Going the Way of the Realtor

Apr 24, 2024 | Finconomics 101, No Bull Economics

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While real estate seller & buyer agents typically split a commission of around 5% to 6% that is paid by the seller, new National Association of Realtors (NAR) rule changes are likely to drive commissions lower, significantly impacting the livelihood of close to 2MM active realtors while benefitting a low-cost Internet real estate model. Once again, we may find that eliminating the human touch in retail may be penny-wise but pound-foolish!     

Realtor Jobs are Important to the Economy

Real Estate Employees Chart

MLS Changes Prompted by Lawsuits Threaten Buyside Realtor Jobs

  • Multiple lawsuits against The National Association of Realtors (NAR) launched by home sellers and several major real estate brokerages argued that the trade group’s rules governing homes listed for sale on its affiliated Multiple Listing Services (MLS) inflated agent commissions & incentivized agents representing buyers to avoid showing their clients listings where the seller’s broker was offering a lower commission to the buyer’s agent.
  • The NAR’s far-reaching settlement included the following concessions: the NAR agreed to no longer require a broker advertising a home for sale on the MLS to offer any upfront compensation to a buyer’s agent; agents or others working with a homebuyer are now required to enter into a written agreement designed to ensure that homebuyers are fully aware of all itemized service charges; and a $418MM settlement to compensate home sellers.
  • This rule change leaves it open for home sellers to negotiate buyer agent commissions outside of the MLS platform as long as any such compensation arrangement is disclosed.
  • Notably, these rule changes encourage budget-minded buyers to bypass buyer agents altogether by shopping online & arranging showings directly with the seller agent. In this case, the seller agent would represent both the seller & buyer and, resultantly, there would be no buyer’s commission to pay (helping lower the overall home purchase price).
  • While it seems right that buyers should have the freedom to do as they please, it seems to us that the dehumanizing of retail can add material soft costs that are not readily apparent. For instance, sit-down restaurants have learned that adding a positive human server vibe to their dining experience is worth the labor investment. Also, merchandisers are learning the full cost of self-checkout which not only includes a material increase in retail theft, but also a diminished brand experience.
  • Not all buyer agents are worth their cost, but many are, and those who are good at their job can pay for themselves many times over by saving buyers from catastrophic mistakes and/or leading them to great investment returns.
  • In conclusion, providing consumers with greater choice while improving the transparency of services & commissions are a good thing. However, modern society needs to become more mindful that skilled humans will always outperform software & add value in important ways that are not always easy to measure.

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