Big real estate change coming next week for buyers, sellers and agents

Simone Del Rosario: New rules are coming August 17 that will rock the real estate world.

The conventional way of buying and selling a home is over. And anyone planning to work with a real estate agent at any capacity needs to be aware of the new landscape. Even realtors are still trying to figure it out. 

The change is how real estate agents get paid, and it’s part of a legal settlement between the National Association of Realtors and home sellers. 

If you’re hoping to buy a home with mortgage rates dropping, this is definitely something that will affect your bottom line.

So let’s sort through it with Doug Miller, Real Estate Attorney and Executive Director of Consumer Advocates in American Real Estate.

Okay, Doug, when my husband and I were buying our home, we knew that we had to put down the down payment, pay our closing costs, but what didn’t come out of our pockets were the agent fees I didn’t pay my buyer’s agent that came out of the seller’s pot. Tell me how that’s changing, because that was a big bonus for buyers.

Doug Miller: Well, it appeared to be a bonus, and in actuality, it wasn’t, if, if you were, if you had been allowed to see the seller’s side of the settlement agreement, you would have, said, seen a secret transaction between the seller and your buyer’s broker. It’s always been problematic for anybody to pay someone else’s agent, whether it be their attorney or a realtor or any advocate, it’s just plain wrong. In fact, it’s usually described as commercial bribery when that happens. And so what was going on for a very long time was a very complex pricing scheme. Realtors would charge the seller for the buyer’s agent, and sellers would ask, Well, why in the world should I be paying the buyer’s agent? That’s just the way it’s done. And if you don’t pay the buyer’s agent, you can expect that you will your house will not be shown. And so sellers would say, 6% that seems like a lot. And the realtors would say, Well, I have to share my fee with a buyer’s agent. So sellers were forced into it. Buyer agents loved it, because, like here in Minnesota, the split is typically 2.7% goes to the buyer agent, regardless of their experience expertise. There’s absolutely no negotiation. You hear the standard talking point by realtors that the all buyer broker or all brokerage fees have always been negotiable, and they have all these great talking points that actually are nonsense. The buyer broker fee has never been negotiable between the buyer and the buyer broker. And it’s never really been negotiable between the buyer broker and the listing broker. It’s been artificially high.

Simone Del Rosario: What do buyers have to do now that these changes are coming? What do they need to know when they’re going out to buy a house and picking an agent? 

Doug Miller: Buyers who negotiate with their buyer agent and negotiate a lower fee with their buyer agent, are much more likely to be successful in negotiating a transaction with a seller. And the reason for that is most buyers can’t afford a buyer broker fee or an attorney’s fee, and what they’ll typically do is ask for a credit from the seller. It’s really no different. The money is coming out of the seller’s pocket and going to the buyer broker, perhaps eventually, and so it affects the seller’s net the same way. The difference is, the buyer who negotiates a better fee is going to have an offer that’s much more appealing than a buyer who just lets the buyer broker collect their standard 3% or whatever it might be. So if you have somebody who negotiated on a $500,000 house, for example, let’s say a $5,000 fee with a buyer broker, which I still think is high, versus someone who negotiated a 3% or $15,000 fee, and they both ask for seller credits. One’s asking for 5000 one’s asking for 15,000 it’s pretty easy to you know, guess which offer, assuming all else is the same, which offer the seller is going to accept.

Simone Del Rosario: Okay, so in your mind, the way that this will typically shake out is that sellers will still end up covering the cost by way of, you know, a negotiation between the two sides.

Doug Miller: When the buyer writes an offer, they should include a seller credit if they want their some of their closing fees, or the buyer brokerage fee or an attorney’s fees covered. So it should work out exactly the same, except that the amount of the commissions will be lower, and it has always driven me crazy when I see these talking points that somehow, by lowering commissions, it’s going to cost consumers more. That’s the heart of their argument. And and they’re coming up with some pretty crazy arguments to try and stand by this, this price fixing scheme that they have. 

Simone Del Rosario: Well, depending on where you are in the country, if you’ve bought a home in the last five, six years, there’s a lot of situations where the competition has been so high that people are, you know, waiving contingencies left and right. Wouldn’t this be something else that would be waived? A seller would say, you know, I have this buyer who’s saying they’re gonna pay their own agent, so I’m gonna accept that offer instead.

Doug Miller: And again, it will come down to the situation where the buyer who negotiates the best deal with their buyer agent is going to have a much more competitive offer.

Simone Del Rosario: So the way that it was working before. Obviously, as we’ve alluded to, home sellers were basically tied to this five to 6% commission that they were responsible for. It was on them, sellers feeling unfairly burdened by, like you said, paying the expenses of both agents, agents on both sides of the transaction. So what do sellers have to look forward to now?

Doug Miller: Well, they’re not going to hear the reason why my commission is 6% is because I have to share with a buyer broker that’s gone. They’re not going to hear, Well, my fee, my section or half of this commission, is 3% because, look, we’re paying the buyer broker 3% they were using that 3% to jack up their fee. And so now, if somebody is paying $5,000 on the buyer side, I think you’re going to see a lot of sellers question the value of listing agents as well. So maybe what we will see going forward, it might take a year or two, but my hope is that we’re going to see fees to sell a home drop to maybe what we see in other countries, one or 2% it makes no sense that if you have a $4 million house that you’re paying $240,000 in commissions, and I’ve done transactions in that, in that realm, and I just give the entire feedback to my clients. When that happens, it’s, it’s, it’s outrageous for the services you’re getting, and it causes all kinds of other problems as well. These, these fees, that there’s admin fees, there’s they, they capture these buyers and sellers in a way that they can’t get out. And and the that’s the other. One of the other changes, by the way, is buyers are going to be need to sign buyer broker contracts with the buyers before they start working with them. And buyers need to be very, very, very careful. And so to sellers. For that matter, most of the fee agreements in this country are drafted by a bunch of competitors behind closed doors and show me another industry where that happens. It’s completely wrong. It’s it’s anti competitive by definition.

Simone Del Rosario: Okay, how is this going to affect real estate agents? What is the world of real estate and the people who make money off of this. You know, what’s that going to look like when this change takes effect?

Doug Miller: For realtors, it’s going to be the realtors who are more experienced, the realtors who have a better education and the realtors who really understand what it means to be a fiduciary, an agent of someone else, they’re going to put themselves in your shoes. Agents at big companies can’t do that, and they engage in things like dual agency or designated agency, where the brokerage firm represents the buyer and the seller in the same deal. Those kind of relationships should never exist. And so realtors who are really taking to heart that they now have to compete, not just on service, but on price, I think they’re going to see that consumers are going to be a lot more careful. A buyer who is hiring a buyer’s agent isn’t going to pick someone who’s a dual agent and can’t negotiate on their behalf, because that’s what happens. They can’t. They’re not going to pick a buyer agent who is with a big company and the broker has access to the confidential negotiating information of the buyer and seller. Why would you expose yourself to that kind of risk? Instead, I think buyers, before they spend all this money on a buyer agent, are going to want to know that that agent is truly in their corner. So I think we’re going to see agents moving to smaller firms. I think the agents who really know what they’re doing are going to do well, and agents who are new and don’t know what they’re doing. Well, I’ll tell you what this this is where internships or apprenticeships might come in really handy getting more education in real estate right now, in my state, you don’t even need a kindergarten education to to sell real estate. It’s take a 30 hour class on how to pass the exam. So agents who really differentiate themselves by getting more education, getting more experience and pledging absolute fidelity to their clients are going to be the agents who succeed.

Simone Del Rosario: Doug Miller, real estate attorney and executive director over at care, consumer advocates in American real estate. Thank you so much, Doug. We really appreciate your time.

Doug Miller: Thank you. I really appreciate it.