If you didn’t hear, there has been a bit of drama in the real estate world lately, especially related to buyers’ agents! After a jury found realtors liable for “inflating” commissions and the National Association of Realtors settled for $418M, there has been quite a lot of confusion as well. The short version of events is that some agents haven’t had the necessary conversations about how buyers’ agents are paid. In some places, the MLS listing forms made this pretty confusing, too. So some home sellers realized that they didn’t have to pay their listing agent and the buyers’ agent as much as they did and they didn’t realize that commissions are always negotiable!
It’s no surprise they felt angry and ripped off.
What Does it All Mean?
In short, we’re not sure yet. Will prices go down since sellers will no longer have to pay a buyer’s agent commission? Not likely.
How many sellers do you know that would think, “Oh great! Now I don’t have to pay 2 agent commissions, so I’ll just knock off $10-20k or more from the list price”? I’ll let Corcoran Group founder and Shark Tank investor Barbara Corcoran answer that one:
“It’s a one-time chance to get the most for your house, and they (sellers) are NOT going to give that away. If you think prices are gonna come down, that’s not the case,” says Corcoran Group founder and Shark Tank investor Barbara Corcoran in this video from Yahoo! Finance.
Will prices go UP?
More likely. But not as a result of the settlement. When interest rates finally come down to a more manageable level (closer to 6% or under), demand is most likely going to spike. You know what that means: more competition and higher prices for the still very limited number of available homes.
Will Buyers Have to Pay Their Agents?
Yes. No. Maybe. It depends. Confused yet?
In Washington State, buyer agent commissions have been “uncoupled” from listing agent commissions for a few years. Buyer agent commissions have also been published for a while now. BUT in most other states, this is not the case. This is why it’s such a big deal if you talk to someone in another state, but those of us here in WA are not too worked up about it. That cat’s already been out of the box.
The bigger concern now is how buyers’ agents will get paid.
Typically, home buyers are putting a big pile of cash into the down payment and closing costs. Oftentimes, there’s not a whole lot of wiggle room to tack on another $10-15,000 (2-3% of a $500,000 house) buyers will have available to pay their agent. OK, fine. Yes, the seller can still pay the buyer’s agent commission. But WILL THEY? See above.
How about a flat fee, or hourly rate? Possibly. If the agent is willing to keep track of all those calls, emails, arranging showings, actually doing the showings, and all the other behind-the-scenes work AND the buyer is willing and able to pay invoices as they go. (Keep in mind buyers can take anywhere from weeks to YEARS to find and purchase a home).
Sure, sometimes it’s quick and easy. Most often, however, the buying process takes months of time and effort, and the agent doesn’t get paid a dime until the deal closes. How many months would you work for free, not knowing if you’d every actually get paid?
What’s Next
Now it’s time for some interesting and thoughtful conversations! No matter what happens with the lawsuit(s), this shakeup is happening. We just don’t quite know yet what it means in general, what it means for all buyers, and what it means for buyers (and their agents) in Washington State. But we do know that we may see more instances of lower commissions for buyers’ agents.
Sellers will need to think hard about not only the buyers’ agent and what they may make for a sale, but also consider their BUYER’S circumstances. Will a buyer of an average home in Seattle or Kitsap County have the cash leftover to pay a commission at closing? Doubtful.
Buyers will need to consider, and discuss with their agent, the level of service they want and what they are willing and able to pay for it–in the event that the seller is not willing to compensate the buyers’ agent. Would you expect a CPA to work for nothing? Or would you expect a bookkeeper to charge the same rate as that CPA?
We may see more of a grab bag of options, like seller concessions to cover closing costs so buyers can pay their agent. In the end, some money will have to come from someone’s pocket because most people can’t or won’t work for free.
Articles about the recent lawsuit and settlement: