I am not an agent, but work with many really good agents that are primarily listing agents. Although probably half their income is from the buy side.
I've been an independent contractor for decades and what I'm describing below is essentially how every statement of work I've ever written and negotiated with a client has worked.
That said, here is what I am willing to pay a buyer's consult for during the home purchase process.
A) To help me develop a prioritized list of Must have, Should have, Nice to have features for house, location, schools, price range etc.
B) work with me to sort through the plethora of options available via IDX on the Internet portals prioritized based on the "buyer requirements list developed in A"
C) Advice me on which attorney, lender, inspector has qualifications and fees that suit my budget.
D) Acts as a "voice of caution" when visiting a property to ensure I look at the property objectively based on the requirements list without being blinded by "that's a really nice kitchen" enthusiasm.
E) Offer me pricing and negotiation suggestions for making an offer and finalizing the transaction.
For those consultive services I'm happy to pay a reasonable fee. Including hourly consideration for things that are time based such as property visits.
I'm not sure how I could be talked into making seller reimbursement a condition for closing. The consultant worked for my benefit not theirs.
If I were writing a buyer's consultant agreement certain of the items would be fixed price while others would be time based. I accept that these are fees that I am responsible to pay. Beginning with a down payment and then progress payments as required. Final payment at closing.
A buyer's consultant (agent) isn't a sales person. Their role is to provide me information and insights based on their knowledge and experience. Sales people work for a commission, consultants work for a fee based on their experience, knowledge and insights.
Real estate is probably one industry with the most government intervention. Starting with GSE's Fannie and Freddie that provide mortage loans which are backed by the full faith and credit of the United States government. Flood insurance through the National Flood Insurance Program. The Mortgage Interest Deduction. The voluminous amount of tax credits the federal government offers. I could go on. It is rich for anyone in real estate to say it is a free market.
My very, very unpopular opinion is that buyer agents will end up being paid salaries by brokerages. Retainers won't work and here's why - who would buyers pay them to? The agent? The broker? What happens when I've spent a year showing property to a buyer and they don't buy anything? Will they expect their retainer back? When have I "earned" my retainer? When I have secured a Buyer Rep Agreement? At the offer stage? Dual agency isn't possible either unless every state decides to adopt it - Texas only has Intermediary, as an example. Like you said, today most listing agents charge their sellers more than their 3% listing fee, or whatever it is, to act as an intermediary between buyer and seller because it's more work. Because of the future of AI and automation, I honestly think the buy side will become much easier. Maybe we need hourly showing agents, agents to write offers/negotiate, and TC's to get deals to the closing table. Those could all be individual tasks, and on some teams they are now anyway. I feel like this industry has purposely kept things more complex, not transparent, and more expensive for the consumer to protect our own interests. There are probably more efficient ways of helping people buy and sell homes and we should figure out ways to do that.
I will say that you have "earned" your retainer upon work performed. That's how lawyers work. :) So it'll be "2 hours touring homes with you" = $200 of the $5,000 retainer earned. Etc.
Bingo, Rob. The buyer will be paying for their own representation. As you point out, Realtors are having a hard time mentally escaping the way the current system works, which results in lottery like winnings when a sale is completed ($25k for maybe 25 hours of work for a serious buyer). This justifies the extraordinary time spent prospecting, including endlessly helping buyers to look at houses after house without an offer being made or accepted.
Once the Realtors are paid for their time, the market will decide what that time is worth. Some will go in without an buyer's agent. I suspect buyer's agents will be most popular at the low end for unsophisticated, first time buyers at a modest hourly rate, and at the high end for truly unique properties at a rate per hour in excess of most attorneys.
Otherwise, the 2.5% or so currently spent on buyer's agents on moderately priced homes by purchasers who have already bought a home before will largely be a thing of the past. The consumer clearly wants this option, so let's give it to them.
Many of the buyers I work with, even though they’ve bought homes before there are so many years in between that the process has changed within that time and they know nothing and they’re very apologetic about it, they feel like they should know, but they don’t have a clue of what the process is or what they have to consider or deal with and all of them are busy people. They don’t want to be doing this They’d much rather have it handled by a pro because they know real estate mistakes are some of the most expensive mistakes you’ll ever make other than divorce .All homes aren’t cookie cutter subdivision properties.
I just had a client buy a residential parcel .8 of an acre for $515,000 from his friend for sale by owner so he could get around the 12,000 fee to me. He just wanted to sell it and as I started digging into it, I realize he never got a vacant land disclosure. He never had test holes dug and now we find 6 feet of fill with 6 feet feet of clay soil under it. The fill has to be removed, the clay soil will expand and contract so now they need helical piers for the foundation which will add $200,000 to the cost of build the and he’s going to lose $200,000 on that parcel. But Hey he saved $12,000 on my fee.
That's a great point. I think there is value to agents in such transactions that are unusual. The real question is the value in the usual transaction: A single family home with unremarkable features.
More importantly, the buyer can decide the quantity of service they want, rather than being bundled into a "full service" agency. The days of sellers steering buyer's agents with a blanket offer of compensation, no matter the buyer's agent's competence, appears to be coming to an end.
I agree, and on those type of homes there can be unbundling, but the property I was speaking of where the buyer created a massive $200,000 blunder was not a complicated property. It was a piece of dirt in a subdivision waiting for a house.
As a real estate lawyer, I can assure you that no type of property creates more billable hours than raw land. I had a case that took 9 banker's boxes and lasted 9 years with 25 different cases. It was a parcel of raw land. It may seem odd, but valuation fights alone related to raw land create such a different of opinion.
Your very, very unpopular opinion sounds likely. BA gets paid a salary that comes out of seller agents fees in the same way the brokerage gets a cut of the SA's fee.
Another complication in the "seller-offers-a-credit pays a buyer's agent" is that in today's high rate environment, we are seeing a lot more financed transactions with max credits from the seller (3-6% of purchase price based on lender requirements). I wonder if this would not be considered in those max credits or if the requirements would change.
In scenario 2, the retainer + net out scenario, why would the buyer craft a weaker offer that results in $7.5k being diverted to their agent instead of their own pocket book? What are the carrots and / or sticks to enforce this? (Buyer's agency agreements?)
And say you are ale to induce the buyer to include the request in the offer, but seller comes back and says "how about $0 to your agent, because they're your agent and paying them is your problem", why wouldn't the buyer just say "ok sure, sorry agent, better luck next time."? (If I were a savy buyer with few scruples, I know how I would privately tell the seller to respond to my request.)
If the answer is "buyer's will do this out of the goodness of their own heart", then sure they might throw their agent a bone, but expect that to be something closer to a $50 Starbucks gift card than $7500 cash.
The only reason any of these delayed compensation schemes work for selling agents or personal injury attorneys is that the client has a (potential) large pot of money coming to them, and the agent can write a pretty iron clad agreement that they will get $X of that pot if and when it comes in. Same reason why the existing system works, because the legal responsibility for payment is placed on the seller receiving the pot of money.
Flip this around though, and all you have from the buyer is "I will kind of sort of maybe try to get the seller to pay my agent, but either way I'm sure as hell not coughing up an additional $5k at closing."
Instead, I predict the default buyer's agent agreement will be "In God we trust, everyone else pays cash (up front)". Maybe the top sliver of the market who have demonstrated assets to afford large, 5-figure cash expenses will be able to convince an agent to take a chance on them. But I predict we'll see 90% or more of buyers go unrepresented. (IMHO This works fine for literally every other purchase people make, up to and including six figure car purchases, as well as for most real estate purchases in other countries. I don't see this as the catastrophe people make it out to be.)
I think Rob if the Sizter injunction prohibits SELLERS from making an offer of a credit which can be applied to loan fees, buyer owed compensation via a buyer's agency agreement to buyers that would be grossly unconstitutional. This is an idea discussed by Ed Zorn. The BBC field might morph into a general textbox of seller incentives to the buyer
I think the whole "it's unconstitutional!" line of argument is going to have to explain RESPA to me.
But suffice to say that if the BBC field morphs into a general "seller incentives" box, and *agents keep on steering*, the FTC will step in and completely regulate agent behavior. Like the CFPB does mortgage loan officer behavior, including setting compensation.
Key phrase is agent behavior, not seller behavior. Its unconstitutional for our overlords to tell me what terms I should offer to sell my house. Centralized planning never works
The reason why I bring it up is you mentioned "MLS will no longer have any compensation information in it and the rules will actually prohibit offering compensation, even if off-MLS"
The MLS rules might ban compensation from the listing agent to the buyer's agent off-MLS, but I don't see how any future rule can ban a seller from offering a credit to the buyer off-MLS. Thoughts?
I don't think future rules will ban a seller from offering anything to a buyer. "Buy my house, and I'll throw in this pizza oven!"
But the rules can be crafted like RESPA rules, where if a buyer's AGENT receives anything of value from the seller or listing agent except through the offer-and-negotiation stage, that agent gets disciplined and whoever offered the inducement also gets in trouble.
Of course, the listing agent inducing a seller to make any kind of an offer will need to be justified on a fiduciary duty basis.
I'd love to see a podcast on Industry Relations about how the The Real Estate Settlement Procedures Act of 1974 and the injunction with a guest like Zorn
I am not an agent, but work with many really good agents that are primarily listing agents. Although probably half their income is from the buy side.
I've been an independent contractor for decades and what I'm describing below is essentially how every statement of work I've ever written and negotiated with a client has worked.
That said, here is what I am willing to pay a buyer's consult for during the home purchase process.
A) To help me develop a prioritized list of Must have, Should have, Nice to have features for house, location, schools, price range etc.
B) work with me to sort through the plethora of options available via IDX on the Internet portals prioritized based on the "buyer requirements list developed in A"
C) Advice me on which attorney, lender, inspector has qualifications and fees that suit my budget.
D) Acts as a "voice of caution" when visiting a property to ensure I look at the property objectively based on the requirements list without being blinded by "that's a really nice kitchen" enthusiasm.
E) Offer me pricing and negotiation suggestions for making an offer and finalizing the transaction.
For those consultive services I'm happy to pay a reasonable fee. Including hourly consideration for things that are time based such as property visits.
I'm not sure how I could be talked into making seller reimbursement a condition for closing. The consultant worked for my benefit not theirs.
If I were writing a buyer's consultant agreement certain of the items would be fixed price while others would be time based. I accept that these are fees that I am responsible to pay. Beginning with a down payment and then progress payments as required. Final payment at closing.
A buyer's consultant (agent) isn't a sales person. Their role is to provide me information and insights based on their knowledge and experience. Sales people work for a commission, consultants work for a fee based on their experience, knowledge and insights.
One man's view
Real estate is probably one industry with the most government intervention. Starting with GSE's Fannie and Freddie that provide mortage loans which are backed by the full faith and credit of the United States government. Flood insurance through the National Flood Insurance Program. The Mortgage Interest Deduction. The voluminous amount of tax credits the federal government offers. I could go on. It is rich for anyone in real estate to say it is a free market.
My very, very unpopular opinion is that buyer agents will end up being paid salaries by brokerages. Retainers won't work and here's why - who would buyers pay them to? The agent? The broker? What happens when I've spent a year showing property to a buyer and they don't buy anything? Will they expect their retainer back? When have I "earned" my retainer? When I have secured a Buyer Rep Agreement? At the offer stage? Dual agency isn't possible either unless every state decides to adopt it - Texas only has Intermediary, as an example. Like you said, today most listing agents charge their sellers more than their 3% listing fee, or whatever it is, to act as an intermediary between buyer and seller because it's more work. Because of the future of AI and automation, I honestly think the buy side will become much easier. Maybe we need hourly showing agents, agents to write offers/negotiate, and TC's to get deals to the closing table. Those could all be individual tasks, and on some teams they are now anyway. I feel like this industry has purposely kept things more complex, not transparent, and more expensive for the consumer to protect our own interests. There are probably more efficient ways of helping people buy and sell homes and we should figure out ways to do that.
All very solid observations.
I will say that you have "earned" your retainer upon work performed. That's how lawyers work. :) So it'll be "2 hours touring homes with you" = $200 of the $5,000 retainer earned. Etc.
Bingo, Rob. The buyer will be paying for their own representation. As you point out, Realtors are having a hard time mentally escaping the way the current system works, which results in lottery like winnings when a sale is completed ($25k for maybe 25 hours of work for a serious buyer). This justifies the extraordinary time spent prospecting, including endlessly helping buyers to look at houses after house without an offer being made or accepted.
Once the Realtors are paid for their time, the market will decide what that time is worth. Some will go in without an buyer's agent. I suspect buyer's agents will be most popular at the low end for unsophisticated, first time buyers at a modest hourly rate, and at the high end for truly unique properties at a rate per hour in excess of most attorneys.
Otherwise, the 2.5% or so currently spent on buyer's agents on moderately priced homes by purchasers who have already bought a home before will largely be a thing of the past. The consumer clearly wants this option, so let's give it to them.
Many of the buyers I work with, even though they’ve bought homes before there are so many years in between that the process has changed within that time and they know nothing and they’re very apologetic about it, they feel like they should know, but they don’t have a clue of what the process is or what they have to consider or deal with and all of them are busy people. They don’t want to be doing this They’d much rather have it handled by a pro because they know real estate mistakes are some of the most expensive mistakes you’ll ever make other than divorce .All homes aren’t cookie cutter subdivision properties.
I just had a client buy a residential parcel .8 of an acre for $515,000 from his friend for sale by owner so he could get around the 12,000 fee to me. He just wanted to sell it and as I started digging into it, I realize he never got a vacant land disclosure. He never had test holes dug and now we find 6 feet of fill with 6 feet feet of clay soil under it. The fill has to be removed, the clay soil will expand and contract so now they need helical piers for the foundation which will add $200,000 to the cost of build the and he’s going to lose $200,000 on that parcel. But Hey he saved $12,000 on my fee.
That's a great point. I think there is value to agents in such transactions that are unusual. The real question is the value in the usual transaction: A single family home with unremarkable features.
More importantly, the buyer can decide the quantity of service they want, rather than being bundled into a "full service" agency. The days of sellers steering buyer's agents with a blanket offer of compensation, no matter the buyer's agent's competence, appears to be coming to an end.
I agree, and on those type of homes there can be unbundling, but the property I was speaking of where the buyer created a massive $200,000 blunder was not a complicated property. It was a piece of dirt in a subdivision waiting for a house.
As a real estate lawyer, I can assure you that no type of property creates more billable hours than raw land. I had a case that took 9 banker's boxes and lasted 9 years with 25 different cases. It was a parcel of raw land. It may seem odd, but valuation fights alone related to raw land create such a different of opinion.
Your very, very unpopular opinion sounds likely. BA gets paid a salary that comes out of seller agents fees in the same way the brokerage gets a cut of the SA's fee.
Another complication in the "seller-offers-a-credit pays a buyer's agent" is that in today's high rate environment, we are seeing a lot more financed transactions with max credits from the seller (3-6% of purchase price based on lender requirements). I wonder if this would not be considered in those max credits or if the requirements would change.
Yes.
In scenario 2, the retainer + net out scenario, why would the buyer craft a weaker offer that results in $7.5k being diverted to their agent instead of their own pocket book? What are the carrots and / or sticks to enforce this? (Buyer's agency agreements?)
And say you are ale to induce the buyer to include the request in the offer, but seller comes back and says "how about $0 to your agent, because they're your agent and paying them is your problem", why wouldn't the buyer just say "ok sure, sorry agent, better luck next time."? (If I were a savy buyer with few scruples, I know how I would privately tell the seller to respond to my request.)
If the answer is "buyer's will do this out of the goodness of their own heart", then sure they might throw their agent a bone, but expect that to be something closer to a $50 Starbucks gift card than $7500 cash.
The only reason any of these delayed compensation schemes work for selling agents or personal injury attorneys is that the client has a (potential) large pot of money coming to them, and the agent can write a pretty iron clad agreement that they will get $X of that pot if and when it comes in. Same reason why the existing system works, because the legal responsibility for payment is placed on the seller receiving the pot of money.
Flip this around though, and all you have from the buyer is "I will kind of sort of maybe try to get the seller to pay my agent, but either way I'm sure as hell not coughing up an additional $5k at closing."
Instead, I predict the default buyer's agent agreement will be "In God we trust, everyone else pays cash (up front)". Maybe the top sliver of the market who have demonstrated assets to afford large, 5-figure cash expenses will be able to convince an agent to take a chance on them. But I predict we'll see 90% or more of buyers go unrepresented. (IMHO This works fine for literally every other purchase people make, up to and including six figure car purchases, as well as for most real estate purchases in other countries. I don't see this as the catastrophe people make it out to be.)
I think Rob if the Sizter injunction prohibits SELLERS from making an offer of a credit which can be applied to loan fees, buyer owed compensation via a buyer's agency agreement to buyers that would be grossly unconstitutional. This is an idea discussed by Ed Zorn. The BBC field might morph into a general textbox of seller incentives to the buyer
I think the whole "it's unconstitutional!" line of argument is going to have to explain RESPA to me.
But suffice to say that if the BBC field morphs into a general "seller incentives" box, and *agents keep on steering*, the FTC will step in and completely regulate agent behavior. Like the CFPB does mortgage loan officer behavior, including setting compensation.
Key phrase is agent behavior, not seller behavior. Its unconstitutional for our overlords to tell me what terms I should offer to sell my house. Centralized planning never works
True that. I think sellers can probably do whatever they want, as long as bad agent behavior is not incentivized.
The reason why I bring it up is you mentioned "MLS will no longer have any compensation information in it and the rules will actually prohibit offering compensation, even if off-MLS"
The MLS rules might ban compensation from the listing agent to the buyer's agent off-MLS, but I don't see how any future rule can ban a seller from offering a credit to the buyer off-MLS. Thoughts?
I don't think future rules will ban a seller from offering anything to a buyer. "Buy my house, and I'll throw in this pizza oven!"
But the rules can be crafted like RESPA rules, where if a buyer's AGENT receives anything of value from the seller or listing agent except through the offer-and-negotiation stage, that agent gets disciplined and whoever offered the inducement also gets in trouble.
Of course, the listing agent inducing a seller to make any kind of an offer will need to be justified on a fiduciary duty basis.
I could see something like that.
I don't disagree.
I'd love to see a podcast on Industry Relations about how the The Real Estate Settlement Procedures Act of 1974 and the injunction with a guest like Zorn