Good news for PROFESSIONAL real estate agents

Would it be unfair to say that there is a lot of noise right now about real estate agent commissions? While the unease/confusion/worry does seem to be more prevalent in some parts of the country than in others, we are likely entering a new era in real estate. 

Regardless of where we are headed, the fact of the matter is that:

• Commissions have always been negotiable.
• Historically the commissions have been set by the listing agent, who offers a co-op fee to the agent that represents the buyer.
• At Closing, the seller pays the full listing fee to the listing broker, and a portion of that fee is shared with the buyer's broker.

Here are some other facts about how real estate commissions work:

• The buyer has ALWAYS paid for the real estate fees - they are part of the sales price!
• The seller has ALWAYS paid for the entire set of real estate commissions, AND, they did so when THEY BOUGHT THE HOUSE TOO!

The big change is that now a) the fee is becoming transparent to the buyer and,  b) the MLS's are allowing a co-op fee of 0.

This past week I was involved in several discussions with agents who said that they have spoken with sellers who are wondering why they have to offer any fee at all. Good question! Why should they?

If sellers don't want to offer a co-op fee - no problem. However, they need to remember that current market prices have full fees baked into the sales prices. If a seller believes that the buyer will pay the market price that accounts for "the extra 2 to 3%" of buyer commission without the seller actually paying the buyer's agent commission - they are in for a rude awakening. That is delusional thinking. That is greedy thinking, and one thing that never seems to go over well in transactions is when one side feels somebody is being greedy - and this will be very easy to spot. Buyers and their agents simply are unlikely to play the Greedy Sellers' bullshit game.

By the way, Greedy Sellers have always been around, and they will always be around. These are the same people who have always wanted us to go above and beyond for a huge discount. They want us to work 24/7, and be at their beck and call, and then no matter how great a job we do they are upset, abusive (typically), and unappreciative (almost always). In this new era, they will be the ones that demand we write in "zero percent" for an offered co-op fee. The good news is that these folks are not a huge part of the seller population - I would guess 10% or less. I recommend not working with those people.

Back to what may lie ahead.

Besides what fee, if any, will be offered for buyers agents, an additional concern that agents have is whether there will be any need for buyers to have representation. I think the answer to this is quite simple. When you, or someone you know, has a real legal problem, one that has some significance, are you going to represent yourself or pay for representation? I don't think there will be much difference in real estate. We all know how complicated transactions have become, and a good agent is worth their fee.

Back to the fee. In the past buyers weren't explicitly aware of the fee that they were paying us through the purchase price. Now they are. While there will likely be several buyers who may balk at the price of representation (particularly in higher-priced markets), my guess is that if you deliver value, protection, and safety - buyers will be willing to continue paying our fee.

In my mind, here is the biggest challenge facing us: agent ineptitude. My guess is that 80% of the agent population - maybe more - is unequipped to handle what's coming ahead. How will lousy agents respond when a non-greedy seller innocently asks, "Why should I offer a co-op fee when it is not required?"

Many agents will simply misinterpret that question and essentially answer with: "You don't have to, so as long as you pay me my (reduced) fee." Essentially they will be saying "I don't care what you offer/don't offer the other side." This is it right here - novice, inarticulate, and lousy agents will simply try and protect a little bit of short-term income at the expense of their long-term sustainability and financial success. When a listing agent can't defend their fee, nor the fee that gets paid to the buyer's agent, THEY DON'T DESERVE TO EVER GET PAID A BUYER'S FEE AGAIN!

Seriously, if you can't articulate to a seller that the buyer's agent does not work for free, and that mechanically the system works to pay that fee through the proceeds at Closing, then you do NOT deserve to get paid again as a buyer's agent. And you WON'T! 

"Wow Steven, that seems harsh!" Look, life is not always rainbows and unicorns. We have had an amazing run over the last decade. Prices have doubled or tripled in some markets. Think about how many knuckleheads have jumped into the business to skim a few deals at these higher prices.

Personally, looking ahead I am most "worried" about what happens over the next 18-36 months as this all gets fleshed out. There will be many lousy, terrible, amateur agents screwing up this business, at the expense of seasoned, professional agents who are worth every penny that they charge. The sooner we can raise the standards and skills of the profession, and get rid of the dead weight, the better off EVERYONE will be, especially the clients!

In the near term, lousy agents will work for less and less. We know that is unsustainable. How long will it be for these folks to wash out? I don't know, but the odds of them washing out will be high. Maybe the barrier to entry will rise in the future...?  Who knows, however, I believe the future is bright for the professional real estate agent.  The more you increase your professionalism, the more you secure your future.