All Forum Posts by: 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%)?

Please let me correct your first statement: Sellers "PAY" the buyer agent commission because that is most practical. They should not SET the commission amount, because as the DOJ says, they do so under the threat of a group boycott if they don't offer the "standard" (which I know is a word you are not supposed to say).

The reason Realtors and the NAR are fighting so hard to keep seller set commissions, is that buyers do not believe they get $12,000 worth of service when they buy the average $400k home. You can list off all the fees you want, but buyers don't believe the value and price of the service are in line with each other and would not pay it in a free market. Again, why do US consumers pay three times as much as the rest of the world?

As a result, Realtors and the NAR are doing whatever they can to keep the cooperative commission system that doesn't ask the buyer to discuss and agree that their agent is worth 2.5% of the sales price. Yes, agents would say buyers agree to 2.5% when the sign the buyer contract, but most only do so because they are repeatedly told that they "aren't really paying the commission, the seller is." In addition, since the rule changes, it seems like many agents are delaying the whole conversation until the very last minute when the buyer has little or no opportunity to object, research, or think about what they are agreeing to, without risking losing the home they just decided to offer on.

Thank you for sharing what's happening in your market. I respectfully disagree that this lawsuit is pointless. Let's think about how real estate agents get paid:

The buyer and their agent should decide how much the buyer's agent is paid, not the seller. Before the Sitzler lawsuit rule changes in August, the seller always sets this amount. (Some say the seller isn't really paying because they use the buyer's money and include it in the home's price, but that's a separate issue.)

This lawsuit is a small first step towards letting buyers and their agents decide on a fair payment.Consider this: Why should a buyer's agent get paid the same amount whether they:

1. 1.Work with buyers for months and show 20 houses, or
2. 2. Just show up at an open house and help write up an offer right there?

The U.S. Department of Justice (DOJ) agrees that sellers shouldn't set the buyer's agent's pay. They say sellers "choose" a buyer agent amount under the threat of that agents might refuse to show a house if they (agents, not consumers) think the pay isn't enough. The DOJ wants to stop listing brokerages from offering/setting the buyer's agents commission, but that might not happen.

I understand why agents don't like this view. Many aren't used to explaining why their services are worth $12,000 (the typical pay for selling an average-priced U.S. home).

I've seen huge growth in listings not offering a commission, but expecting a commission, and instructing the buyer agent to include the buyer agent commission with the offer.

This is the first step towards buyers evaluating what an appropriate amount for their buyer agent to earn, which is a very good thing for buyers.

Since the NAR Sitzer-Burnett lawsuit settlement, I expect that innovative brokerages will start offering flat fee buyer services. From watching Reddit and my area, it appears to be the case. Flat Fee Buyer Agency is ideal for real estate investors, because an investor can lower their costs when buying an MLS listed property by as much as 2% of the sales price. What are you seeing in your market? Please mention city and state in your response. Thank you.

Flat Fee buyer agency to reduce acquisition costs (get ~2% of the sales price back), and flat fee MLS listing to reduce selling costs to ~$500. Flat fee buyer agency is new but growing quickly since the August 2024 agent compensation rule changes/lawsuit settlement.

Interesting. Only for commercial properties, or also for residential?

Let's go over some examples and show me where you think the buyer is harmed:

My opinion/perspective: The buyer has really been paying for the buyer agent commission all along. Because Sellers care about their net proceeds, the amount they are going to walk away with after all the transaction costs have been paid. Proof of what the seller cares about exists in every transaction where the seller provides a concession to assist their buyers with their closing costs.

Example 1, the Old way:

Buyer offers $100k, seller pays 6%, seller nets $94k. Buyer starting mortgage balance is $90k (assuming 10% down)

Example 2, the New rules way:

Buyer offers $97k, pays their agent $3k, seller pays their agent 3%, seller nets $94k. Buyer starting mortgage balance is $90k (assuming 10% down) because mortgage rules changed to enable commission to be added to mortgage balance. If a mortgage program doesn't change their rules, the difference is negligible, starting mortgage balance would be $87.3. Buyer's agent could/should also negotiate a seller credit that makes the offer $100k, with $3k credit for buyer agent compensation, again resulting in a seller net of $94k.

But now buyer has the opportunity to agree with their agent that the rate should be 2%, or a flat fee of $2k, and the buyer then pockets that savings. Before the buyer really never had a chance to determine their agent's compensation.

Example: An agent I know and like, who I have worked with before and I have found a home that I like and want that agent to show me. I tell my agent I'm willing to sign a representation agreement for $5000 if I buy that home, and the agent helps me with the purchase agreement and through closing. The agreement should last 4-5 days.

If I don't like that home, and I think I want to engage a buyer agent for more in depth services over a longer period of time, then I will entertain other buyer representation agreements, but I will not agree to over 2%, which is the maximum recommended by the Consumer Federation of America.

To be fair, if my needs required my buyer agent to show me 30+ homes, or preview them since I am out of town, or something else that took an extraordinary amount of the agent's time, I would consider more than 2%. But not for a typical purchase.

Also, remember that the buyer agent cost should be paid by a seller credit, so it isn't additional money that you need to bring to closing. The buyer agent side of the commission has always been a part of agent involved transactions, so when those costs are reduced, both the buyer and seller benefit (buyer pays less, seller has a higher net/bottom line). This seller credit for buyer side commission isn't unusual as it is exactly like seller contributions to buyer closing costs that have been done for years.

Remember, you as a buyer can insist on a non-exclusive buyer representation or very short representation time period.