Real Estate: "The death of the 6% commission"

There is big news in the real estate market after a legal settlement on Friday.  The Journal squib reads "Home buyers and sellers are experimenting with new models to compensate agents after the death of the 6% commission in a settlement with Realtors".  In much of the country this will be more like small-to-medium news because homes are cheaper elsewhere.

The state with the least expensive housing market had a median price of $229,000 in September 2023, according to Redfin’s monthly housing data. The priciest was almost 3.5 times as much at $787,000.

The $787,000 was for California, of course, but Redfin notes:  "In February 2024, San Mateo County home prices were down 1.8% compared to last year, selling for a median price of $1.5M."   Zooming into B'game, Redfin says "In February 2024, Burlingame home prices were up 35.0% compared to last year, selling for a median price of $2.2M."

Six percent of $229,000 in East Oshkosh is $13,740.  That's the 10% down payment in B'game where the old six percent commission on a $2.2M transaction is a cool $132 grand.  The Journal notes that in some regions:

Some buyers pay their agents directly through a flat fee or an hourly rate, instead of relying on the seller to set a rate. Some sellers offer a lower commission to a buyer’s agent than the currently typical 2% to 3%.  But these nontraditional approaches often mean buyers have to do more work themselves. And sellers who offer lower commissions could find it tougher to sell if buyers’ agents discourage buyers from bidding on their homes.

Starting in July, most home sellers won’t need to make an upfront offer for how much they will pay a home buyer’s agent. That means if home sellers won’t cover the cost of the buyer’s agent, buyers could have to pay their agents out of pocket. 

It will be very interesting to see how this plays out in B'game where Redfin notes the average sale this year took 14 days.  Anecdotally, I see even beat-up R-1 properties selling quickly for more than $2.2M.  Something that sells in two weeks with little or no contingencies doesn't need a lot of commission push behind it.

Comments

[Joe]

Ethan Varian at the Merc can sense he has more than a few stories ahead on the commission structure change. Here's some predictions he lists:

“Younger, hard-working Realtors will be willing to offer a much lower number because, with home values so high, that’s still a big commission,” said Louis Mirante, a housing policy expert with the pro-business group Bay Area Council. “Younger, hard-working Realtors will be willing to offer a much lower number because, with home values so high, that’s still a big commission,” said Louis Mirante, a housing policy expert with the pro-business group Bay Area Council.

To survive in this new paradigm, agents may need to work harder to justify their rates by honing their expertise or offering new services. On the flip side, more could start offering flat fees, or discounted rates for basic services such as writing up a contract. Meanwhile, a growing crop of startups from the Bay Area and beyond see a prime opportunity to replace them altogether.

While sellers will continue to be able to pay buyers’ agents, many agents are expected to start contracting directly with buyers, potentially giving house hunters more leverage to shop for a better rate.

And when acting as the seller’s agent, DeLeon is trying something new: offering a buyer’s agent a flat fee, starting at $10,000.

In the latter case, if the buyer’s agent wants more, the buyer can pay the difference. Otherwise, DeLeon is prepared to represent the buyer for the listing free of charge. Despite the low margins, DeLeon said he’s seeing more than a dozen offers on some properties.

Matt Parker, a long-time broker, wants to help overwhelmed home seekers by giving them the tools to buy a property without hiring an agent at all.

His new company, Alokee, based in Walnut Creek and Seattle, seeks to automate the home buying process — from making an offer to filling out the paperwork to close a deal — through its online platform. Buyers either pay a $10,000 fee or select services a la carte.
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Using my numbers in the post, half of $132K is $61K which is a far cry from $10K.

[Joe]

Local B'game realtor Raziel Ungar is out with a 15-minute YouTube video on the legal settlement. He goes through:

What The NAR Commission Settlement Really Means For Homebuyers and Seller

I'm going to demystify the 7 misconceptions about this settlement.

https://www.youtube.com/watch?v=XMdHt4ra6-Y

[Phinancier]

So much is changing about the way people buy and sell homes since the National Association of Realtors reached a settlement over commissions earlier this year. That includes open houses.

The door will still be wide open for both looky-loos and serious buyers alike — but upon entering, some real estate agents will ask visitors to fill out a form stating whether they are a buyer with representation or without. The form will also ask visitors to acknowledge that the agent hosting the open house doesn’t represent them.

Forms like these are part of the new rules set to go into effect Aug. 17 that will reform how buyer’s and seller’s agents are compensated.

“Each company will set its own policy on what to do if someone doesn’t want to sign,” said Tricia Thomas, CEO of the Bay East Association of Realtors. “There’s no standard on that.”

It remains to be seen how this new policy — and the others — shake out in the industry.

Thomas promised that real estate agents aren’t gaming the forms to gain new clients — they’re about making it clear who is represented, and who isn’t.

“You can have conversations with the listing agent up to a point,” Thomas said. “There is a line, where some of the questions and advice you’re asking drift into the line of representation, where a listing agent can’t respond to those questions.”

https://www.mercurynews.com/2024/08/17

[Phinancier]

Now, buyers can’t count on sellers to pay their agents’ fees, too. Since the real estate group’s new rules debuted in August, buyers have had to sign agreements with their agents promising to pay a certain commission if the seller doesn’t offer one. Many sellers are sticking with tradition and still offering buyers’ agents a 2.5% commission — but faced with the possibility of paying themselves, homebuyers like the Jains are questioning whether an agent is worth it.

The Jains started to look into alternatives. One Oakland company, TurboHome, promised to use artificial intelligence tools to help them review disclosures on a home and compare nearby property sales. When the time came to make an offer, a TurboHome agent, a real human being, would be there to help with negotiations and closing.

The fee? If the seller offered a commission to a buyer’s agent, TurboHome would take $10,000. Anything beyond that, the Jains would keep. If the seller didn’t offer commission, the Jains would pay the fee out of pocket.

After connecting with TurboHome’s agent, the Jains put in an offer on a five-bedroom, four-bath house in San Ramon listed at $2.75 million. Based on what recent homes had sold for, they bid under asking, at $2.65 million. A traditional agent would have taken $68,750 as a fee, but with TurboHome, the Jains would get a $58,750 credit back — money they could use to up the offer if the sellers countered or put toward a down payment if they won.

mercurynews.com