The Problems are the Path: Is Real Estate Changing?
Realtor Settlement
First allow me to make a disclaimer. The comments are my own. They are not related or part of any comments of the National Association of Realtors, California Association of Realtors or any local Realtor Association I am or was a member of. Nor are my comments that of eXp Realty of California and any Real Estate Broker I have been associated with either now or in the past.
Now with that out of the way....6% real estate commission died years ago. 5% has been dying the similar death. (At least here in California) With the increase in property prices there has been a variable fee developed by listing agents with negotiation of services to the seller. Buyer/broker representation forms have been growing with acceptance.
In my opinion to claim the 20% increase in property prices since the pandemic, on a national level, is associated with real estate commissions is ludicrous and a bit of a exaggeration. It is really supply and demand and the cost of money that drove prices.
Remember this if you can: Buyers are to sole source of value and they control prices. If they cease to buy, prices decline until buyers come back in. This is a Buyers Market and for the industry a Bear Market. To the point Buyers continue to buy without regard to price this is a seller's market or a Bull Market. Irrespective of what media tells you...Buyer's control markets for real estate to stock, gold, bonds, crypto or whatever asset a buyer feels is a Store of Value!
First: all should be aware that real estate agents are Independent Contractors. They do not receive a salary, car allocation, insurance, pension benefits or medical benefits from their Broker. As an Independent Contractor the real estate agent covers all expenses. Those expenses are: association fees, MLS Listing Fees, Education expenses, Marketing expenses, they fund their own retirement plan, they pay for their own medical expenses. Then too, there are the numerous marketing services that seek to sell leads and or get leads and referrals from agents. Leads from agents, I may add in my opinion, that are never given back in a referral. They are the parasites, in my opinion, they prey on the inexperienced or gullible agent's desire to be successful.
The split between broker and agent is normally 80/20. But there are means by which brokers have gotten a larger cut for services and referral given to agents. In some cases making it a 65% to 35% split broker versus agent.
It is recommended that agents put 30% of every transaction income into a side account to cover all costs associated with their profession. Realizing that not all listing presentations result in a listing, not all buyers buy a house.
From this nest egg agents pay for their fees and marketing expenses and are under the supervision of their Real Estate Broker and the Department of Real Estate and all the Associations they belong to.
The Real Estate Broker provides a platform that allows for supervision and reporting for the California Department of Real Estate and any and all laws and Codes of Ethics that Real Estate Agents are duty bound to follow.
Real Estate agents will pay their Brokers for a desk space (or the will work from home), they will pay for the Brokers Website platform and the website that incorporates all contacts, training, sales meetings and marketing programs. In that regard, not all of those training or marketing programs are free. The Broker, NAR and CAR and Local Associations all have their attempts to generate income off the agents in providing certification abbreviations that you may see on business cards..which the agent pays for that the broker requires. Those cards, plus the signs and open houses signs are all paid for my the agent and the agent must follow the guidelines of the Broker.
Every 4 years agents are required to take new tests and pay for training for those tests to have their California Real Estate License renewed.
The question to put before you is the settlement really hurting the agents more than the brokers?
There are a few benefits that will come from the settlement. Buyers will now be required to sign Buyer Broker Representation form before they can see a property and or get any information from an agent on the property concerned. Outside Services in Real Estate will not get the buyer access, it will not get the buyer the disclosures, it will not inspect the property for the buyer, review the disclosures or determine if title is clear. Buyers will not be able to access without this form. Even if the option is to view a property for a showing the form will be dated for the day of the showing.
This form has been part of agents forms that have been requested of many buyers. Buyers have reluctant to sign these commitments. Thanks to the settlement buyer will required to sign them.
Will fees come down? Will prices come down? Will the services required by sellers and buyers be eliminated. To answer those questions one must be aware that many of the forms and disclosures are either Federal, State, County and or City requirements of sellers and buyers. Those are mandatory. The disclosures in themselves will make the the book Moby Dick seem slim.
Can Buyer's represent themself? Certainly! But, how many mistakes will be made before a novice becomes experienced? The buyer will not be able to get a fee reimbursed to themself. That is illegal according to Department of Real Estate Law. Since there is no commission fee it is illogical to assume compensation.
Brokers through their agent will not be able to note the commission on a MLS listing, they will not be able to notify the buyer on any public source the seller willingness to pay a finder's fee to the buyer's agent.
To those who work as Commercial Agents, this has been their lives for decades. Residential agents and their clients are just getting current.
Fees will be paid through Concessions. If the seller will not pay for the buyer's agent, this will now be the responsibility of the buyer and the agent to negotiate compensation.
All of this will happen in July 2024. I am certain there will be many changes between now and then. But for buyers and sellers be prepared for the change. Even what I am writing about here could change between now and July 2024
Who will be hurt? Any of the various businesses who rely on real estate agents for a source of income. I think overall some buyers and sellers will be hurt. The complexities of being a real estate agent is nothing an uneducated can take over. I know Zoom has a number of influencers that claim their expertise. Unfortunately, to me, most look young enough to be classified as "just coming in with the morning mail". It will be the experienced agent who will know how to navigate the new laws and requirements of their Broker. What will happen to the part-time agents who saw being a real estate agent as an easy way to supplement income? These agents will be hurt if they have not prepared and are not re-trained. They will possibly quit. The result will be a return to professionals who are trained and dedicated to help buyers and sellers in residential real estate; just as, commercial agents are full time agents dedicated and experienced to service their clients. Overall a benefit for Full Time Professional Real Estate Agents!
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