Real estate agents are facing a contracting issue that could seriously upend the traditional housing landscape. The Sitzer/Burnett trial out of Kansas City found the National Association of Realtors (NAR) guilty of conspiring to inflate agent commissions — sparking a debate over agent commission fees and the longstanding role of buyer agents in real estate transactions.
Under current guidelines, sellers pay a 5-6% commission on a sale which is split between the buyer and listing agents. A plausible, and hopeful, outcome of the commission lawsuit would be an agreed upon contract change which provides more transparent definitions of agent compensation and gives sellers the opportunity to set their buyer agent’s commission rate. Sellers would continue to see the value in buyer agents — bringing more potential agents to the table and making properties more competitive — while also compensating buyer agents accordingly.
But what happens if consumers pivot away from buyer agents altogether? Enter the savvy seller. Savvy sellers are consumers who will choose to have a seller agent complete a basic MLS listing, then take the process into their own hands by fielding orders directly from buyers rather than give 3% to have offers brought to them. If this is to happen, buyer agents and mortgage companies will be forced to adapt.
The true value of a buyer agent lies in their negotiating skills and existing relationships with listing agents. In order to survive, buyer agents will need to show this value to buyers and be willing to have clients pay a set fee or a pre-negotiated percentage of the sale price to secure the business.
Imagine a first-time, low income or underserved buyer that is purchasing a $250,000 home. An originator can usually get a buyer into that home for less than $20,000 through a mixture of seller concessions and strategic financing. Adding a 3% up-front buyer agent commission, or $7,500, to the ticket price will not be feasible for many; however, a flat price of $2,500-$5,000 may be much more palatable for those who can afford it.
What concerns me here is the potential for infighting in the industry over price competition. Every buyer agent will be trying to get a foothold in the post-Sitzer/Burnett landscape and will be willing to represent buyers for less to secure their business. No matter what it looks like, buyer agents will be working for less and this is where trailing risk for loan officers comes in.
Most successful loan officers get their business from buyer agent referrals. If buyer agents suddenly become less prevalent, loan officers will be forced to forge new relationships with listing agents, which historically has not been easy. But loan officers now have a new value add for listing agents.
Smart loan officers will offer to work directly with listing agents to vet offers and provide pre-approvals. If a home has 25 offers on it, only one of those offers will actually buy the house. The other 24 pre-approval and offer requests represent a major opportunity for future business for loan officers to compete for loans.
I want to be clear: in no way do I hope any of this happens. I’ve advocated for loan officers and real estate agents my entire career. But it’s important for us as an industry to analyze the various potential outcomes of a major moment such as this.
There is a lot of value in real estate agents, both buyer agents and listing agents. There is a lot of value in loan officers, and I’m hoping for business as usual. But either way, I trust loan officers and real estate agents who have proven their ability to adapt.
When the MLS and Zillow came out, there were fears about the future of the real estate agent. They’re still here and not going anywhere. My only focus now is figuring out how originators and agents can help more people get into the homes of their dreams.
Matthew VanFossen is the CEO of Absolute Home Mortgage and the vice president of Community Home Lenders of America.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Matthew VanFossen at [email protected]
To contact the editor responsible for this story:
Deborah Kearns at [email protected]