Rarely do I feel the need to comment on the state of my industry. I have been a licensed Real Estate Salesperson, Agent, or Broker since 2015. In the 9 years I’ve spent licensed in this industry I have never been impressed much with my peers. I haven’t been shy about my disdain for many Realtors in this business. Now our “leadership” at the National Association of Realtors has proven just as feckless and ineffective as the vast majority of its membership.

I have long thought that the NAR as well as State and Local Boards and MLS's that I have been a member of were bureaucratic cash grabs that existed solely to employ those among us that were not talented enough to actually sell real estate. It wasn't until today that I realized how useless these organizations are.

If you’ve been following the news, there have been a lot of claims going around since The National Association of Realtors Commission Class-Action settlement offer was released. “It’s the end of the 6% commission!” “This is going to make home buying MUCH more affordable!”

These statements and others touted in the media are uninformed and show a complete lack of understanding on how the real estate industry operates in the United States. Since no news article I’ve read on this ruling has been willing to summarize business practices in this industry, I may as well educate you as it seems no one else is willing to.

When selling a home with a licensed real estate agent, the first step is for the seller and agent to enter a contract called a “listing agreement”. This agreement lists pretty much everything to do with selling the home: how long it will be on the market, what price it will be offered up for sale at, how it will be advertised, who will have access to the home, and the commission rate and split. The last point is the most important one to focus on here.

In most (but not all) real estate transactions, the seller pays for the real estate commission out of the funds they receive for selling the home. When negotiating the listing agreement sellers and their agent agree on a commission rate as well as an “offer of cooperating compensation” or split.

This “offer of cooperating compensation” defines how the commission will be split up between the agent for the seller (listing agent) and the agent for the buyer. For example, if the seller and their agent agreed upon a total commission of 6%, that 6% can be split evenly 3% to the listing agent and 3% to the buyer’s agent. OR it could be split 4% to the listing agent and 2% to the buyers agent. Or ANY different combination. The seller could negotiate with their agent a total commission of 4% with 2% offered out to the buyers agent. See it doesn’t matter, there are no rules governing this. It’s a negotiation just like any other aspect of business.

This is the first area where our legal system has failed free enterprise in this case. Ruling that offering buyers agents a guaranteed commission split was price fixing makes NO sense as this amount was always negotiable during the listing agreement negotiation. Also, it could even be negotiated LATER in the process. MANY times I’ve had to cut my commission in order to get a deal through. Why judges and the DOJ feel they have a right to intercede here is beyond me.

Once that listing agreement is finalized the property is listed on a local MLS which all agents who are members have access to. They can sign in to the MLS website and view properties for their buyers. Included in the property listings is the "offer of cooperating compensation". On their MLS they can see if a seller is offering out 1.5%, 2%, 2.5%, 3% commission etc.

The claim in these lawsuits has been that agents are steering buyers away from properties that are offering lower commissions. There could be some truth in this, however this is accounted for generally in the laws of agency. Even the loosest laws of agency in states require obedience on the part of every agent. If a buyer wants to see a home, the agent needs to make the effort to show it to them regardless of the commission being paid out. And if an agent refuses to show a home? Well there’s another 1.5 million Realtors in this country that would be happy to show you the property. That’s the beauty of free enterprise.

Furthermore I fail to see how eliminating guaranteed buyer agent compensation being advertised on the MLS would protect buyers interests. I often work in commercial deals that aren't listed on the MLS. When discussing these properties I simply call up the listing agent and ask what offer of compensation is being offered and make sure to write it into the contract. I also have worked on off-market deals where my buyers had to pay my commission. The conversation is quite simple "Hey, they're not willing to pay my commission so you're going to have to. I want 2.5%"

The truth is that the rule changes are not going to produce the “desired effect” of limiting commissions or making home buying more affordable. They will however produce significant income for the lawyers who filed these suits. The good news isn’t for home buyers or home sellers.

I have long found that other agents in this business don’t have the basic understandings of property law, contracts, and construction that are necessary to truly advise their clients on the purchase of a home. Most Realtors I know are happy to take their commission and step away from deals when things get tough.

When I got into this business, my mantra became “the only deal that matters is the next one.” Meaning, don’t worry about what you are making today. By doing the right thing by your clients you will always set yourself up for success tomorrow.

One of my first big deals in this business involved a sale of a friends home on Long Island. Prior to selling, he was concerned that a second floor bathroom in his house may not have been permitted. He contacted the local building department who ruled that the entire second story of his home was illegal.

At this point I could have said forget it and walked away from the deal. I was in over my head. Did I know anything about construction, zoning, code enforcement, etc? No. But I hit the books, researched everything I could and I drew up a case for an administrative variance and presented it to a state engineer. He overruled the local building department. The second floor was legal and they were forced to give my client a CO for the bathroom, allowing the sale to proceed.

When I first relocated to Florida one of the first buyers I met was a young couple looking for a fixer upper. Within 10 minutes of meeting them I knew they weren’t going to buy a home from me anytime soon. But I still took the time to show them every house they wanted to see. I needed to learn how the showing process in Florida worked and there was nothing wrong with getting reps in. I took the time to answer every question they had.

Sure enough, they weren’t ready to buy a home yet. But a year later I got a call. Were they finally ready to buy their home from me? No. But they had become house flippers in the past year and had financial backing. They needed to buy 20 homes from me by year end. That one couple jump started my business in the State of Florida and put me on the path to where I am today.

But not every story works out. I had some friends who used a friend of theirs as a buyers agent a few years back. She sold them a home with a faulty foundation, malfunctioning plumbing, and hidden mold behind a wall. As bad as that all sounds, ALL of these issues could have been taken care of before closing and repaired or her buyers could have backed out of the deal. Had I been their agent, I would have never let them put in an offer on a home with such obvious defects.

After closing when all the problem became apparent their agent disappeared. Refused to take their phone calls and help in any way. So they reached out to me. I helped them figure out what needed to be done and helped them put together their case for their lawyer as there were multiple parties they had to sue. I also used my construction contacts to help them repair their home in the most affordable manner.

So for those who say that today's settlement is bad news, you are correct. It is bad news for agents who don't provide value. It is bad news for agents who don't bring anything to the table besides a lawn sign and an MLS account.

But today’s agreement isn’t just good news, it’s GREAT news for hardworking ethical agents.

These new rules WILL push people who didn't belong in this business out. These new rules WILL probably eventually eliminate NAR and local boards as there will no longer be any point in joining them. These new rules WILL allow those of us who do the hard work and take proper care of our clients to generate even MORE business and negotiate our own rates.

I don’t know about you, but I’m worth a minimum of 3% on every deal I touch.

Tampa, Florida

10 Votes