It’s been a little over a month since the groundbreaking rules regarding agent commissions stipulated in a $418 million settlement between the DOJ and NAR (National Association of Realtors) took effect. The main points of the agreement are:
- Homes listed by agents on multiple listing services (MLS) databases will no longer be allowed to include the buyer agent’s compensation.
- Buyers can negotiate their agent’s pay and formalize it in a signed contract.
Now that the dust has had time to settle, BiggerPockets contacted agents around the country to get their take on the settlement and see how it affects their business. A few common themes resonated with everyone we spoke to, with most feeling that experienced agents should be OK, while newer agents who are more dependent on finding buyers for business could find this new world challenging.
Here’s what they told us.
Ilan Bracha, The Bracha Group, Corcoran, New York City
One of the main things the new regulations bring is more paperwork in disclosures, which are very important because they back you up as a real estate professional. The actual transaction doesn’t change, but now you have to jump through more hoops, so what is customary in buying and selling real estate will change.
Many agents will have different experiences based on their clients and geographic location. For example, here in New York, we have many high-net worth buyers from overseas. They will have no problem paying a 5% to 6% commission.
Agents will get paid if there is a demand for a property. The new rules will hurt people who don’t work professionally and want to cut corners.
How has the new commission structure changed the way you find/approach potential clients and find leads?
It has not changed anything regarding obtaining business; the changes are how we communicate with new clients once we get connected with them. We must have more in-depth conversations upfront to explain the process and how it works, now and into the future.
How has your marketing changed?
It has not changed how we market. There are some internal changes regarding how we communicate compensation, but that does not impact our marketing plans.
How do you think it will affect your revenue, and what are you doing to ensure the effect is not detrimental?
Occasionally, buyers will want to represent themselves, especially if the process is not explained effectively. This will be a one-off and should not decrease revenues too much.
How do you see the industry changing long term due to the new commission structure?
I honestly like the changes. It makes us as real estate professionals explain our value effectively, which has been a problem, so hopefully the consumers will start to value us like they do their attorney or accountant.
How has the new commission structure changed the way you find/approach potential clients and find leads?
The commission change is another challenge amidst the numerous responsibilities and distractions of being a Realtor. Negotiating commission is always a tedious job, especially explaining to the potential seller that they can pay the full commission (listing and buyers) or only the listing commission. If the seller pays both commissions, there’s always a wider audience of buyers, as you have to have some buyers who say to the agent, “Don’t bring me houses that I have to pay the commission.”
The approach to potential buyers has not changed; the creative ways/options the buyer has to pay the commission, such as paying in cash, using the seller’s concession, adding in the mortgage, or not waving the inspection, may change. However, it has not affected how deals are found; the only real change is that the buyer must sign a buyer’s agreement before the agent shows the listing.
Buyers always need a Realtor’s expertise. My reputation as someone competent, knowledgeable, and diligent always generates great referrals, and open houses remain the No. 1 lead generator.
How has your marketing changed?
My marketing hasn’t changed, as I work mostly with developers. I conduct social media polls to determine which way to drive the process.
How has the new commission structure changed the way you find/approach potential clients and find leads?
This change makes it slightly more difficult to get buyers if they have to pay, but in all aspects of the market, it should not affect anyone’s revenue, adjusting, staying focused, and abreast of the changes.
Real estate is an ever-changing market with interested eyes on it, making it challenging, fun, and rewarding.
How has the new commission structure changed the way you find/approach potential clients and find leads?
The confusion around commissions will mean that agents will have to make a stronger case for their qualifications and what they bring to the table to both buyers and sellers. With buyers in particular, who now have to sign a representation agreement covering how much commission will be paid to their agent and by which side, I plan on explaining to them that there is an inherent conflict of interest in real estate, i.e., price, terms of the offer, understanding the condition of the property, and the disclosures, inspections, etc.
It would be unwise not to have independent representation through their own agent in making such an important decision. So I plan on promoting my having a contractor license and actual development experience, being a former attorney, and being local with 28 years of experience earlier in the conversation with buyers and in my marketing material.
For experienced agents, this might not pose a challenge. But for inexperienced agents, it could be difficult.
How has your marketing changed?
I am running ads specifically geared to buyers, pointing out the conflict of interest in having the listing agent also be their agent and the importance of having independent representation with their own qualified professional. Dual agency is allowed in California, but this practice of “double-ending” transactions is wrought with conflict and can lead to lawsuits. In my opinion, it should be eliminated.
In representing sellers on my listings, I advise sellers that in order to attract the most buyers and avoid lawsuits after the sale, it is wise to have buyers represented by their own agent and to offer commission to the buyer’s agent. Should my sellers decide to offer a commission to the buyer’s side, we are no longer allowed to market that through the MLS, but are allowed to have that in our marketing brochures, discuss it at open houses, and even have it on the signpost on the property.
How do you think it will affect your revenue, and what are you doing to ensure the effect is not detrimental?
Experienced agents should be fine. We get most of our business from existing clients, network of friends and professionals, and involvement in our communities.
There will be instances, of course, where a buyer will decide not to have any agent represent them or, more likely, have the listing agent also be their agent. But I think over time, things will settle down, and we will have commissions agreed upon through the offer process, whether the seller is paying part or all of the buyer-side commission or if the buyer is paying their agent the whole agreed-upon amount.
No one works for free, and commissions will still be paid. There will just be a lot more paperwork and explaining to get there.
How do you see the industry changing long term due to the new commission structure?
Two things have to be considered in answering this loaded question:
- In my opinion, antitrust laws were misapplied by clever lawyers to our industry. Commissions have always been negotiable, and the market has always had agents charging different amounts of commissions. Agents throughout the land were not conspiring to set commissions at a certain level. Each one of us negotiates one-on-one with each seller and buyer, and this will continue to be the case as before.
- People use agents in selling and purchasing real estate because these transactions are complicated; there are disclosure requirements, market analysis, marketing decisions, and know how; and at many levels sellers and buyers don’t want to deal with each other directly.
As with any law that is more form over substance, and because people need and want representation on both sides of a transaction, we will continue to see commissions paid for both the buyer and seller side of the transaction, and those who want more experienced agents to represent them will agree to compensate them accordingly.
How has the new commission structure changed the way you find/approach potential clients and find leads?
The new commission structure is actually not new. Commissions have been negotiable since I entered real estate in 2009. However, the change has made commissions more transparent to buyers and sellers.
The most significant change is that agents nationwide must have a signed buyer’s agency contract prior to showing a prospective buyer a home. Therefore, the commission must be discussed at the beginning of the relationship. I now make it a point to have buyer consultations, either via Zoom or in person, prior to showing homes.
How has your marketing changed?
There has been no change to my marketing. I feel that the commission conversation should be reserved for those who have expressed a desire to work with me.
I work with buyers and sellers. My thought is that experienced agents who focus on continued education have the opportunity to increase their income. Commission will be less standard, and agents who can articulate their worth will make more.
How has the new commission structure changed the way you find/approach potential clients and find leads?
The biggest change that I foresee is the number of agents will decrease. New agents tend to work primarily with buyers. Now that buyers may have to pay the agent, they will become more selective. Many will choose to work with experienced agents, thus making it tough for new agents to get experience and build a career.
Shalini Reddy Sadda, City Real Estate, San Francisco, California
How has the new commission structure changed the way you find/approach potential clients and find leads?
With the new commission structure, first and foremost, it’s important to educate my potential clients [about] what all of this means and how it impacts them.
As for me, I am prioritizing on where I invest my time and resources. My approach to business has always been client-focused and fostering long-term relationships. In addition, I am putting more focus on my referral networks to expand my reach.
How has your marketing changed?
In this day and age, I am a big proponent of digital marketing, and I will continue to market in this platform. I am picking up the phone more to call my clients and being proactive about this new change and what it entails. [I’m] doing in-person events with my clients to get more face time.
I am also marketing more to my referral networks and sphere of influence. Consistency is key in marketing, and it’s important to continue investing in the business on various platforms.
How do you think it will affect your revenue, and what are you doing to ensure the effect is not detrimental?
We will have to work even harder. As commissions change, I am finding creative ways to provide more value without compromising the quality of service.
How do you see the industry changing long term as a result of the new commission structure?
The top-performing agents will continue to be successful in this changing market. Commissions have always been negotiable, and we have always had some agents who work on a discounted commission structure, so this new rule isn’t out of the ordinary. Ultimately, you get the service you pay for.
The one thing we will see with the new change is between buyers and buyers agents, where we will see various tiers of commissions—for example, flat-fee, fixed-commission, a combination of buyers and sellers paying the commission. Only time will tell what the true norm will be.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.