Another consumer trade association is coming to our industry again. As if a $1 billion settlement, changes in national practice and buyer agency laws (in some states), and a flurry of changes to existing contract forms weren’t enough, the Consumer Policy Center (CPC) believes buyer agents are charging too much.
Participate in the INMAN INTEL survey
Sitzer’s results | Barnett led to forced practice changes across the country.
NAR agreed not to create rules that would allow listing agents to set compensation for buyer brokers. The multiple listing service no longer shows compensation offers. MLS participants must work with buyers to execute a written buyer representation agreement prior to home tours.
While the lawyers put the money in the bank, it’s unclear how much sellers who choose to participate in the class are receiving. According to various reports, the amount ranges from $20 to several hundred dollars, but based on the information out there, it’s safe to say that it’s not life-changing money.
Chinese Communist Party survey results
Although our new rules do not guarantee the amount of remuneration for buyer agents, the CPC report found that 95% of agents surveyed were offering commission rates of 2.5% to 3% of the sale price, with the majority offering commission rates of 3%, although there is no enforcement mechanism to collect commissions agreed in the contract if work is performed on behalf of the buyer and the seller and/or buyer do not agree to pay all or part of it.
“Some agents said they were charging ‘standard’ or ‘regular’ rates in their area, which is evidence of price manipulation,” wrote Stephen Brobeck and Wendy Gilch.
While there is no “standard” or “regular” rate, agents can negotiate rates based on a variety of factors, including the nature of the buyer’s search, expected turnaround time, and skills and expertise. There are many unknowns when determining a buyer agent’s commission. Investigations can take three months or three years, multiple offers may be written and not finalized, and multiple deals may occur for various reasons beyond the buyer agent’s control.
Agents walk a fine line between predicting the future of well-paid jobs. It’s virtually impossible.
Did the CPC think that agents are asking for 2.5 percent to 3 percent based on what the seller is willing to pay, depending on the price range and what is reasonable for the buyer to pay in each transaction market? Some agents may ask for more or less depending on the situation, price range, repeat customers, etc.
We don’t believe the 281 buyer agents surveyed for this study accurately portray how much agents charge. This was honestly a trap as the agent was being mystery shopped over the phone and trying to get me to give a percentage. Some people took the bait, some didn’t, and a smart agent would know that the question was not from a genuine buyer and was probably motivated by ulterior motives.
While an initial phone conversation can be helpful, nothing, whether conducted virtually or in person, can match an in-person meeting for in-depth buyer consultation, sharing critical information to empower, educate, and inform, while also gaining buyer trust and understanding the true landscape of our industry.
Chinese Communist Party Recommendation
As a result of the CPC’s findings, the CPC recommends that:
Compensation will be charged separately. Buyers pay agents and sellers pay listing agents. Buyers should be able to finance the cost of agent fees with a mortgage.
These proposals are not new and were the subject of much discussion in Sitzer | Barnett’s practice changes were being implemented. They are simplistic and unrealistic at best.
Lenders don’t want to add buy-side compensation to the loan amount because of this. Because the sales price has to go up, the buyer ends up paying more, which could result in a higher loan amount. Good luck getting on the wrestling mat with the mortgage industry for that matter. There is no movement on the part of lenders to offer this as an option.
When it comes to agent fees and the complete separation that buyers have to pay their agents, many buyers will be locked out of the market completely or forced to drop their agents.
Listing agents are not responsible for representing buyers and sellers in transactions and do not consider compensation for their interactions with either party. It is unfair and unrealistic to expect an agent to agree to a reduced commission if you take on a job that has too many unknowns.
Real estate transactions rarely proceed in a straight line or according to plan. There are too many unknowns beyond the agent’s control.
“If there is a backlash, many buyer agents will lower their fees” regarding sellers, the researchers said.
“When meeting with a potential listing agent, sellers may find it helpful to ask whether the agent is willing to negotiate compensation with the buyer’s agent, without disclosing a specific amount,” they write.
It is worth emphasizing here that CPC and CFA are consumer advocacy organizations, but overall they advocate reducing agency income, which shows a misunderstanding of agency operations.
It’s easy to sit in your ivory tower and criticize, but spend a day, a month, or a year in your shoes. The amount agents actually earn in commissions is often much less than their billable hours in another profession.
The hypothetical buyers (cash, move within 2 months, etc.) that agents ask for in CPC mystery shopping are rare and not common. As any smart agent knows, what a prospect says and what actually happens are two different things.
Many people say they’ll buy cash or move in X amount of time, but end up taking out a loan or setting a longer timeline for a variety of reasons. This is a story about people and real-life situations, which often change and can be delayed.
A buyer I dealt with earlier this year said he would pay cash, but his offer was not contingent on financing or appraisal, when in fact he was trying to raise money for tax benefits. However, in order to close on time, financing was necessary.
For this particular buyer, I wrote 5 offers and went through escrow 4 times before the property closed. The time we spent with these buyers over the course of six months was meaningful and intense.
Scenarios like this happen every day, so the idea that agents have to agree to lower advances is unjustified.
Agents are worth every penny they can negotiate.
Let’s reiterate a few things about CPC.
We don’t get paid. Whatever a transaction pays us, we are only paid for that transaction. As a reminder to CPCs, of the total fees paid by the buy-side, the agent must split the fee with the broker according to the split, minus franchise/marketing fees, possibly transaction and escrow facilitation fees, referral fees (up to 50% plus of total fees, if applicable), and then pay taxes, contribute to Social Security and retirement, process invoices, and secure any remaining money. If I have any spare time in my business, I will reinvest it. Agents are spending an uncertain amount of time, energy, and their own money on a particular deal, and there are no refunds. How much does it cost to drive 100 miles on gas? It’s your responsibility. If a stone hits your windshield while you’re driving on the highway, and the windshield cracks while you’re driving from site A to B, that’s unfortunate, very sad. The agent complied with the settlement and followed the rules. There is nothing in the proposed settlement that limits the amount that can be sought. There is no conspiracy whatsoever as to the compensation required by the buyer’s agent in the buyer’s contract, and there are many factors involved in determining that fee. Agents are often underpaid considering the time and effort they put in compared to the amount they receive.
A fair living requires a fair wage in any profession, and real estate is no exception. The difference is that agents are paid after the fact, rather than upfront or during the transaction. We can have this kind of compensation system, but our industry doesn’t have it easy.
Would you choose a lawyer, doctor, surgeon, dentist, or accountant based solely on price? You don’t know what you don’t know. They are costly mistakes that can end up costing you more, including your health, life, and financial security.
You don’t hear consumers screaming about agent compensation. Based on my experience, the buyers I have worked with post-closing have a deep appreciation and respect for everyone involved.
They are looking for advisors with the knowledge, skills, resources, connections, and most importantly, great intuition to guide them through what can be a very stressful process. You can’t put a price on it, and no one but the agent himself should try to dictate its value.
Cara Ameer is a licensed Coastal Agent with Coldwell Banker in California and Florida. You can follow her on Facebook or X (previously known as ). Twitter.
