I’ve had some really interesting conversations this week, many of which centered around the reaction to the new buyer broker agreements that are now required. I’ve seen a lot of different spins on this – everything from “I don’t pay attention to that kind of stuff” to “this is a nightmare” to “just wait until the lawsuits start rolling in” to “this changes nothing.” What I haven’t heard a whole lot of is “I’m going to use this to get my buyers and sellers a better deal.”
You might want to spit on the screen right now.
That’s ok. You may not believe me that this lawsuit could in fact benefit someone other than the attorneys making millions of it – not just in the courtroom but in the consulting jobs they are being hired for to interpret the lawsuit and draft the new agreements. You see for the attorneys this quite literally is a gift that keeps giving, a jackpot if you will. Same as Dodd-Frank back in 2010 – the consumer protection act which was supposed to reform the mortgage industry. The consumer didn’t benefit though, lobbyists did. The banks had to hire a lot of attorneys to figure out how to comply with the new laws and attorneys raked in the cash then just like they are now.
Sorry that was a tangent. I do believe that this new era of doing business when it comes to realtor commissions could benefit homeowners and homebuyers. I’m going to tell you exactly how.
Transparency
I’ve heard some realtors say, “the buyer always paid the commission.” Which is a little tricky. Yes, when you paid $400k for that home, the realtor’s commissions were deducted from the price you paid for the home before the seller received their net profit. But at closing, you just paid your 5% down plus closing costs. Now, if you were responsible for paying your agents full commission, this would be handled a bit differently.
At the beginning of your relationship with your realtor, they will have you sign a buyer broker agreement specifying how much commission they will be paid – whether that money comes from you or the seller. Let’s say you agree on 2.5%. You will then shop for homes and come across some in which the seller is open to paying your realtor’s commission, depending on the terms of the offer. You may also encounter a scenario where the seller absolutely will not – so this amount will be due from you at closing. On the same $400k home I used as an example initially, this would mean you pay your 5% down, plus closing costs, plus 2.5% of $400k which is $10,000 as your realtor’s commission.
Going forward, a realtor will need to thoroughly explain all these potential scenarios to the client upfront. This means buyers will be much more aware of how the transaction works, what happens in negotiations and where every dollar they are spending both immediately and financing over the next 30 years. I personally think that is good. Clarity should be empowering.
Increased Value
As a buyer’s agent, in order to get someone to sign a buyer broker agreement, value will have to be demonstrated. The realtor will need to be articulate enough to clearly explain a somewhat complex concept with several different potential outcomes. They will have to be confident enough to handle some objections and navigate realistic solutions. Even more importantly though, they will need a value proposition. A reason why the buyer should choose them and be willing to pay them out of pocket if it comes down to it.
This is where I have been really impressed. I’ve met with folks over the past week that have put together a very clear presentation of their value. They are ready to build on what they were doing before, to now go above and beyond for the buyer so there is zero hesitation when it comes to signing that agreement. For that reason, I think change is good and this reform could be really positive for our industry. For the professionals in our industry.
More negotiating.
Human beings don’t like negotiating. It makes us uncomfortable to ask for what we want. We have a fear of conflict and in today’s day and age, we want instant gratification. Negotiating is literally the opposite of instant gratification – it takes time and requires effort and delays satisfaction. Studies have literally shown that people so prefer to maintain harmony that they will do it at the expense of their own interests.
Guess what? Realtors are human beings too. Many times when one realtor, say a buyers agent, calls another realtor who happens to be the listing agent – it turns out that they are both human beings. WILD, I know! So instead of negotiating, which neither of them wants to do, they start chatting about how to put together a deal that both of their clients could stomach.
Some of you might say that is in fact negotiating. It’s not. It’s collaboration. Also key to a smooth escrow but not at this juncture. Stay with me.
Now that the buyer’s agent has to negotiate their commission, there is no way around having to do this uncomfortable task. You know what will happen? They will get better and better at it. And now that the listing agent has to do this with each offer, they will also become a more experienced negotiator. Both realtors will be well versed on different strategies they could use to get what they want for their client and both realtors will be accustomed to having to do this on every single deal.
You know who benefits when better negotiating happens? The clients.
PCE Numbers
Kind of a snooze fest reaction from bonds this morning, but that makes sense based on what I told you last week will be more important for interest rates than inflation. Personal Consumption Expenditures showed the yearly inflation was right in line with market expectations at 2.5%. Comparing July 2024 with July 2023, inflation climbed only slightly - .2% on both headline and core inflation. (Core inflation strips out fuel and food prices.)
Let’s stroll down memory lane to measure our progress. Inflation peaked at 7% in 2022 and we are now at 2.5%; the Fed’s goal is 2%. That helps us understand why they will begin cutting the Fed Funds rate in September. Now we are just left to wonder if it will be 25bps or 50bps.
Property Pursuits
Our monthly podcast, which we do in the form of a live webinar, is next week! This is a great way to spend 30 minutes if you are interested in real estate and the economy. We also have a very special guest – my friend Stephanie Funk, who is a partner at a local law firm. We are going to ask her about trusts, wills, cohabitation agreements and her opinion on the NAR lawsuit. It’ll be spicy I bet. You can register here.
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