While the benefits of buyer-agents may be obvious, will anyone stop their demise? Probably not.
Will it become easier or harder to buy a home?
The answer is unclear amid widespread confusion over what’s happening to real-estate agent commissions. On April 5, a federal court determined that the Justice Department can reopen its investigation into the policies of the National Association of Realtors, indicating that the association’s March settlement in a separate case may not be the final word on this issue. Yet in their effort to deliver lower costs for home buyers, federal officials and courts may inadvertently undermine consumer protections without addressing the root causes of high home prices.
The settlement is a positive development: It could lower real-estate agents’ commissions, benefiting home buyers. It also increases transparency and negotiating power for home buyers who use agents for representation. The settlement will also increase professionalism among agents, who will now sign an agreement detailing their services before showing a buyer a home. These policies should put downward pressure on commission prices, which currently average 5.3% and are split between buyer’s and seller’s agents.
Despite these wins, federal officials seem to want a more aggressive solution. In a February court filing, the Justice Department noted that U.S. commissions are “two to three times more than” those in “other developed countries,” a point the media frequently repeats. That gives the impression that federal officials want to cut commissions at least in half as quickly as possible, and the department appears to be pursuing this goal. Yet dramatically slashing commissions can be achieved only by reducing the use of buyer’s agents—a move that would be unwise for a few reasons.
Consider the pitfalls that home buyers face in countries where buyer’s agents aren’t commonly used. In Australia, where I grew up, home buyers typically work directly with listing agents, who have a fiduciary duty only to the sellers. In some Australian territories and states, if a buyer looks at a home on a flood plain or in a region prone to bush fires, the seller’s agent isn’t necessarily obligated to tell him about the risks.
The U.S. model provides lower overall costs and better representation for buyers and sellers alike. Americans chose this model for good reasons. Before the 1990s, few people in the U.S. used a buyer’s agent. Yet home buyers began to demand representation, especially low-income and first-time buyers who needed help navigating the process. Consumer-rights advocates championed this development. As buyer’s agents became more popular, eight states even banned the old model of a single agent representing both parties. Americans effectively gained two agents for the price of one, and that price has fallen from over 6% to closer to 5% today.
Discouraging the use of buyer’s agents would reverse this progress. Although it would likely lower home buyers’ costs, it would do so at the price of sacrificing their interests. Without a buyer’s agent, no one would be legally required to help buyers understand their risks and options. There would also be nothing to stop seller’s agents from increasing their commissions to match what previously went to buyer’s agents.
There are better ways to help home buyers save money, policies on which state lawmakers should take the lead. Most U.S. states have transfer taxes, which can add thousands of dollars to the cost of a home purchase. Lawmakers should either cut these taxes, leading to lower costs and more home sales, or reduce property taxes after windfall gains post-pandemic. State and federal lawmakers could also ease burdensome licensing, zoning and environmental regulations, all of which add nearly $94,000 to the cost of a new single-family home and lead developers to build fewer homes. The best way to decrease housing’s cost is to increase its supply.
The alternative is to erode the hard-fought victory that American home buyers have achieved. While the U.S. system is far from perfect, it serves home buyers better than any other arrangement, and it’s moving in an even better direction after the recent settlement. As federal officials and courts weigh whether to push further, they should remember that some cures are worse than the disease.
Mr. Eales is CEO of Move Inc., which operates Realtor.com. Move Inc. is owned by News Corp, which also owns The Wall Street Journal.
There isn’t as much fluff as we used to have in the pre-pandemic days.
In March 2019, there were 6,026 homes for sale, but only 2,554 sold, which means there were lots of sellers and agents on the open market who were in price-discovery mode – and they found out what the market wouldn’t bear.
We’re heading back that way again.
For the last three years, we’ve been spoiled by maximum demand (caused by low inventory combined with low rates). But now that both are creeping upward, there will be sellers/agents who are overly-optimistic and don’t factor the negative impact into their equation.
Last month’s ratio of 2,871/1,950 = 1.47 is still better than the 2019 numbers of 6,026/2,554 = 2.36, but don’t be surprised to see an upward trend of unsold listings forming over the next few months.
The common perception is Yes, because commission rates aren’t determined by any regulatory body, and brokerages/agents are free to devise their own compensation plan.
But the agents who have a meaningful skill set and a book of business have determined their fee. They aren’t going to work for less just because the NAR blew their defense of a two-bit lawsuit in Missouri. In addition, the consumers who are convinced that their agent is worth it will pay their fee to ensure they get quality help that delivers the best results.
If you want to negotiate the fee, you will have to find a different agent.
The exodus of incompetant realtors leaving the business over the next 2-3 years will be significant, and their commission rate will be more negotiable than ever. Will consumers take a chance on the has-been agent hoping to eek out one last deal before they quit, just to save a point? Unfortunately, the answer will be yes in many cases.
How bad is it? I could tell a new story every day.
How about the listing agent wants to give his 80+ year old seller the personal touch, but he doesn’t like driving the 30 minutes to her house….so completing the final documents to close escrow has been stalled. The seller is moving to Arizona, and she had to get her realtor there to help her fill out the forms!
Hopefully the result of the Big Shakeout will be that consumers investigate thoroughly the services that realtors offer, and understand that different agents do different things. There will always be the agents that offer to do less – carefully examine whether reduced services are in your best interest.
The unsold listings are stacking up earlier than normal in Del Mar (Median LP = $4,750,000) and in Rancho Santa Fe (Median LP = $7,895,000) but no one is going to feel sorry for them.
The other areas are hanging tough around the 2:1 ratio or better, which has been the healthy-market zone.
But look at SE Carlsbad for an example. It has the exact same number of pendings as there were at this time last April, but the number of actives are almost doubled, even with a reasonable median LP of $2,099,000.
This year, there will be more listings that price too high, don’t adjust, and get left behind.
The first quarter of 2024 is the only 1Q in recent history to have increases in BOTH the number of listings AND the median list price. Previously, increases in pricing had a corresponding dip in the number of listings available for buyers to consider.
If you are like me, you’ve seen a noticeable surge in seller optimism in 2024. It’s not just the median list price that is up 8%, doesn’t it seem like everything is $200,000 higher than last year?
Because the inventory was so low last year, I thought the market could easily handle a 10% to 20% increase in active listings this year.
But now the number of actives is +30% YoY, and the pendings aren’t increasing in a similar fashion. If sales don’t pick up, it means a glut of unsold listings could be forming over the next 1-2 months.
Will buyers care?
Probably not, because they have shrugged off worse (higher prices and rates). But once a listing goes unsold for 2-3 weeks, it will take something drastic to get the buyers’ attention again.
Attorneys for the plaintiffs claim they spent 96,500 hours and $13 million of their own money to review over 5 million documents. They retained at least 20 experts and consultants, and performed approximately 180 depositions, and suffered through three unsuccessful attempts at mediation to achieve this result. The two lawsuits have over 1,800 docket entries. Under well-established precedent, they say they are entitled to an award of attorneys’ fees representing one-third of the $208,500,000 settlement fund ($68,805,000).
Americans can claim payments as part of a major settlement from the National Association of Realtors and other real estate groups. A variety of real estate companies were also involved in the suit, which is paying out up to $418 million.
RE/MAX, Anywhere and Keller Williams were all named in the suit, which alleged that groups forced home sellers to pay commissions through anti-competitive agreements.
Agreements between companies can result in non-competition across an industry, which inflates prices and corporate profits.
These practices, allegedly used by the named real estate companies, may violate antitrust laws, which aim to protect consumers by preventing monopolies.
Plaintiffs in the case claimed that home sellers paid inflated commissions to brokers and real estate agents as a result. There are few details yet available on how much those impacted will be paid, according to Top Class Actions.
The deadline to file a claim is May 9.
If you were impacted and do not wish to be included in the settlement, the deadline for exclusions and opt-outs is April 13.
None of the companies involved in the suit admitted any wrongdoing.
First, you must have sold a home on a multiple listing service, or MLS, in the time period covered by the suit. Date ranges vary greatly based on region and listing service. The oldest complaints that could get payments are from 2014, with the newest being from early 2024.
The exact dates for your location can be found on the settlement website:
You must also have paid a commission to a real estate brokerage in connection with that sale.
These brokerages are common across the industry, but many have speculated that could change soon as a result of years of legal trouble facing real estate companies.
If you’re unsure whether the suit applies to you, the settlement administrator can be reached at 888-995-0207.
If you do not opt out or file a claim, you may lose your right to be able to sue any of the companies implicated over this issue in the future.
The individual payouts are expected to be around $10-$13 per transaction. I’ll also include a pair of tickets to the Del Mar Turf Club for any of our clients!
Urban sprawl in west Phoenix is a tradition and it makes you think that eventually the desert will be paved all the way to California!
We have clients who have befriended Shawn and find her personable and a believer in real estate videos. Here’s her introduction the the best 55+ homes in the west valley:
For the newer readers, Donna and I have two daughters.
After Kayla graduated from the University of Oregon, she worked with us for five years and then moved to Manhattan where she’s been a realtor there for the last six years.
Natalie has always been a dancer, and she graduated from UCLA with a degree in dance. Since then, she has lived in Los Angeles doing smaller gigs in hopes they would lead to a full-blown concert tour with a major artist. She got her break last year, and has been on tour with Karol G. since August.
For those who aren’t familiar with Karol G., she has been called the latin Beyonce. The tour will conclude in Madrid, a city where she is bigger than Bruce Springsteen and Taylor Swift:
While it has been the dream tour of a lifetime for Natalie, it will come to an end in July (not June – the wiki clip above has the wrong month), after which she will continue to pursue her dance career. Stay tuned!
At the same time, she has also been our full-time marketing director. She authors our email newsletters and handles all of our social media accounts!
Because dance careers tend to be limited to younger people, we anticipate that Natalie will take over our business at some point. She handles Kayla’s marketing too, and if it all goes right, the future of the Klinge Realty Group will be bi-coastal and continue for decades!
Attention realtors who don’t have kids taking over their business. We can help you! When the times comes for you to exit the realtor business, we will buy your database, and take care of your people! Contact me when the time is right for you.
We are with daughter Natalie who is on tour with Karol G. on their Latin America leg with shows in Lima, Peru this weekend. We went to Machu Picchu yesterday:
