NAR Settlement - HOT TAKES

[Alan Asriants]

I have a few HOT TAKES on this recent NAR Settlement News

1. Buyer's agents won't wait long to get into written agreement with a Buyer. Right now, many agents don't sign any agreements until they sign an offer. With this new system, I won't wait long to sign an agreement and spell out what commissions are owed. Many Buyers will refuse to sign, but will quickly see that no one will want to work with them for free without an agreement in place. This is actually not a bad thing for Buyer's agents, as we will encounter less tire kickers. 

2. Prices of listings will adjust. The MLS market always included both sides of the commission. So if the Seller is not offering that commission, then the price of the home offered should be less, since the buyer is now assuming this responsibility

3. Many agents will leave the business. Again, this is a good thing. For many agents it can be a sigh of relief, as we no longer have to compete with incompetent family members for business 

4. The market will drive commissions. In a sellers market, anyone can sell a home. This is why I believe this issue started in the first place. Sellers got greedy and wanted more money in their pocket because they felt they could sell their home on their own just by putting it on the market. While some of this is true, this won't hold true when the market shifts. In a Buyer's market, sellers offer LARGER commissions to Buyers agents in hopes of getting an offer. To the sellers thinking they are going to make more money, maybe not. 

5. Buyers who don't have representation will get screwed. If a buyer doesnt want to pay an agent and goes directly to the seller, their interests are not protected. In the short term we might not see any issues, but overtime, cases will arise when Buyers start getting screwed in shaky deals. Its like going to court without a lawyer. The lawyer could've likely gotten you a shorter sentence.

What are your thoughts?

[Shane H.]

Quote from @Steve Babiak:

Quote from @Shane H.:

Quote from @Guy Gimenez:

Quote from @Shane H.:

Quote from @Guy Gimenez:

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Logically speaking, only one side brings money to the table. The HUD is nonsense. The reality is the buyer pays a certain amount less based on certain things. The seller doesn't pay a penny. Unless they're under water that's a whole different thing, but it has to be pretty bad to pay at closing. Lol

 In 2019, I bought a house where the seller had to bring almost $60K to closing ;)

 I’d say that was pretty bad. Lol

[David M.]

@Alan Asriants Another sort associated aspect is need to continue to educate the consumers on the broker splits.  I had that conversation with clients, some because of their cynism and some for just education.  One buyer joked that its in my interest, as their buyer's agent, to have them bid more.  Well, for $1000 I only take home additional $12.5 (half of the mostly usual 2.5% comp for my market for the sake of argument with a traditional broker).

Clients think somehow each agent is making %5-6%, in their pocket, for each transaction.  Sure, the non-traidtional brokerages have higher splits for starting agents, but its not always that way.

I've posted on some thread in bp recently... I've had clients who actually looked at the broker comp commission on the MLS sheets and that would drive/tie-breaker their decision.

So, I think it will be really interesting on how the market fragments depending on the relative size of the groups of buyers...

[Matthew Paul]

Quote from @Alan Asriants:

Quote from @Matthew Paul:

Quote from @Alan Asriants:

Quote from @Matthew Paul:

My thoughts , The buyers agent wont be working on a percentage basis , it will be a flat fee plus any extras .  Very similar to how contractors work .   

The 5 house package , I will show 5 houses within a 30 mile radius ( extrs $2 a mile past that ) submit up to 3 contracts . For xxxx  dollars .   Arrange home inspector  xxxx dollars  . etc etc . 

There is no more work to show a $500K house than a $900K house , for the most part . 

As far as the open houses , I can see some attorneys selling a pre made contract to buyers and the buyers without agents will fill out the contract and hand it to the selling agent . 

I think the days of a commission based structure for buyers agents is going to be over .

Sure there are agents that say they wont work for less , thats fine , others will .   

 What do you think is fair?

 It doesent matter whats   " fair "  .    Its what both buyer and the agent agree on .  

If I , the buyer wants to see a house and a buyers agent takes me in and shows me , And then I want to put in an offer , they are entitled to be paid for their time . Is that amount a percentage of the sales price ?   No , not in my opinion .   If they have 8 hours of their time involved , they should be compensated .  If the agent is asked to provide additional services , they charge accordingly .

Becoming an agent is not hard , take a free course offered by a real estate company , study , pass the test , you are a licensed agent . No college , no 5 years of experience needed . Plumbers , electricians , HVAC , need time in the field under a master before they can be a journeyman and more years before they can sit for the test for their masters license .  

Yes  buyers agents will make less , when you are hungry you will do what you need to to put food on the table . And other buyer agents will lower their prices to get the work . 

 So every time you call an agent about questions for a home, or the agent follows up with your lender, or replies to email, they will bill you by the hour? 

That model might have a lot of holes in it.

This point is not completely directed to you but generally

Also, you are right, barrier to entry for agents is very low. But that doesn't mean the profession is easy. I have had countless friends join the business, get their license, and struggle to even find 1 client to sell a home to in 3 years!

75% of real estate agents fail within the first year, and 87% fail within five years

Out of the 25% who don't fail, they aren't making "bank." Those are only the top of the top. Most agents don't even make 6 figures. 

I think the notion that being an agent is easy is a very big misunderstanding. Personally if someone told me that all I have to do is open some doors and fill out some contracts and I can make 3% of 500,000, I would try that profession out in a heart beat. Maybe thats exactly why I tried it. But man, getting that first sale was incredibly difficult. Scaling your business to a point where income is not guaranteed to creating a more or less stable system also took many many hours. Like all good things in life, building a business takes time. Especially on a platform where we talk about real estate investing, we all are aware that building a portfolio, investing, managing, etc all take time and are not easy things to do. 

Its like saying: "Oh you're a landlord? All you do is write a lease and collect rent. You guys do nothing, you shouldn't get these kinds of benefits"

It's a lot easier to type about how easy something is, then to go try it for yourself and make an accurate judgement. 

 Well buyers agents can set their rates how ever they want . Buyers can also choose who ever they want . Some will be expensive ,some will be cheap .   Nobody really knows how it will play out . But In my opinion the days of a buyers agent getting 3 % will be over .  I also think there will be more competition to be the selling agent , and this will push agents to lower that commission also . Its supply and demand .  I am saying this based on the sellers market we are in right now . That may change in a buyers market , but who knows for sure . 

[Matthew Paul]

Quote from @Alan Asriants:

Quote from @Mark Cotter:

Quote from @Devin Scott:

Quote from @Shane H.:

I think the whole thing is irrelevant. Prices aren’t going to go down. Are you seriously going to list a house for 145,500 instead of 150k because of this? Lol I expect an increase in overall cost. The only way it’s going to drive prices down is if buyers agents (like all of them not just one here or there) encourage buyers to make offers accordingly. I don’t see it… the fact of the matter is that buyers have always paid both sides of the fees. That hasn’t changed. This situation is the equivalent of a store listing sales tax in the price one day and not the next. Except in real estate the price is already so murky it won’t be as noticeable. 

 Prices aren't just determined by list price.  Buyers won't be able to pay as much across the board because they need to cover their own agent fees.  Hmm, what could that do to prices...

 When there is a void something always moves in to fill it. I'm willing to bet you that companies like Redfin and Zillow will be all over this. Buyers won't be using Agents within 5 years.

 How will Buyers get their representation? Lawyers, just paper pushers? Lawyers aren't trained to know location, neighborhoods, property conditions. 

 I would think a lawyer would be able to write a contract .   Most buyers will research the location for themselves , check out the neighborhood by going there and some internet searching . As far as property condition , short of what is obvious , isnt that what the buyers hire a home inspector for ?   

[Jay Hinrichs]

Quote from @Matthew Paul:

Quote from @Alan Asriants:

Quote from @Mark Cotter:

Quote from @Devin Scott:

Quote from @Shane H.:

I think the whole thing is irrelevant. Prices aren’t going to go down. Are you seriously going to list a house for 145,500 instead of 150k because of this? Lol I expect an increase in overall cost. The only way it’s going to drive prices down is if buyers agents (like all of them not just one here or there) encourage buyers to make offers accordingly. I don’t see it… the fact of the matter is that buyers have always paid both sides of the fees. That hasn’t changed. This situation is the equivalent of a store listing sales tax in the price one day and not the next. Except in real estate the price is already so murky it won’t be as noticeable. 

 Prices aren't just determined by list price.  Buyers won't be able to pay as much across the board because they need to cover their own agent fees.  Hmm, what could that do to prices...

 When there is a void something always moves in to fill it. I'm willing to bet you that companies like Redfin and Zillow will be all over this. Buyers won't be using Agents within 5 years.

 How will Buyers get their representation? Lawyers, just paper pushers? Lawyers aren't trained to know location, neighborhoods, property conditions. 

 I would think a lawyer would be able to write a contract .   Most buyers will research the location for themselves , check out the neighborhood by going there and some internet searching . As far as property condition , short of what is obvious , isnt that what the buyers hire a home inspector for ?   

I see lawyers heavily involved with deals in Chicago and it appears New York I have done a lot of Chi Rack but nothing in New york.  and in CHi town its very frustrating you have buyer and seller each has a lawyer then you have each client with a realtor so lots of coordinating etc.. and come to think of it thats how they do it in Charleston SC as well. the lawyers are just closing the transactions like escrow officers but in Chi town I saw them also reply on inspection addendums.. and you talk about killing deals..

[Shane H.]

Quote from @Jay Hinrichs:

Quote from @Matthew Paul:

Quote from @Alan Asriants:

Quote from @Mark Cotter:

Quote from @Devin Scott:

Quote from @Shane H.:

I think the whole thing is irrelevant. Prices aren’t going to go down. Are you seriously going to list a house for 145,500 instead of 150k because of this? Lol I expect an increase in overall cost. The only way it’s going to drive prices down is if buyers agents (like all of them not just one here or there) encourage buyers to make offers accordingly. I don’t see it… the fact of the matter is that buyers have always paid both sides of the fees. That hasn’t changed. This situation is the equivalent of a store listing sales tax in the price one day and not the next. Except in real estate the price is already so murky it won’t be as noticeable. 

 Prices aren't just determined by list price.  Buyers won't be able to pay as much across the board because they need to cover their own agent fees.  Hmm, what could that do to prices...

 When there is a void something always moves in to fill it. I'm willing to bet you that companies like Redfin and Zillow will be all over this. Buyers won't be using Agents within 5 years.

 How will Buyers get their representation? Lawyers, just paper pushers? Lawyers aren't trained to know location, neighborhoods, property conditions. 

 I would think a lawyer would be able to write a contract .   Most buyers will research the location for themselves , check out the neighborhood by going there and some internet searching . As far as property condition , short of what is obvious , isnt that what the buyers hire a home inspector for ?   

I see lawyers heavily involved with deals in Chicago and it appears New York I have done a lot of Chi Rack but nothing in New york.  and in CHi town its very frustrating you have buyer and seller each has a lawyer then you have each client with a realtor so lots of coordinating etc.. and come to think of it thats how they do it in Charleston SC as well. the lawyers are just closing the transactions like escrow officers but in Chi town I saw them also reply on inspection addendums.. and you talk about killing deals..

 I tried to buy a property in New York and couldn’t understand why they wanted to know who my lawyer was. The closing costs were absurd. We had a verbal agreement on price but never went under contract because of it. We are talking about a 4 figure property so 2 lawyers 2 agents can really spoil a deal. 

[David M.]

@Jay Hinrichs @Shane H.

NYS is an attorney state.  You have to have an attorney.  Your negotiations are verbal so as not to create a contract.  If you wrote it down, it would have become a contract --- basically...

Yes, in NJ while its not an attorney state, in Northern NJ we use attornies.  So, yes 4 parties.  I find it is somewhat useful because it gives a better chance to have an avenue of communication to get the deal done...

gota run.

[Andrew Syrios]

My favorite hot take I've heard is the conspiracy theory that CoStar was behind these lawsuits and is trying to break up the NAR so they can move into the brokerage market.

[Steve K.]

Quote from @Matthew Paul:

Quote from @Alan Asriants:

Quote from @Mark Cotter:

Quote from @Devin Scott:

Quote from @Shane H.:

I think the whole thing is irrelevant. Prices aren’t going to go down. Are you seriously going to list a house for 145,500 instead of 150k because of this? Lol I expect an increase in overall cost. The only way it’s going to drive prices down is if buyers agents (like all of them not just one here or there) encourage buyers to make offers accordingly. I don’t see it… the fact of the matter is that buyers have always paid both sides of the fees. That hasn’t changed. This situation is the equivalent of a store listing sales tax in the price one day and not the next. Except in real estate the price is already so murky it won’t be as noticeable. 

 Prices aren't just determined by list price.  Buyers won't be able to pay as much across the board because they need to cover their own agent fees.  Hmm, what could that do to prices...

 When there is a void something always moves in to fill it. I'm willing to bet you that companies like Redfin and Zillow will be all over this. Buyers won't be using Agents within 5 years.

 How will Buyers get their representation? Lawyers, just paper pushers? Lawyers aren't trained to know location, neighborhoods, property conditions. 

 I would think a lawyer would be able to write a contract .   Most buyers will research the location for themselves , check out the neighborhood by going there and some internet searching . As far as property condition , short of what is obvious , isnt that what the buyers hire a home inspector for ?   

Home inspectors just state the facts, they don’t help buyers interpret the facts, use them to negotiate, or talk the buyer off the cliff because usually after inspection the buyer gets freaked out and wants to walk over something not that bad. I’ve represented real estate lawyers before here in CO. We’re not an attorney state so they know very little about navigating the transaction process itself, only when things go sideways do they get involved usually or sometimes high net worth individuals or people from attorney states like to bring them in for final contract review, but they aren’t doing a buyers agent’s job by any means that’s for sure. I did a deal last fall with 6 lawyers involved: they added so much unnecessary drama and cost and time to the deal, it’s amazing we made ever made it to the closing table. That property (with multiple benefactors from the sale each represented by their own attorneys) had been on the market for years and had fallen out of contract half a dozen times. My buyer got it for several million under the original asking price. We call lawyers deal killers not deal makers.  

[Zander Kempf]

I honestly don't think this is a bad thing for the industry. Commission rates will become more efficient. It will certainly be a negative impact on real estate agents income levels. I also think there will need to be a solution found in the middle ground because there is a value that buyer agents provide to help buyers navigate the legal complexities, and I'm sure that a large portion of buyers are going to chose not to have an agent in order to save money.

[Kyle Gardner]

I build ground up and flip a handful of properties each year which I list myself in AZ. If someone comes to me without a buyers agent to purchase my property, I'm going to get everything out of them that I can. I feel no need to get them a good deal as they seek self representation. 

But representing my buyers, I treat them and their money as sacred. I protect them as much as I possibly can. And for my clients sake, I take advantage of sellers that hire a bad agent, sometimes to the extent of 10% of the price or more.

And for my sellers that I represent, if a buyer comes to me without an agent, I'm going to work over the buyer as much as I can. In my experience, the people that try to buy without a realtor are usually a major pain to deal with and feel entitled to complain at any point during the transaction. Said buyer is never going to give me a referral or a thank you, so I'm going to get $10,000 or more out of them so that my seller loves me and sends their friends my way. 

I can't understand it either, I buy in other parts of the country and use an agent to buy and sell as well. I refer my family in other areas to good quality agents. I negotiate a lower fee but why wouldn't I want someone who knows the area to help??? 

Long story short, we will see more people not using buyers agents and they may work out once in a while but in the grand scheme, they'll get what they pay for. But I'd rather pay 2.5% of my own money to a buyers agent rather than deal with an entitled buyer on my own property. 

More disclosure is a good thing, less agents is a good thing but overall, everybody needs someone in their corner.

The same people who try FSBO and screw buyers agents will do the same thing now, bad agents will likely get weeded out, and average decent people will appreciate having someone help them. And good agents will follow the correct path to make sure that they're providing proper value to their clients and get paid in a way that doesn't adversely affect their clients.

[Jay Hinrichs]

Quote from @Steve K.:

Quote from @Matthew Paul:

Quote from @Alan Asriants:

Quote from @Mark Cotter:

Quote from @Devin Scott:

Quote from @Shane H.:

I think the whole thing is irrelevant. Prices aren’t going to go down. Are you seriously going to list a house for 145,500 instead of 150k because of this? Lol I expect an increase in overall cost. The only way it’s going to drive prices down is if buyers agents (like all of them not just one here or there) encourage buyers to make offers accordingly. I don’t see it… the fact of the matter is that buyers have always paid both sides of the fees. That hasn’t changed. This situation is the equivalent of a store listing sales tax in the price one day and not the next. Except in real estate the price is already so murky it won’t be as noticeable. 

 Prices aren't just determined by list price.  Buyers won't be able to pay as much across the board because they need to cover their own agent fees.  Hmm, what could that do to prices...

 When there is a void something always moves in to fill it. I'm willing to bet you that companies like Redfin and Zillow will be all over this. Buyers won't be using Agents within 5 years.

 How will Buyers get their representation? Lawyers, just paper pushers? Lawyers aren't trained to know location, neighborhoods, property conditions. 

 I would think a lawyer would be able to write a contract .   Most buyers will research the location for themselves , check out the neighborhood by going there and some internet searching . As far as property condition , short of what is obvious , isnt that what the buyers hire a home inspector for ?   

Home inspectors just state the facts, they don’t help buyers interpret the facts, use them to negotiate, or talk the buyer off the cliff because usually after inspection the buyer gets freaked out and wants to walk over something not that bad. I’ve represented real estate lawyers before here in CO. We’re not an attorney state so they know very little about navigating the transaction process itself, only when things go sideways do they get involved usually or sometimes high net worth individuals or people from attorney states like to bring them in for final contract review, but they aren’t doing a buyers agent’s job by any means that’s for sure. I did a deal last fall with 6 lawyers involved: they added so much unnecessary drama and cost and time to the deal, it’s amazing we made ever made it to the closing table. That property (with multiple benefactors from the sale each represented by their own attorneys) had been on the market for years and had fallen out of contract half a dozen times. My buyer got it for several million under the original asking price. We call lawyers deal killers not deal makers.  

Exactly Steve no offense to lawyers but they serve a purpose with the contracts but for putting deals together and holding them together NOPE..

[Alan Asriants]

Quote from @Matthew Paul:

Quote from @Alan Asriants:

Quote from @Mark Cotter:

Quote from @Devin Scott:

Quote from @Shane H.:

I think the whole thing is irrelevant. Prices aren’t going to go down. Are you seriously going to list a house for 145,500 instead of 150k because of this? Lol I expect an increase in overall cost. The only way it’s going to drive prices down is if buyers agents (like all of them not just one here or there) encourage buyers to make offers accordingly. I don’t see it… the fact of the matter is that buyers have always paid both sides of the fees. That hasn’t changed. This situation is the equivalent of a store listing sales tax in the price one day and not the next. Except in real estate the price is already so murky it won’t be as noticeable. 

 Prices aren't just determined by list price.  Buyers won't be able to pay as much across the board because they need to cover their own agent fees.  Hmm, what could that do to prices...

 When there is a void something always moves in to fill it. I'm willing to bet you that companies like Redfin and Zillow will be all over this. Buyers won't be using Agents within 5 years.

 How will Buyers get their representation? Lawyers, just paper pushers? Lawyers aren't trained to know location, neighborhoods, property conditions. 

 I would think a lawyer would be able to write a contract .   Most buyers will research the location for themselves , check out the neighborhood by going there and some internet searching . As far as property condition , short of what is obvious , isnt that what the buyers hire a home inspector for ?   

 Many buyers don't even know you can do that. Again, the average buyer is not nearly as educated as the people on this platform are. Hopefully their lawyer will point them in the right direction. But again, not knowing the area or location can bite someone in the A**

[Alan Asriants]

Quote from @Jay Hinrichs:

Quote from @Matthew Paul:

Quote from @Alan Asriants:

Quote from @Mark Cotter:

Quote from @Devin Scott:

Quote from @Shane H.:

I think the whole thing is irrelevant. Prices aren’t going to go down. Are you seriously going to list a house for 145,500 instead of 150k because of this? Lol I expect an increase in overall cost. The only way it’s going to drive prices down is if buyers agents (like all of them not just one here or there) encourage buyers to make offers accordingly. I don’t see it… the fact of the matter is that buyers have always paid both sides of the fees. That hasn’t changed. This situation is the equivalent of a store listing sales tax in the price one day and not the next. Except in real estate the price is already so murky it won’t be as noticeable. 

 Prices aren't just determined by list price.  Buyers won't be able to pay as much across the board because they need to cover their own agent fees.  Hmm, what could that do to prices...

 When there is a void something always moves in to fill it. I'm willing to bet you that companies like Redfin and Zillow will be all over this. Buyers won't be using Agents within 5 years.

 How will Buyers get their representation? Lawyers, just paper pushers? Lawyers aren't trained to know location, neighborhoods, property conditions. 

 I would think a lawyer would be able to write a contract .   Most buyers will research the location for themselves , check out the neighborhood by going there and some internet searching . As far as property condition , short of what is obvious , isnt that what the buyers hire a home inspector for ?   

I see lawyers heavily involved with deals in Chicago and it appears New York I have done a lot of Chi Rack but nothing in New york.  and in CHi town its very frustrating you have buyer and seller each has a lawyer then you have each client with a realtor so lots of coordinating etc.. and come to think of it thats how they do it in Charleston SC as well. the lawyers are just closing the transactions like escrow officers but in Chi town I saw them also reply on inspection addendums.. and you talk about killing deals..

 OMG. Lawyers love killing deals lol. They hate negotiating any fair terms because it is in the interest of their client. Had a few deals where the other party was represented by a lawyer. I kept asking: what does the seller want to do? But the lawyer kept answering for them. Very annoying to work with. Not saying all lawyers are like that, but damn, not sure how they will find middle grounds.

[David M.]

@Jay Hinrichs @Steve K.

I think its like a "sampling error" or misalignment of expectations...  I hear that a lot from investors  in non-attorney states --- the attorneys are useless...  Not saying that attorneys are great, but your attorneys wouldn't be customarily called upon to handle real estate transactions.  So, yeah I'd expect there to be much more friction when they get involved there, especially since its tough to find a "transactional attorney."

Sure, out my way I've had some tough deals because of the attorney.  But, there are plenty of good attorneys out here that help the deal go through, and work with the agent.

But, attorneys and agents do different functions/jobs.  That's pretty clear out here, and I haven't clients get "bounced back and forth."  It gets fuzzy in south Jersey where the agents and lenders are helping to modify the contract, for example.  Our brokers and even the Real Estate Commission won't allow agents to modify the contract (e.g. as mentioned, a repair request pursuant to the inspection clause) since it would be practicing law without a law license.  Lets face it, the regular buyer/seller aren't that sophisticated, so somebody has to 'lead them around by the nose'.  So, even within one state its a strange dynamic / way of doing business.

Then, I find it even "funnier.."  Discussions with agents in non-attorney states show they think they do all the work, while agents here don't do anythign because of the attorney.  When they list out all their functions, its the same as what I/we do, and sometimes less --- I guess I'm used to providing more service :).

Like another example I heard vaguely that some markets agents don't handle rentals, which is why PM's are pushed so much.  In my market, agents absolutely do handle rentals, so I'm not used to Pm's at all.  Maybe that person didn't find the right agent...

I get it when an ordinary buyer comes to a new region and I have explain and convince about the taxation, transaction process, etc.  But, why investors think that "their" way is the only way I don't quite get.

Anyway, just saying that some of the issues/perceptions are market/locality specific.  Just like real property varies from location to location...

[David M.]

 @Alan Asriants yeah some lawyers can be really bad.  I think some clients get like the referral or reviews that the attorney "fights for them."  Too bad they don't understand they need a transactional attorney for a real estate transaction.  I think the worst one I had to do was with an attorney that also practiced divorce law!!!  Luckily, my attorney was somehow able to keep him in check.  :)

[Jay Hinrichs]

Quote from @David M.:

@Jay Hinrichs @Steve K.

I think its like a "sampling error" or misalignment of expectations...  I hear that a lot from investors  in non-attorney states --- the attorneys are useless...  Not saying that attorneys are great, but your attorneys wouldn't be customarily called upon to handle real estate transactions.  So, yeah I'd expect there to be much more friction when they get involved there, especially since its tough to find a "transactional attorney."

Sure, out my way I've had some tough deals because of the attorney.  But, there are plenty of good attorneys out here that help the deal go through, and work with the agent.

But, attorneys and agents do different functions/jobs.  That's pretty clear out here, and I haven't clients get "bounced back and forth."  It gets fuzzy in south Jersey where the agents and lenders are helping to modify the contract, for example.  Our brokers and even the Real Estate Commission won't allow agents to modify the contract (e.g. as mentioned, a repair request pursuant to the inspection clause) since it would be practicing law without a law license.  Lets face it, the regular buyer/seller aren't that sophisticated, so somebody has to 'lead them around by the nose'.  So, even within one state its a strange dynamic / way of doing business.

Then, I find it even "funnier.."  Discussions with agents in non-attorney states show they think they do all the work, while agents here don't do anythign because of the attorney.  When they list out all their functions, its the same as what I/we do, and sometimes less --- I guess I'm used to providing more service :).

Like another example I heard vaguely that some markets agents don't handle rentals, which is why PM's are pushed so much.  In my market, agents absolutely do handle rentals, so I'm not used to Pm's at all.  Maybe that person didn't find the right agent...

I get it when an ordinary buyer comes to a new region and I have explain and convince about the taxation, transaction process, etc.  But, why investors think that "their" way is the only way I don't quite get.

Anyway, just saying that some of the issues/perceptions are market/locality specific.  Just like real property varies from location to location...

David I think one of the issues is the attorneys out your way at least to MY knowledge charge a flat escrow fee for their services and attorneys out our way charge by the hour.. And as we know negotiating deals can take many hours.. so the fee's out here would sky rocket into the multiple thousands then for the East coast guys how much time are they going to spend when they are making a flat fee. ?

[David M.]

@Jay Hinrichs

Sure that's different.  Yup, ours are flat fee.  For you, that sounds like a "billing conflict of interest."  Isn't it in their interest to keep arguing?  Just like what I "hear" about divorce attorneys??

The good transactional attorneys here have negotiated some well.  The one I'm using now is very transactional:  she just wants to know "what to do."  Basically, what's the final answer.  But, I think that's because I'm a more experienced investor.  In many cases, the agents, when you have two good ones, really broker the negotiations since our conversations aren't so formal as attorneys.  Although, I did have one attorney long ago that was great since he would actually make phone calls and help close the deal.

As for time spent...  To me lets face it, they do make their money on volume.  So, if one's market doesn't customarily use attorneys, I guess I could see how they use a billable hour system.

Oh, why do you call it an "escrow fee?"  Do yours get paid either way?  Our attorneys get paid at closing their flat fee --- and only if there is a closing.  So, that's clearly incentivizing...

[Steve K.]

Quote from @David M.:

@Jay Hinrichs @Steve K.

I think its like a "sampling error" or misalignment of expectations...  I hear that a lot from investors  in non-attorney states --- the attorneys are useless...  Not saying that attorneys are great, but your attorneys wouldn't be customarily called upon to handle real estate transactions.  So, yeah I'd expect there to be much more friction when they get involved there, especially since its tough to find a "transactional attorney."

Sure, out my way I've had some tough deals because of the attorney.  But, there are plenty of good attorneys out here that help the deal go through, and work with the agent.

But, attorneys and agents do different functions/jobs.  That's pretty clear out here, and I haven't clients get "bounced back and forth."  It gets fuzzy in south Jersey where the agents and lenders are helping to modify the contract, for example.  Our brokers and even the Real Estate Commission won't allow agents to modify the contract (e.g. as mentioned, a repair request pursuant to the inspection clause) since it would be practicing law without a law license.  Lets face it, the regular buyer/seller aren't that sophisticated, so somebody has to 'lead them around by the nose'.  So, even within one state its a strange dynamic / way of doing business.

Then, I find it even "funnier.."  Discussions with agents in non-attorney states show they think they do all the work, while agents here don't do anythign because of the attorney.  When they list out all their functions, its the same as what I/we do, and sometimes less --- I guess I'm used to providing more service :).

Like another example I heard vaguely that some markets agents don't handle rentals, which is why PM's are pushed so much.  In my market, agents absolutely do handle rentals, so I'm not used to Pm's at all.  Maybe that person didn't find the right agent...

I get it when an ordinary buyer comes to a new region and I have explain and convince about the taxation, transaction process, etc.  But, why investors think that "their" way is the only way I don't quite get.

Anyway, just saying that some of the issues/perceptions are market/locality specific.  Just like real property varies from location to location...

Not many agents do property management here due to their brokers not allowing it (mine doesn’t), unless they work for a PM. Different insurance/ liability and business models. PM’s all have to have their broker’s license however so most of them also do at least some sales. I don’t know any PM’s who do a high volume of sales however it’s typically either focusing on managing or selling not both. Lawyers handled every transaction here and we didn’t have any real estate agents until the 70’s, when the volume of transactions grew to be too much for the number of lawyers to handle, so standard state-approved forms were created and agents just have to check boxes and fill the forms in. Title companies handle the closing, so we rarely involve lawyers on our transactions anymore except to approve additional provisions or when they’re called in for lawsuits of course. For this reason even real estate lawyers use agent representation here in my experience (I’ve helped a few and was surprised how little they knew about negotiating, transactions, the sales process etc. real estate on the “street level” despite being lawyers and seasoned investors). I’m sure others have enough knowledge to go it alone although they’d have more liability that way as lawyers and probably aren’t covered like we are with E&O on their own personal transactions, so maybe not… The vast differences between states and like you said even in different areas within individual states is super interesting and a big part of why I don’t see the role of agents going away personally. That’s also why most of the national news that I read gets things wrong for my area. There is no national real estate market so any sweeping generalizations made are going to be inaccurate for a percentage of the country.  

[David M.]

@Steve K. Yeah, isn't it interesting...  I'll give you some more...

NY buyers can be annoying because NY and NJ run their transaction, or at least the initial offering, "reverse" of each other.  In NJ, an entire contract is drafted and signed.  You need PoF for it to be a legal offer.  The contract isn't legally binding until after 3 days OR if you start attorney review.  But, in NY apparently if you write down anything that can be construed as a contract (which only take a couple lines / elements--- basic contract law), then you immediately have a contract.  So they expect to have the major topic agreed verbally, then go to the attorney to draft the contract.

CA and other "westerly" buyers are constantly recalculating the tax for every property as we tour.  So, annoying that its so hard for them to understand that we don't that Prop xx and whatever wackadoodle extra laws.  At least in NJ its straight ad valorem, with the various tax assessors updating assessments in a periodic hodgepodge way...

Pre 2007, our attorneys did the closings and the brokers held the initial deposits.  So, yeah in those days the attorneys had a lot of "paper prep" to do for their fixed fee.  My attorney back then had a stack of active files that ran the width of the paralegals desk.  But, the two of them were always attentive to my deals, helping with negotiations and other issues.  So, they were definitely hustling.

Now post 2007, apparently the closings have moved to the Title companies and their Closing Departments.  I found that annoying since that costs an extra $1k+ to pay for their Closing dept.  We didn't have those fees before.  It was explained that with the extra regulations and disclosures, it was easier to have the Title company do it...  whatever..

Also, now brokerages don't keep any deposits.  It was an administrative nightmare.  

I agree with your comment about "ignorance of seasoned investors / lawyers." of the transaction.  Not everybody is detailed oriented.  Then, there is that push for getting a team together.  So, some investors I've found are more like a figurehead, basically the source of funds and financing, while everybody else is getting paid to do their job.

So, your broker won't let you take on a rental listing?  Or, you mean all the "other PM functions?"

[Steve K.]

Yeah we can't do anything PM-related like rental listings at my brokerage, I refer them to my PM and get a referral fee. My PM refers me some sales but they also do their own sales so you have to find a PM you can trust not to steal your clients. Mine manages my rentals for me and I have a big portfolio with them so our relationship is important to them.  

It's interesting and helpful to hear how other states operate, especially because we have a lot of buyers moving here from other states: CA #1, NY #2, TX #3 currently and all those states have very different rules. Californians like to go to the listing agent directly but dual agency is illegal here, we simply can't operate that way so we try to refer unrepped buyers to another agent, or they can be a "customer"/unrepresented but that's tricky to navigate and increases our liability a lot, and they usually have no clue what to do so they need their own agent. New Yorkers expect lawyers to be involved but that's not common here, etc. Texas is probably the most similar to us because they don't have dual agency either and are a title state. CA and NC seem to have the most unique rules that I've come across, especially the non-refundable due diligence money in NC. That seems like a good way to weed out the tire-kickers but also seems like it can be taken advantage of by sellers. I don't envy you having such variation of rules within your market, or having lawyers involved on everything.   

[Colleen F.]

@Alan Asriants there is already much an agent can't say to a buyer about a neighborhood.  And agents don't do home inspections so commenting on house repairs etc is already an overextension for some agents. I would even say negotiating because they actually often don't know what amount is involved or how critical. Once you sign agents are typically focused on the deal going through.  

This generation has an app for everything including personal relationships so its not a reach for real estate.  And will the selling agents actually do showings because that is what a lot of buyers will shift to at first? Might see alot more encouragement to move before listing to make showing easier.

@Zander Kempf are you actually going to drop your % as an agent I think agents will try to up their cut because they can't just list a property now they actually have to do at least some showing if they want it to sell. or will they contract it out? 

And will buyers agents get an above the credits % commission like a sellers agent or a below the credits % commission. I think buyers agents will have to do some work on options for contracts. I can see buyers agent contracts where the place where buyers can get screwed, maybe NAR will have some guidance there.

In the end, although intended to disrupt, it isn't going to do much very quickly. And if NAR doesn't have to even increase their dues you have to wonder about their cut in the industry. you have to wait and see how many dues paying agents drop out.

[David M.]

@Steve K.

I think this is another reason why local agents can be beneficial.  Lots of "friction" can be handled if we understand the legal/reg as well as customary "limitations."

Oh, here's another one from talking to my lender...  Lenders want the Title search done right away, as that is they primary concern (ie. out of their control).  however, our attorneys generally order last, unless requested or required.  For us, while Title is paid at closing, they still get paid for their work.  However, since its the attorneys that order Title for their client, the attorney has to eat the cost of Title's work if the deal doesn't close.

Similarly, I try to manage client transactions to minimize exposure to costs.  For example, do the inspection first and quickly, but don't order the appraisal.  If we can't settle on the inspection, no point for the client to pay for the appraisal.  I had a client whose lender convinced her to order everything when we had an accepted offer, but not under contract.  I had told her upfront not do it and why, but she did it anyway.  We did go under contract, but the inspection went poorly.  So, that was some couple grand lost...

[Matthew Failor]

@Zander Kempf You don't think sellers take buyer and seller commission into account when setting a price?

Let's look at it this way, will removing these transition fees lead to higher prices? Absolutely not.

At first we won't see much moving but, the market will adjust and this will help soften prices.

[Brie Schmidt]

We will see what plays out but as an investor agent for 10+ years I have some thoughts

* Agents will be required to sign a brokerage agreement before doing any showings.  My brokerage agreement states my commission is 2.5% and if the seller offers any less the buyer has to cover the difference.  That will not change.

* Some buyers will decide to skip a showing if they know the seller is unwilling to consider a buyers agent commission

* Sellers will be presented offers as "net to seller" which will still include buyers agent commissions.  What do they care if the offer has a $20k buyer's agent commission if it is $25k higher than the next highest offer.  Seller's agents will just need to do a little extra math.

* Sellers who refuse to consider paying the buyer's agent commission will have difficulty selling

* We will see discount agents / brokerages like we have seen for the last few decades and they still will never gain any significant market share

* I am not sure if we will see agents move to a hourly rate of pay, if so I think we won't see that for a few years. That being said I can't imaging seller's will take that risk. If this were to happen today I would tell clients based on a hourly rate I would charge anywhere for $3k to $40k for my services and I can't tell you where in that range it will be till we are in the middle of it. Some deals I close after 20 hours of work and some deals I close after 200 hours of work. I have two sellers right now that would owe me over $30k each at this point if I was paid hourly and we aren't even close to the deal closing. My job as an agent is not to post your house on the MLS and greet people at a open house. My job is to close the deal and that can be extremely labor intensive.

* We will see a lot more unrepresented buyers, and my contract with the seller will include a 1% surcharge for having to deal with those transactions.  

* The herd will thin and we will lose a lot of agents, which will be a good thing