Julie and I have been in this generally crazy business for thirty years. We have seen more than we would have ever thought conceivable, yet Change is the One Constant. We will give you our knowledge of the evolving developments and some thoughts and perspectives on how we see it settling out. And yes, the proverbial dust is still up in the air, so this is just our educated opinion. Many people are writing their perspectives on the topic, and we will include links to some of those postings.
We do not see the headline above as hyperbole. There have been many changes – some seemingly large ones. Some will suggest that the codifying of Fair Housing laws would have been monumental. Maybe so. My perspective is that anyone with a conscience or integrity would have already been employing such policies simply as an honorable person. I suppose this was a mandate for all the other people to live to a higher standard or be accountable for it. I’m not sure legislating morality has ever worked, but doing so is probably why GOD felt it worth a try when giving Moses the Ten Commandments written in stone.
The general premise has been that the decades-old standard operating procedure in the industry, whereby the Seller and Listing Broker agree to the overall commission paid to the Brokers involved, is a restriction of trade – against the Buyer. The argument has been that a Buyer could have been harmed by potentially overpaying for a home because they were not able to negotiate the commission to be paid to their Buyer’s Broker – presumably lower, and therefore, the overall cost of the home could have been lower. However intuitively logical, it would be fundamentally impossible to prove the premise. Theoretically, that could be true, but in the end analysis (you will see below), that is only one possible outcome. We propose that the end result for the consumers, the Buyer, and the Seller, will be basically the same in theory and in a dollar-valued outcome. The possible resulting “value” to the consumer is arguably quite different.
So how is this such a monumental change that it is, as we state in the headline, likely the largest change in the industry in our lifetime? It empowers consumers to indeed be consumers. If they choose to do so will be the big question. To be a consumer, a buyer or seller should evaluate the value of what they spend money on to ensure they are satisfied with the likelihood of receiving the expected value. Yes, the ruling and resulting change in the industry’s standard operating procedures will be that buyers sign a buyer representation agreement that stipulates the services to be rendered and the cost(s) of these services. This is more transparent than the prior system. The new policy places the responsibilities and value of the Buyer’s Broker squarely on the side of the Buyer. Interestingly, these Buyer Agency Agreements have existed for years – decades. They are common practice in Commercial Real Estate. However, residential realtors did not tend to use them. They seemed to be an imposition on the relationship with the Buyer. The notion that the residential real estate world will adopt a level of professionalism already prevalent in the Commercial world will be refreshing to many of us. Forcing the use of such written Agreements will hopefully diminish the recent trend of “Internet Leads.” We will explain these and why we hope they will die an overdue death.
The buyers walk out of closing having spent the same dollars for the home, $1,000,000 ($999,375)
in both the old and new scenarios.
the value of our service and our resulting compensation. Now we do. We didn’t expect to make any more than we should have traditionally. An interesting situation has developed over the past couple of years with some Buyer’s Brokers to game the old system. They would have the Seller sign a Listing Agreement with a stated overall commission and then would not split the commission equally. This may have been disclosed or buried in the Listing Agreement. The fact is we, as the Buyer’s Agent, had no say in the matter – None. Now we will. Now, when our clients feel we were worth every cent we were paid to represent them, we, and they, will have discussed and agreed to this ahead of time.
Professionalism. Buyers in the Commercial Real Estate arena intuitively expect nothing less than professionalism from their real estate broker. The new system whereby Buyer’s Realtors will have to outline their services and present their value should bring a more professional evaluation of that relationship. In our opinion, the Residential Real Estate arena has largely lived off of social rather than professional relationships. More often than not (actually close to most of the time), we hear “consumers” rehiring a realtor because they are a friend, family, or some other social relationship. Rarely do we hear they the consumer is hiring their realtor because the realtor is the Best. The best at what? Well, anything the consumer may find of value when working in the real estate world. We understand that a good interpersonal relationship is valuable, but not at the exclusion of professional talent. I know many doctors. I know I want the best when I need one. Fortunately, we know many of the best doctors as friends – and while that is an added value, it does not trump talent. We come from professional, results-oriented real estate backgrounds; David from home building and land development, and Julie from commercial real estate (Julie is also a second-generation real estate company owner). We can only hope consumers will demand more professionalism from their real estate representation. Buying or selling a home is a business endeavor; it should be treated as such.
Additional Resources:
Bill signed by Govenor Holcomb regarding Buyer’s Agency Agreement
Realtor Magazine – The Truth About the NAR Settlement Agreement
The Real Deal – Why NAR Settled the Commission Lawsuits
The Real Deal – Compass Settles Antitrust Lawsuit
BAM – WHY BARBARA CORCORAN SAYS THE NAR SETTLEMENT IS “NOT A BIG DEAL”