Budge Huskey, the president and CEO of Premier Sotheby’s International Realty, has issued an eight-point statement that challenges assumptions raised the mainstream media about the $418 million settlement announced by the National Association of Realtors (NAR).
“Since the settlement announcement, there have been numerous articles and stories in the media on what this means for buyers and sellers,” said Huskey in a statement issued by his company. “Regrettably, most reflect a profound lack of understanding of the real estate business as well as mistaken claims.”
The eight assumptions answered by Huskey are as follows (in a verbatim presentation):
1) The settlement forces real estate brokers to reduce their compensation. False
The settlement in no way establishes any standard or limitation on realtors for what they may charge, nor the services they elect to deliver. Realtor fees have always been fully negotiable and there has never been any collective bargaining or collusion. Realtors may cooperate on transactions toward a common goal yet are fiercely independent and highly competitive with one another. In every market you will find real estate representation at almost every price, and just as many different levels of service and competency. I would argue there is more variation in real estate pricing than in almost any other product or service one will ever purchase. Now there are comparisons to what fees are in the U.S. versus some other countries, yet in many of the countries referenced the real estate professional is an employee with benefits and often salaries with bonuses. The vast majority of real estate professionals in the U.S. are 100% performance paid through commissions.
2) The settlement will, for the first time, allow sellers to no longer pay compensation for an agent bringing the buyer. False
There has never been any obligation for a seller to pay buyer agent compensation at any time, yet it has been a historical practice that’s worked exceedingly well since the advent of modern residential real estate. This merely prohibits any reference of buyer compensation from the seller on association owned MLS systems. The reality is that today, well before the intended settlement date of this coming July, any listing could be displayed on the MLS whether it offered buyer agent compensation or not.
3) The settlement will prohibit sellers from paying a commission to a buyer’s agent. False
The practice of whether to pay a buyer’s agent is totally a seller’s decision and nothing changes in terms of options. Many of us would suggest that the most important outcome is the successful sale of the property on the seller’s terms, and having the greatest incentive to buyers agents to show and sell the home the best way to achieve their goals.
4) The settlement will now relieve sellers of any financial burden of buyer agent fees. False
Although sellers can elect not to pay any buyer agent compensation, that doesn’t mean they will avoid the economics. Buyers may easily write into any offer a contingency requiring that the seller cover the cost, or may request other concessions such as closing cost assistance in the dollar amount they are paying their representative.
5) The settlement ultimately reduces the total cost of transaction services as sellers will no longer pay buyer agent compensation. False
Should sellers now choose to compensate only the listing agent, it merely means that buyers, rather than sellers, will now have to pay for their own representation if they don’t require the seller to pay as a contingency of the contract. Realtor services are not free, nor should they be. Just because two parties may now share the cost of services rather than one doesn’t mean the total cost of the transaction has been lowered.
6) The settlement will serve to meaningfully lower real estate prices and make homeownership affordable again. False
General values in real estate are determined by the fundamentals of supply and demand, not realtors. Yes, the commission represents an expense of a transaction, yet these also title fees, closing fees, mortgage related expenses, property taxes, association fees, etc. Should real estate commissions theoretically be reduced by 1% as a result of compression, that $500,000 home will now only cost $495,000. Hardly the difference as to whether someone may afford the home or not. The real reason home ownership is increasingly less affordable is that homes in our market have values have risen dramatically in value in recent years.
7) The settlement is a fantastic win for buyers who will now be able to negotiate the fee for representation. Highly questionable.
For those who have purchased one or more homes over the years, it is more than likely you were quite happy to have the seller compensate your agent so you didn’t have to. For buyers who had to scrape up enough money for the down payment and closing expenses, having the commission paid by seller and incorporated into the price of the home allowed the buyer to finance the amount over time rather than coming up with thousands of additional dollars at closing. The reality is that most mortgages are ultimately sold to Fannie and Freddie, and both have no provisions for commissions to be financed. In fact, the VA loan program expressly prohibits the borrower from paying any form of commission in a real estate transaction. So just how is a veteran who has honorably served his or her country now better off without representation? I don’t think so.
8) The settlement will result in significant restitution to real estate consumers who were “harmed” over recent years in their transactions by realtors. False
The settlement figure is huge, yet when one divides the amount by the number of potentially qualifying consumers it works out to about ten bucks per person. The only people truly profiting are the class action attorneys who have submitted a request to the court for over $80 million in legal fees.
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Thank you for making all these excellent points. Sellers who wish to achieve the best price for their homes and the maximum number of buyers through the door, will be best served if they offer Buyer agent commissions. The Buyer is already paying this through the sales price, which is typically over asking price. A Seller’s equity is just a concept until it is crystallized into dollars brought by a Buyer.
“The buyer is already paying this through the sales price” is utter nonsense and you demonstrate the ignorance of so many real estate agents. The listing brokerage is paying the buyer’s brokerage. The listing broker charges a fee to the seller. Since the listing broker wants the most efficient way to sell the house, they offer to pay the buyer’s brokerage to bring a buyer. That’s not the buyer’s money. It’s not the seller’s money. It’s the listing brokerages money. If you want to say otherwise, then why does the listing brokerage have to provide the buyer’s brokerage and the IRS with a 1099?
You are arguing semantics here and this adds nothing to the conversation.
The issue is about misinformation of commissions. The vast majority of agents don’t understand how our own industry’s commissions work. I think it is quite relevant. In the end, I don’t care how it shakes out because I’ll do well and perhaps we can finally shed a few hundred thousand agents who are the very reason most people think we are overpaid.
If a buyer pays their agent commission or chooses not to have representation, then the buyer knows that this expense will not be incurred by the seller and will offer a lower price for the home. The total cost of the transaction will not be reduced. The seller will not just make extra money for not paying the buyer portion and the buyer will either offer less or ask for closing costs to cover the cost. A buyer is indirectly paying the their commission by the seller getting an inflated price on the home to cover their agent’s commission. Ergo semantics.
Thank you! The distorted information is spreading like wildfire! I appreciate you taking the time to write, and clarify what is happening.
Right now we are in a sellers market and sellers may elect to not pay the buyer broker, however, since buyers are, usually, not in a position to pay down payment, closing costs and brokerage fees, this is unlikely to bring buyers to these properties, with the exception of higher net worth buyers. That said, this represents a very small percentage of the buying public and in a buyers market, sellers will be far more willing to do what it takes to get buyers to their home
This was an anti trust lawsuit. The Federal government has a qualified interest in leveling the field! Sellers…don’t capitulate. Be a part of the solution. Sellers…negotiate a commission for the RE person who lists your property ONLY. The buyer will do a better job than you can do for them negotiating the terms of their contract with a buyers terms. Realtors get ahead of the curve. Be pro active!!
You OBVIOUSLY are NOT a Real Estate Professional! Anyone advocating to change the process that has worked for almost 120 Years, truly doesn’t understand how Supply, Demand and Outside Forces work. The paperwork that MUST be signed as soon as possible for Buyer’s Agents Representation states the amount % that The Buyers are willing/Able to pay. 90% of FHA and 100% of VA buyers CAN’T/WON’T pay their OWN AGENT. So, now that The Seller has EXCLUDED MOST of the buyers our there, DO YOU THINK THEY GET TOP DOLLAR FOR THE HOUSE????? NO! They will get LESS for the house, therefore negating ANY gains they thought they saved… PERIOD!
Just curious when you go to work each day do you let your employer know your work is for free? Most people don’t know all the ins and out of a real estate purchase contract, there is much at stake in a real estate transaction, perhaps getting a bit more education might be helpful.