Requiring buyers to pay for their agent’s commission would force consumers onto the horns of dilemma. There’s a better way.

Recently, Brad Inman wrote an opinion piece entitled “NAR lawsuit is good for consumers.” I have been an Inman reader and contributor for more years than I can remember, and there have been few articles that generated more angst than this one. 

In a world where “outrage” is an all too common reaction to public opinion, that would be too kind of a word to describe how readers reacted.

In the article, Brad opened with statements about mortgage commissions, the “black box” opaqueness of the industry generally and a conclusion that the filing of the mega commission antitrust lawsuit was a good thing for consumers, regardless of the actual result.  

Memo to Brad: The successful prosecution of the lawsuit would be terrible for consumers.  

My conclusion, which I wrote about in March, is based on the undeniable fact that requiring buyers to pay for their agent’s commission would in today’s world (with all of the relevant rules and regs) force buyers onto the horns of dilemma.

Buyers might either:

  1. Use (what is for most) very limited down payment money to compensate their agent, possibly impacting their ability to qualify for a mortgage, or if they do still qualify, increase their mortgage payments.
  2. Work with the listing agent only and go without buyer representation.

Neither scenario is good.

Some might suggest that the plaintiffs don’t really care about buyers because the claims are aimed at reducing fees paid by sellers. Let’s keep in mind that sellers — today, tomorrow and forever — benefit from a large buyer pool, and if that pool shrinks, sellers are harmed. 

Although sellers might gain a point or two off a commission, that potential benefit is dwarfed by the potential negative impact to that seller’s home value in a market that makes it more difficult or expensive for buyers to buy.

Add to that the fact that very few large class-action antitrust lawsuits have meaningful and noticeable consumer financial benefit because distributing any settlement or verdict amounts to large numbers of class participants is extremely expensive and inefficient.

In other words, the lawyers win, and the class participants not so much.

The NAR was created, and to this day still exists, in part to represent and further the interests of all those who own or wish to own real property. And with this in mind, it should use all of its collective might and resources to defeat this lawsuit.

But there is risk here as well. That in defense, the industry is also defending status quo. And it’s here that I might just agree a bit with Brad.

Disturbing the status quo

Here is a picture of a placard I saw at a recent open house in the Seattle area. The open house was being hosted, not by the listing agent, which meant under our laws that a buyer who used the hosting agent to submit an offer would be represented by that agent.  

Let’s see, the No. 1 reason to hire that buyer’s agent? Because as we all know, it’s free!  

I’m sure that many of you are already getting a little steamy and thinking to yourself, “I would never do that.” Good for you! But there is a reason that this agent used this message. Because some buyers have no clue and because it works.  And let’s be honest, there are a lot of agents who use this message in one way or another.

I believe there are far too many real estate agents in the business today, and many of those have little, if any, value proposition. So for them, “free” might actually be too much to charge.

At the same time, there are buyer’s agents who deliver an immense value to their clients and deserve every bit of the commission earned, if not more. And this is where the current system is a disservice to buyers. 

Seller’s have no problem understanding how much is charged and who is getting what. Why? Because there is a discussion about it every time there is a listing agreement signed. Some discussions are better than others, but there is a discussion. And because there is a discussion, there is the opportunity for negotiation.  

That is not the case with most buyers. There is no point to negotiate off of “free.” Whether its agents like the one at the open house or others who are a bit more passive on the subject, buyer’s agent commissions are, for many, part of the “black box” that Brad alluded to in his article. And the industry is inarguably complicit here.

Having the conversation with buyers

So back to defending the lawsuit. I believe the industry can vigorously defend the status quo as legally permissible while at the same time admit that it’s not optimal for consumers.  

To this end, my MLS, Northwest Multiple Listing Service (NWMLS), made the decision that beginning Oct. 1, brokerage firms may publicly display and disclose the co-op fee (we call it the selling office commission). 

My brokerage firm, Windermere, will be doing that on our firm website so that any consumer looking at a listing on our site will clearly see how much the buyer’s brokerage firm will be paid on a closed sale.

Many others will follow suit. 

Progress? Good for buyers? You bet. Over time, at least in Seattle, no buyer will fall for the “it’s free” trick. Which I hope will force that open house agent and others like her to actually have a value proposition worth something or alternatively, put them out of business.

I have discussed this concept with some very smart people who aren’t quite sure. They aren’t sure that buyers misunderstand agent commissions, and even if they do, they’re unsure what good this will do to fix the problem.  

I could argue the benefits but more importantly to the doubters, what’s the risk? How are you harmed if every listing that was displayed on every real estate website included the offered co-op fee. 

Yes, you will probably have more discussions with buyers about what that amount actually means, that you have to split some of it with your brokerage firm, and most importantly, why you are worth every penny.  And that’s a good thing because unlike the agent at the open house who said she was “free,” you will clearly spell out that you are not.

So, while I don’t agree with Brad Inman’s overarching statement that the antitrust lawsuit is good for consumers, he might be onto something that we can do better in terms of opening the “black box” to more sunlight. You decide.

Russ Cofano has more than 25 years of executive-level experience in real estate brokerage, technology, association, MLS and law. You can find him on LinkedIn.

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