NAR Lawsuit

[Vēritās]

Sorry, I should have specified that the split could be 100-0 or 0-100. But am I correct that, once the listing agreement is signed, the buyer's agent cannot negotiate the split stated in the form?

It rarely happens, but if the buyer's agent has a problem with the commission split they'll let the seller's agent know before an offer is sent. Occasionally I'll hear my wife on the phone with a listing agent asking why the low commission, and without exception the other agent expresses empathy and explains that the seller didn't want to pay more than 5%, hence the reason for only 2% to us and they kept 3%. But on one occasion I a buyer's agent split her commission with us down the middle when she didn't have to. When she read the commission agreement, she realized she was getting 3% and we were only getting 2%, and she insisted we split it down the middle at 2.5% each. So usually a week before closing the attorney will ask us to provide the "Commission Agreement" signed by both agents. Officially it is known as the Instructions to Closing Attorney (ITCA) form. That form details how the commissions are split so the attorney knows how to print the checks at closing.

Thanks! Seeing the document really helps. I know enough about real estate to know that the seller has always been able to negotiate with the listing agent over the percentage of the commission. I really didn't understand that part of the plaintiffs' argument.

Exactly! That's what's so frustrating about this and finding out it was settled without an appeal pissed all of us off. I mean, NAR has "left us out to dry" according to our broker. For years we've been paying to be members of NAR for reasons such as this and the case seems like it should be a slam dunk for any attorney who knows what he's doing, but instead they blindsided us with a settlement after telling us not to worry because an appeal was happening which would delay any real changes for at least 2 years.

Again, thanks for the document. If use of that form is uniform, I'm not seeing the problem. In practice, is it common to actually put a percentage in the form other than 0%? In your experience, how often does the buyer pay his agent over and above the amount his agent receives from the seller's agent?

Yeah, from what I understand Georgia's procedures are already more in line with what the plaintiffs have been demand Missouri start doing. It just sucks that we all have to pay for their sloppiness.

If you've only had one person ask you how you get paid when acting as a buyer's agent, is it standard practice to just put 0% in the written agreement?

Yep that's all I ever do. I've never been in a situation where a buyer absolutely had to buy a house that didn't offer any commission. But because of the national hype around this settlement, and the media spreading misinformation about what it means for home buyers, I think those situations are going to become more common than we'd like.

I can see how a jury could be persuaded that the customary practice was non-competitive, but, like you said, the buyer should understand that they are in fact paying for everything because they are the only party bringing money to the transaction. I am skeptical about the claims that these changes will have any substantial effect on housing prices.

Yeah, and that was an argument they put forth that seemed to resonate with the court. All of us were just wondering from the sidelines what the hell our attorney was doing in response.

Thanks for taking the time to bring me up to speed. I had a hard time figuring out exactly what was going on from press articles, and even reviewing of the complaints wasn't that helpful.

Thanks for pitching in with your input.

[Physics Guy]

It seems perverse that an agent for the buyer should have an incentive to arrange a higher price. I can't think of an easy way to avoid this, though.

Flat fees for buyers' agents don't seem fair because the value to the client of the buying agent's service probably does scale with the purchase price. A good agent can probably save me more on a big deal than on a small one, and get me more for my money in proportion to how much money it is. And the effort involved in finding a good big deal is probably also proportionately more than the effort in finding a good small deal, because there are probably more variations to consider, and more need to search widely.

Perhaps the long-term solution is to replace all brokers with AIs that work for the flat fee of their electricity cost. That won't be an instant fix; keeping the AIs trained in a changing market will be an industry in itself. It might help a lot to make things fairer and more transparent, though, for almost every real estate deal in the world to be handled by the same few algorithms. Everyone gets the same agent.

[Vēritās]

It seems perverse that an agent for the buyer should have an incentive to arrange a higher price. I can't think of an easy way to avoid this, though.

Flat fees for buyers' agents don't seem fair because the value to the client of the buying agent's service probably does scale with the purchase price. A good agent can probably save me more on a big deal than on a small one, and get me more for my money in proportion to how much money it is. And the effort involved in finding a good big deal is probably also proportionately more than the effort in finding a good small deal, because there are probably more variations to consider, and more need to search widely.

Perhaps the long-term solution is to replace all brokers with AIs that work for the flat fee of their electricity cost. That won't be an instant fix; keeping the AIs trained in a changing market will be an industry in itself. It might help a lot to make things fairer and more transparent, though, for almost every real estate deal in the world to be handled by the same few algorithms. Everyone gets the same agent.

"incentive to arrange a higher price"? Not sure what you mean here.

There are discount brokers out there offering agents who will do the work for 1% or 2%, but like it is with anything else, you're going to get what you pay for. I hate working with such agents because they're never available to talk and they never get their paperwork ready in a timely manner. These are agents desperate for any kind of commission they can get usually because they either suck, or they're just really new to the industry and have little experience. Companies like HomeLight, Clever, Redfin, etc are realizing buyers and sellers for the most part really are willing to pay that little extra to get more value for their services.

Companies have tried skirting the services of real live human beings representing them and guiding them through the process but ultimately the market has made it clear people prefer to use agents. I guess I can understand how some people might see it differently if they've never bought a house before or worked with an agent in any capacity, but the majority of our clients are repeat clients for a reason. People who go rogue and try to do FSBOs (For Sale By Owner) think they're saving money on commission but saving 3% on a sale doesn't mean much if you're selling it for 5% less than you would have with an agent. We get FBSO listings all the time because the seller couldn't sell and realized they really didn't know what the hell they were doing and they kept getting low ball offers. That's because buyers look for FSBOs and view the sellers as easy prey. And the offer lower prices come with the rationale of, "Look, you're not even having to pay 3% to an agent!"

True story.

A couple of years ago my wife saw a lady in our neighborhood looking at one of the homes for sale and stopped to talk with her. She explained that she was in the market and my wife gave her her business card. The next day the lady calls to tell her that she and her husband decided to buy a new construction a few miles away. My wife told her she needed representation, and the lady seemed confused. "But this is new construction" she said. She was at the sales office of a new neighborhood and about to sign the papers for a property for $$460,000. My wife told her "don't sign anything until I get there." She calls me and we both meet with her at the office, and what happened next was just epic. My wife wanted details on what the home included. Did it include a refrigerator, did it include blinds, etc. The sales agent was visibly frustrated with us, but the lady just sat back in awe and watched my wife get the price of the property down to $440,000 and they also got their closing costs paid for using their lender, along with a refrigerator and blinds to cover every window. That's at minimum, a $40,000 swing in the buyer's favor just from 15 minutes of letting her agent negotiate on her behalf. And yes, we got 3% from the builder because we represented this lady.

[Physics Guy]

"incentive to arrange a higher price"? Not sure what you mean here.

If your wife had somehow negotiated a $40K lower closing price instead of only $20K, that would have been $600 less money in her commission than she ended up getting. If instead she had impressed that lady by wangling blinds and a fridge and closing costs for her, but left the same price that the lady was already willing to pay, she would have made $600 more in commission than she actually got. In other words, of the extra $20K that your wife could easily have let that lady pay, a $600 kickback would have gone to your wife.

Obviously your wife instead acted ethically and professionally—I do not doubt that the $20K price reduction was as far as anyone could have gone. In order to act ethically, however, your wife had to deliberately refrain from taking money that the system would have given her. As a client who didn't know your wife well, I would have felt better if I could have known that my agent would have made more money by saving me more money. I'd have been really confident then that my agent had gotten me the best possible deal, because their financial incentives and their professional responsibility to act for my interests would have been aligned instead of opposed.

[Vēritās]

"incentive to arrange a higher price"? Not sure what you mean here.

If your wife had somehow negotiated a $40K lower closing price instead of only $20K, that would have been $600 less money in her commission than she ended up getting. If instead she had impressed that lady by wangling blinds and a fridge and closing costs for her, but left the same price that the lady was already willing to pay, she would have made $600 more in commission than she actually got. In other words, of the extra $20K that your wife could easily have let that lady pay, a $600 kickback would have gone to your wife.

Obviously your wife instead acted ethically and professionally—I do not doubt that the $20K price reduction was as far as anyone could have gone. In order to act ethically, however, your wife had to deliberately refrain from taking money that the system would have given her. As a client who didn't know your wife well, I would have felt better if I could have known that my agent would have made more money by saving me more money. I'd have been really confident then that my agent had gotten me the best possible deal, because their financial incentives and their professional responsibility to act for my interests would have been aligned instead of opposed.

Yeah I see where you're going with this. Honestly, it doesn't faze us thinking that way really because we are bound by a code of ethics that prohibits us from doing something like that. IF someone gets caught doing something shady like that, they get reported to the GREC and they can lose their license. This is why it will be hard on buyers agents if they can't even see what the commission is going to be in the listing, because the code of ethics prevents them from NOT SHOWING a house because of no commission offered, just like it prevents us from STEERING clients to higher paying homes.

[Physics Guy]

Sure, I get that there are other factors to keep agents honest even if their commissions tempt them otherwise. There are lots of professions whose practitioners could harm the public—doctors and police, for example. We trust professional oversight, training, and culture to keep them working for the public good.

It would be weird to discover that police officers’ contrasts all nonetheless included salary deductions for risking their lives in the line of duty, or that doctors all received bonuses for losing patients. We might still trust the training, culture, and oversight to keep cops and doctors doing their best for the public. But we’d also be saying Whoa, those traditional medical and police contracts are outrageous and we have to get rid of the financial incentives to do the opposite of what we want.

[Vēritās]

Sure, I get that there are other factors to keep agents honest even if their commissions tempt them otherwise. There are lots of professions whose practitioners could harm the public—doctors and police, for example. We trust professional oversight, training, and culture to keep them working for the public good.

It would be weird to discover that police officers’ contrasts all nonetheless included salary deductions for risking their lives in the line of duty, or that doctors all received bonuses for losing patients. We might still trust the training, culture, and oversight to keep cops and doctors doing their best for the public. But we’d also be saying Whoa, those traditional medical and police contracts are outrageous and we have to get rid of the financial incentives to do the opposite of what we want.

The irony is all this is that the plaintiffs are whining about 6% being too high of a commission when probably 40% of that $400 million settlement is going to go to their attorneys.

[Doctor CamNC4Me]

Sure, I get that there are other factors to keep agents honest even if their commissions tempt them otherwise. There are lots of professions whose practitioners could harm the public—doctors and police, for example. We trust professional oversight, training, and culture to keep them working for the public good.

It would be weird to discover that police officers’ contrasts all nonetheless included salary deductions for risking their lives in the line of duty, or that doctors all received bonuses for losing patients. We might still trust the training, culture, and oversight to keep cops and doctors doing their best for the public. But we’d also be saying Whoa, those traditional medical and police contracts are outrageous and we have to get rid of the financial incentives to do the opposite of what we want.

The irony is all this is that the plaintiffs are whining about 6% being too high of a commission when probably 40% of that $400 million settlement is going to go to their attorneys.

And the 10% in admin fees; not even joking.