303.917.8000 Faun@FaunHauptman.com

Do you think the ruling against the National Association of Realtors and large residential brokerages will lead to lower real-estate commissions for home buyers and sellers?

Maybe, for a little while. And then, just like in every other decade where commission-only Realtors like me have been challenged to adapt, we will. Because we are actually small business owners, and, more importantly, we make the market for real estate, meaning, our services produce liquidity for an otherwise illiquid asset. People don’t want to admit it, but 90% of home sellers and buyers need our services.

I was searching for properties for a client of mine earlier today. I came across one that is not offering any cooperative compensation to buyer’s agents, seemingly right on schedule after the latest court ruling. Most young or first-time buyers can’t afford a down payment plus paying their agent 2–3% of their purchase price to buy a home, especially with today’s 8% interest rates. So my guess is, that home won’t sell, at least not quickly. I’ll be watching to see what happens with it. Here’s the thing most people never think about. If the seller has to reduce the price by 5–10% in order to find a buyer who is willing to pay their own agent, that is just crazy when the alternative is to offer 2–3% to find many buyers who are otherwise ready, willing and able to buy. That’s called being penny-wise and pound foolish.

Why is it unsustainable to offer no compensation to buyer’s agents? Well, the best argument I can think of is that people should not be expected to work for free, because slavery was outlawed in the U.S. in 1865.

I’m writing this post a bit tongue-in-cheek. Most of the agents I know won’t ever agree to work for free, or even reduced fees. As small business people, we are as free today as we were last week, last month, and last year to set our own rates for our services. That’s how the free market works. Will it lead to lower commissions for some agents? Absolutely. And soon after that, they’ll either be out of business, or they will be attempting to “make up” for lost income with more volume. But that won’t work, because there are still only 24 hours in every day, and to do this job well requires thought, patience, and a solid investment of time for each client. The good agents, though, will be in business making more money than ever, because they know their value, can explain it, and are worth their fees.

Paying agents by the hour is not a sustainable business model. There is a component of selling homes that requires incentive and motivation. Most agents I know would not be incentivized or motivated to provide home-selling services by the hour. And, most sellers would soon find that they are paying for a la carte services that do not produce any results, or take much longer and more paid hours than the agent would have earned as a commission, to produce a sale. The commission system has been in place for over 100 years precisely because it works and it produces results in what is otherwise a complex legal and financial undertaking. Most home owners and buyers simply do not have the wherewithal to buy our services a la carte and expect to get a transaction to the closing table. It is the “cracks” between those individual tasks in which great agents thrive. Those “cracks” in inexperienced hands will produce costly errors and delays. Realtors’ prime directive is to help our clients avoid those errors and delays. The more people try to “unbundle” our services, the more they will begin to understand what we really do to produce results instead of simply billing our time for services that may or may not produce anything except an invoice.

I do find it interesting that, at a time in our country’s history when wages are at their highest levels ever, and employees are getting pay increases and bonuses, and real estate volumes are down due to low inventory and high interest rates, we are now trying to restrict the ability of hard-working agents to earn a living and even cutting their pay altogether. That’s not sustainable and many will simply leave the industry. And in the long run, the good agents will thrive as they always have.

We will see what the judge does with this case, and any appeals that ensue, but in the meantime, for me, it’s business as usual. I have always explained to my clients how I am paid, and my clients are happy for me to be paid because they can see that I work very hard for them and produce results. If your agent isn’t doing the same, find one that will, but don’t assume all agents are the same and none of them deserve their fees. We should not resent others for earning a living or making a profit — that’s un-American. We should, however, demand honest treatment and transparency from those who we have entrusted with our most important and valuable asset — our home.

Verified by MonsterInsights