- What happens if we change the system so that the listing agent no longer sets the compensation?
When Sally showed the home, wrote the offer and submitted it, she hadn’t noticed the listing agent was only offering 2 percent commission.
She discovered the compensation when the buyers were ready to make an offer. She was expecting more and also owed a 40 percent referral.
Sally reached out for advice. She wanted more and to negotiate with the seller’s agent.
Sally isn’t a new agent, she simply hadn’t checked the offered compensation. I know all the ways to make this work: ask sellers to pay the buyer’s agent commission, ask the buyers to pay, negotiate with listing agent (a violation of MLS rules), and probably some others, but this caused me to wonder: Why does the listing agent set the buyer’s agent compensation?
How we got here
Today’s MLS evolved from a time when only the listing agent collected a commission. Listing agents wanted to present their listings to other agents who might have buyers, but no listings.
A group was formed where multiple brokerages could present their listings to other brokerages and pay a commission.
The MLS was born.
The rules were simple: I’ll let you show my listing (cooperation), and if you sell it, I’ll pay you (compensation).
Simple rules, but we had to make it legal. The listing agent collected a commission and offered part of the commission to the selling broker: sub agency came to life.
The buyer representative acts as a sub-agent for the seller (the buyer’s agent had no real obligation to the buyer). In the 1980s, courts decided sub-agency didn’t work because the reality of the relationship buyers formed with their representative meant the buyer agent wasn’t really working for the seller.
In the 1990s, states adopted buyer agency laws. In Kansas, our law in no way requires a buyer’s agent to be paid from a seller’s agent. Compensation via the MLS came from the days when we had no buyer representation.
A requirement to be in the MLS and offer cooperation and compensation made sense then. I wonder with the advent of buyers representation if we really need the rule of compensation.
This may encourage buyer’s agents to join the MLS, but it’s time for the MLS to attract agents for the MLS value, rather than require membership for compensation.
I asked myself why listing agent should dictate the buyer’s agent commission. Why can’t the listing agent negotiate his or her fee with the seller, and the BA negotiate with buyer?
I know some will say the buyer’s agent can ask the buyer to pay the difference, but I’d bet 90 percent (or more) of buyer’s agents accept the offered compensation.
The thing agents don’t discuss
It’s a no-no to talk about standard commission. To discuss a rate is considered collusion. Yet, multiple articles and sites discuss standard commission rates as 6 percent.
Moreover, many limited service companies discuss still needing to offer the buyer’s agent 3 percent, yet this isn’t collusion? Maybe not, but I wonder about the spirit of the law if 95 percent of the buyer’s agent compensation offered is the same.
Let’s imagine the seller pays the listing fee only. I represent the seller, and make no more money whether I sell the property myself or with a buyer’s agent involved. I think this would decrease dual agency.
Why would I want the extra-legal burden and obligations, if I make no more money? I would strongly advise a buyer to seek representation.
On the few occasions I’ve gone to court without an attorney, the courts and counselors are very uneasy. They advise I get competent representation. I think with a little education, agents would see the wisdom of this legal advice.
Legal burden aside, I think most agents would rather someone else take half the work load. Instead of encouraging a buyer to buy my listing without a buyer’s agent, I would welcome another agent to ease my work load.
If I could create a new system …
In our new world, procuring cause won’t be argued between agents. If a client has two buyer’s agents show them property, the listing agent stays out of the battle. This becomes a civil issue for the buyer and agents.
I’d be less worried when the buyer looks at open houses and more attentive at finding and showing homes. I’m no longer a “cost-free agent” (meaning the buyer owes me nothing because the seller pays me); I have to prove my worth to the buyer.
I would go outside my MLS. I could be selling a home in an MLS I’m not a member of because my buyer’s agent would be the instrument I collect commission on, not my MLS membership. I won’t want to risk losing buyers because I didn’t service them, my level of service would rise to earn my commission.
The buyer’s agent would negotiate with the consumer. Some consumers would want a discount, some would want more service.
No longer would a buyer’s agent suggest they walk into a deal because it won’t cost the buyer anything; the buyer’s agent would need to prove value.
The buyer’s agent relationship would become more about how to protect, represent, advise and spoil the consumer.
I know I’ve chosen to spend more on upper-end rental cars or Uber vehicles because I wanted a luxurious ride. Consumers could choose buyer’s agents much like luxury vehicles.
Others may choose to do all of their own driving or skip the full value assessment of potential homes. Either way, the door opens for the type of service a buyer wishes to purchase, rather than the “free buyer’s agent.”
Such changes would take a shift in thinking.
Loans would be given for the price of the home, and the marketing costs deducted and paid by the seller.
In reality, the buyers’ money pays all the commissions, it’s just deducted from the seller side.
We would have to adjust how the industry classifies the commission and pays for the representation. Appraisers and banks may have to adjust the columns numbers fit in, sellers may be asked to pay the buyer agency fee without interfering with the listing agent contract.
Wouldn’t it be nice if the seller no longer paid for the buyer to be represented?
This would be a major change in MLS rules, Realtor rules, how we talk to and treat buyers — and probably things I haven’t even considered.
It would be a major shift in the purpose of the MLS (cooperate and compensate), but if I were starting over today, this is the system I would design.
I think we’re living with rule changes to accommodate agency and the evolution of the MLS, selling properties, representation, the Realtor organization — more than giving the public what needs in today’s environment.
I think we spend too much time worried about what company is taking business from whom or how the IDX needs to be revamped.
Let’s refocus on delivering consumer service in today’s environment by throwing out the rules.