The decades old real estate commission structure was virtually unfazed by Big Tech and years of trying to break the traditional real estate commission compensation structure. And in steps the federal government to do what Big Tech has done to most others and couldn’t do to real estate commissions. Allegedly Bill Gates once promised to do away with the traditional commission structure. If Gates did promise that he and other attempts over the years have been woefully unsuccessful.
Here is the press release from the Federal Government https://www.justice.gov/opa/pr/justice-department-withdraws-settlement-national-association-realtors
Real Estate commissions are typically determined by the seller. The listing agent often explains to the seller different options and choices for compensation. Most sellers opt out of flat fees or other choices and choose to pay the real estate commission to the listing agent through the sale of the house at closing as a percentage of the sales price. As is tradition the listing agent agrees to co-op with the buyer agent and split the overall commission.
Most buyers if disclosed properly about compensation will in turn agree to compensate their buyer agent through the co-op method versus flat fee or other upfront options. And rightly so, the buyer doesn’t want to pay hard cash for the services of a buyer agent up front and much prefer to have the compensation handled through the co-op method at closing minimizing out of pocket outlay.
To to do away with the co-op creates a chaotic expensive method of front end loading at the point of service the buyer agent fees. On rare occasions you might find a high end savvy buyer who pays upfront for buyer agent services and negotiating for the designated buyer agent fee off the price of the home.
Who pays the real estate commission? It may say on the closing documents that the seller pays the commission but that is only by virtue of the buyer paying the agreed sales price. Sellers often gross up the price of a home to cover other expenses, repairs, improvements or fees. Show me a seller that wouldn’t remove the buyer agent commission, reduce the price by the same thus netting the same amount. So who pays the commission? THE BUYER ALWAYS PAY THE COMMISSION regardless of what is shown on paper. And yet the seller is largely responsible for setting these commissions paid for by the deal.
The first notion that often comes to mind is why use a real estate agent in the first place. Do you really need someone with the experience to bring all the parties together and make a closing happen in a quick, efficient and legal manner? The services of the real estate companies and agents are a valued service. Coordination of buyer appointments, data and image input, property access, contracts, inspections, insurances, licensing etc… a daunting task for a first time novice seller to take on.
Most data indicates that over 95% of homes sold have a real estate agent on at least one side of the transaction. So if you are a for sale by owner and even unwilling to pay a real estate commission would you agree to increase the price of the home to cover a real estate agent fee? If you net the same amount why wouldn’t you?
Supposedly the rub with the withdrawal of the settlement agreement with the federal government and the National Association of Realtors deals with the commissions and lack of competition created by the existing structure limiting the consumers options on choices in the mix.
Apparently the federal government felt limited by the agreement and wanted to take another bite at this apple. It will be interesting to see the outcome of this pursuit.
I’d suggest reviewing a case from the 11th Circuit court of appeals Thompson versus Dekalb County Board of Realtors, Georgia. In the 1991 lawsuit Fletcher Thompson successfully argued that access to the multiple listing services should NOT require membership in the board of realtors. To this day you’ll hear non board of realtor licensed real estate brokers refer to themselves as “Thompson Brokers”. Since the 1950’s few were as successful as Thompson against the National Association of Realtors.
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