All Forum Posts by: Albert Hepp

Flat Fee MLS Brokers for sellers have been around for a long time, but Flat Fee Broker/Agents for buyers with a cash credit/rebate of the buyer agent commission are quite new and just starting to get some market share. I predict that the substantial home price cost savings and greater control they enable the buyer to have will make them grow in popularity.

Quote from @Carlos Ptriawan:

Considering the current circumstances, what is stopping me if I create brokerage that is offering buyer agent only with flat fee of 5k-10k ? My job is to submit bid and negotiate only.  Buyer go to open house directly.

We have this option in Minnesota now, and it looks like in 10 other states that I am aware of (California, Texas, Florida, Virginia, mostly the big population states). Here is how flat fee buyer agency works:

1. The buyer signs a representation agreement with no locked in period, with the flat fee buyer agency.
2. The buyer representation agreement states that the buyer commission amount offered by the seller (usually 2% to 3%) is credited/refunded to the buyer. Yes, the buyer, not the buyer agent. This is a key difference from traditional buyer agency, where the agent keeps this commission.
3. The flat fee buyer agency fee reduces the amount of the buyer credit/refund, generally by $6,000 (although options range from $999 to $8999, depending on how much help the buyer wants from the agent). Example: $500k home sales price, typical buyer agent commission of 2.5%, meaning buyer agent commission is $12,500. Subtract the flat fee buyer agency fee of $6000, meaning the buyer is credited $6,500 at closing. For more expensive properties, the flat fee means the credit/refund increases exponentially, like $19,000 on a $1 million property.
4. At closing, the buyer and their lender determine whether the credit will reduce down payment, closing costs, or as a credit.
5. The key is that using a flat fee buyer agency enables the buyer to control the buyer agent commission that nearly all listings offer. Buyers who go directly to the listing agent will not see the same savings, if they see any savings at all. Typically, a buyer going directly to the listing agent just doubles the commission that listing agent receives, will little or no savings to the buyer (or seller).
6. The buyer decides where they want professional help, and what steps they want to do themselves.

Have you found anyone offering flat fee buyer brokerage/agency in your area? Thanks.

Quote from @Mary Jo Carruthers:

@Albert Hepp Did you know that there are quite a few non profits and also the city of Austin in the austin texas area that provide down payment assistance for first time home buyers? If first time home buyers are having a difficult time coming up with the funds for even the costs to play as a first time home buyer then are the non profits supposed to pay the buyers agent commission too? 

Given that affordable housing is a national issue it seems that the more pathways to home ownership is a good thing. If the costs for home buying goes up for first time home buyers then the results will probably be that less starter homes will be moving in the market unless non profits and the sort step up. What is happening in this market is that sellers are still paying but its negotiable like it was before.
 

Commissions have never been set. Its set by the market. The market tends to be 3% for buyers agent that is paid for by the seller in my area. In areas such as NYC the market tends to be a little lower, from what I understand. What is your source for 99% of transactions are above 2%?

In Minneapolis, are there programs in place from non profits and the government to aid first time home buyers with costs? A quick google search reveals that Minneapolis provides assistance for first time home buyers so there seems to be a problem with funds for first time home buyers in your locale too. In your ideal world who pays the buyers agent in that first time home buyers niche in Minneapolis? 

Mary Jo, thanks for the response. Here is the source for the commission rate, right from the Sitzler NAR lawsuit judgement (bold text added):
"In addition to training, Plaintiffs have presented expert testimony showing that Section 2-G-1 had the effect of stabilizing commission rates. (Doc. #922-2, pp. 86–95) (noting that upwards of 90% of transactions on the Subject MLS offer buyer agent commissions of exactly 3% during the class period, with the exception of the MARIS MLS consistently offering 2.7%)....Although it is true that a nominal commission of $1 would satisfy Section 2-G-1 and Defendants agree such nominal commission is mandated, Plaintiffs have produced evidence that no transaction within the Subject MLS took place using a nominal commission. (Doc. #963-54, p. 6.) Therefore, Defendants’ argument is rejected." I put the opinion "commissions have always been negotiable" in the same category as Henry Ford's famous statement of "you can have any color Ford you want, as long as it is black."

Regarding your question about who pays the buyer agent in the first time home buyer market, I see no reason that it will change from the seller paying as it has always been. I know many agents have been coached to use a scare tactic that in theory a seller could refuse to pay any buyer commission, but that is an incredibly remote possibility. A seller could also refuse to pay any concessions for buyers closing costs, appraisal required repairs, etc. but it would be to their own detriment. To be clear, I'm not talking about "ideal world" scenarios, this is real world.

Have you considered a flat fee MLS listing as a way to gauge interest and possibly sell? With the new commission rules you can stay flexible with an offer of buyer agent commission, rather than having to commit to a certain percentage going to the buyer agent upfront.

Full disclosure: I am a flat fee Broker.

If you find the right buyer, your total listing/brokerage costs could be approximately $500 (assuming the buyer doesn't have an agent, or the net price after their buyer agent commission meets your goal).

Thanks for the update. Two questions:

1. How does this new law address the distinction between wholesaling and a net listing? I'm assuming that Oregon has a prohibition against licensees taking a net listing-please confirm if that is the case.

2. How do the MLSs in the state treat equitable interests? Can they be listed alongside other traditional MLS listings?

Thank you.

Quote from @Mary Jo Carruthers:

Fees for buyers side has never been set in stone. It has been the case for many years, even before the lawsuit. Its market driven. It will be very interesting to see how this plays out for first time home buyers that don't have money to pay a commission to buyers agents.  

 Thanks for the comment. What the DOJ and consumer advocates are saying, is that buyers and buyer agents should be setting the buyer agent compensation amount, not the seller. The seller setting the amount is illogical, and anti competitive because they set the amount under the threat of a group boycott if they offer too little. 

I respectfully disagree with your assessment of buyer's agent commissions and their implications. Here's why:First, the claim that buyer's side commissions have never been "set in stone" is not entirely accurate. While technically negotiable, the Sitzer/Burnett case revealed that the industry practice effectively standardized these rates. When 99% of transactions have commissions above 2%, it's essentially a fixed rate, not a truly negotiable one.

I respectfully disagree with the concern about "buyers that don't have money to pay a commission to buyer agents." This scenario is highly unlikely and seems to be used as a scare tactic. Here's why this argument is problematic:

1. 1. Misdirected concern: This rare scenario is being overemphasized, likely to maintain the status quo of seller-set commissions.
2. 2. Potential for manipulation: Some agents may be using this argument to discourage sellers from allowing buyers and their agents to negotiate commissions directly.
3. 3. Unethical practices: There are reports of agents coaching buyers to avoid properties where commissions aren't pre-set by sellers. This behavior:
   • Limits buyer choices
   • Excludes sellers willing to negotiate commissions
   • Hinders fair market competition
4. 4. Legal and ethical implications: Agents engaging in such practices may face:
   • Legal consequences
   • Licensing penalties
   • Ethical violations

These actions ultimately harm consumers by restricting options and potentially inflating costs.The new system, allowing buyers and their agents to negotiate commissions directly, promotes transparency and fair competition. This change benefits consumers and aligns with more efficient real estate markets seen in other countries.

Quote from @Alecia Loveless:

@Albert Hepp Northern New Hampshire. I’ve just made an offer on a building and the listing commission was 3% paid by the sellers. The seller declined to offer any compensation for the buyers agent which falls on me as the buyer and the agent that provided me with the listing requires a 3% buyers commission.

So not much has changed. Just that now I’m responsible for 3% that prior to the lawsuit I wouldn’t have been required to pay.

 Thanks. I'm not following you, can you explain in more detail? These two statements are contradictory the way I read your comment:

"the agent that provided me with the listing requires a 3% buyers commission."
"The seller declined to offer any compensation for the buyers agent"

Quote from @Steve K.:

Quote from @Albert Hepp:

I think the fundamental question buyers, sellers, and agents have to answer, is why do US consumers pay three times as much in commissions (5-6%) as other developed countries(1.5-2%)?

Where are getting that consumers pay three times as much in commissions as other developed countries? The average commission in other developed countries is actually very similar to that of the US:

 https://tranio.com/articles/real_estate_agents_commissions_i...

 All over the web. Example: https://www.nytimes.com/2024/03/18/briefing/real-estate-agen...

I haven't worked with wholesalers. Does they offer some of that buyer premium to buyer agents who bring them a buyer?

Quote from @V.G Jason:

Everything I've seen has been since before the ruling; the seller is paying both sides. 

Yes, me too, sellers pay both sides of the commission, but the key is WHO is setting the buyer agent commission amount? The seller, or the buyer?

In the markets I watch, now nearly 60% of listings are EXPECTING to pay a commission, but asking the buyer to SET the buyer agent commission amount, and making that part of the offer discussion. If a buyer agent asks how much commission the seller is offering, the response is: "seller is expecting to pay a commission, buyer and buyer agent should decide on the amount and include it in your offer"

This is a huge improvement for buyers, because the buyer agent commission is more transparent, and easier to negotiate. I understand that agents hate this change, they would rather the buyer agent commission not be discussed, be buried or not disclosed, like before.