest expense is simply maintaining your license (state license fees and association fees $700 a year), MLS access ($564 a year), E&O insurance ($1200 a year), and marketing yourself to new clients. I know an agent who spends $25,000 a month advertising on Zillow. Agents can spend thousands on mailers (it typically takes 7 "touches" or interactions with someone for them to consider using you), branded merchandise, unpaid labor spent at events advertising yourself, attending networking meetings, the time and efforts to stay in touch with past clients so they either use you again or recommend you to others. Can be as simple as a Christmas card or as extravagant as an annual client party with catered meal, entertainment, kids activities etc. It takes a lot of money to get your name out there and get clients. You will also have deals you poured hours of unpaid labor and even actual money in marketing the listing and the deal never closes. But after all that, lets say your deal closes, and you get a commission check for $25,000. You will most likely split that with your broker (typically they will take 30%), and then you pay taxes on the remainder (another 25%). It's easy to say realtors are over paid when you see them walking away with a huge commission check, but honestly a lot of money went into that and they aren't keeping all of it. 

I mostly do property management and appraisal type work so I rarely work with buyers or sellers. I do offer a flat fee limited service listing where for $500 a seller can have me list their house in MLS. They handle literally everything after that though, calls, showings, offers, inspections, closing etc. I'm curious to see how this shakes out in July when it takes effect. I'm seeing a lot of agents saying the seller will offer to pay buyer's closing fees (which would include whatever flat fee the buyer agreed to pay their agent). However this makes the buyer's offer less attractive if they are going against buyers that aren't working with agent which causes a whole set of different issues. First time home buyers will be put at a disadvantage if they can't pay an agent out of pocket or can't get offers accepted because they needs seller assistance with the cost of their agent. The industry really hasn't changed much over the past 25 years and it's time for a good shake up. Buyers have access to listings through websites like Zillow and aren't as dependent on realtors to access listings. However realtors are still have a place for showings, negotiating, and walking a client through inspections, financing, closings etc.  

[gerberdaisy]

I think this is so interesting! We’ve always questioned the pricing structure of a realtor and in my opinion it hasn’t added up.

I think this varies a lot state by state too, in my state the lawyer does a lot of the work for the transaction (based on what I’ve heard from lawyer friends and our experience). We sold our house by ourselves and there was very little we had to do once we found a buyer, the lawyer did all the additional work and they are just a flat fee.

Real estate aside, I’m happy to see more momentum on fighting big businesses and questioning these long standing practices.

[noodleoo]

I'm so curious how this will actually change in practice. I live in HCOL area and the 6% commission to sell is a huge amount of money ($30k to $60k+ on one house!). I know the realtor doesn't get all of that, but that's a LOT of money especially when it is a sellers market and houses in good condition basically sell themselves. I'm doubtful the savings will end up reducing house prices, but I'm really interested in how this will shake up the industry.

[aurora]

clairebear, I definitely get that selling houses can be expensive, and also that in a given market a realtor will spend more money selling an expensive home than a less expensive one. In some cities, it's hard to find a SFH for less than $1M, so a realtor wouldn't need to do much more than the original photos and MLS listing you mentioned to get lots of buyers just trying to get a house...any house!

All of that said, I think it would be great if the new system had clients pay for the marketing that their Realtors do to get their houses sold, plus additional for your time and professional expenses (license, insurance, etc.) so that there is a direct connection between how hard you work and how much you make. That's the model that's like so many other professional roles, and I think it will reward good work across market types. After all, wouldn't it be nice to know that if the seller backs out you're still reimbursed for your expenses so far and paid for the time you put in?

[sent]

clairebear , I'm self employed and own + run a private practice in an industry where the public sees us as "dentists make too much money!" so I get everything you're saying about how hard you have to work for that check. My industry is always under attack by insurance companies reducing how much they pay us so I hear your pain. Earlier this month I had to go in and adjust a very common code that I bill where three insurance companies have decided they will now pay me 56% of what the code used to pay. That's over $100 less each time I bill that code. Sure maybe I'm the "rich dentist" and I'll figure out how to adapt, but the people I hire make $20-something per hour and they would not be able to survive with a 56% reduction in their salary. To offset this reduction, they increased a different code by around the same amount. But that code is billed so rarely compared to the original code where they chopped reimbursement. I'm so sick of these games but I digress.

For those of us in HCOL where the average home prices is at least double your area's average home price, we do wonder if there is a different way for the industry to operate beyond a straight percentage. I live in a town where realtors basically network to get clients because once they do get a listing, the houses literally sell themselves. Especially in my town, people move around as they upgrade from small houses to bigger houses. The realtor is often the agent for the buyer and the seller so she (they're almost all women) has 2 houses selling at the same time for basically the same amount of effort. And my town is only 15K in population and under 2 square miles - so very small compared to other markets! It almost seems like the only reason to get connected to one of these women as my agent is that they will know what's coming up for sale before it's going to hit the MLS so you can have a leg up in getting that house over all the people still trying to move here from NYC. I've thought about moving or buying a second house within my town so I've spent some time wondering who I would choose as my realtor. I also noticed a few of the popular realtors I follow have stopped doing the open house song and dance in town. I can only assume from some of the chatter I've heard is that they will get multiple offers as long as there are nice pictures which you commented is important for your more expensive and less expensive listings. It's been years since I've seen a postcard listing a house for sale and that was before COVID.

[mrsukyankee]

In the UK, there aren't buyers or sellers estate agents. There are only estate agents. They both sell and buy the same properties. The sellers are the ones who pay a commission. The last time we sold, if you went with only one agency, it was around 2%. As a buyer, you don't pay any commission. The agencies advertise on specific selling sights and will make a brochure. They meet clients at the property and show them. As a buyer, we know that they are trying to get the best price for the house to get the higher commission. You hire a solicitor to do all the paperwork around buying the house (usually also around 1.5% or a flat fee). Just thought I'd share for the difference between countries.