A New Era of Real Estate

List Your Home for a Total Commission of 3.5% or Less!

Prior to the landmark decision in Burnett v. National Association of Realtors (“NAR”), et al, the commission for buyer’s agents was generally set by the Seller and the Listing agent as part of the listing agreement. The commission remained the same even if the Buyer independently found the home, attended an open house without an agent, conducted an analysis of comparable properties using publicly available data, and only contacted the buyer’s agent for assistance with the offer paperwork. Compounding the issue, the real estate industry enacted arguably self-serving rules (e.g., Model MLS Rule 9.7 and NAR Standard of Practice 16-16) prohibiting licensed real estate agents from assisting Sellers in negotiating lower buyer’s agent commission as part of the offer/counter-offer process.

Informal discussions with Sellers have revealed that many felt compelled (or were explicitly told) to pay the 2.5% commission to buyer’s agents. Otherwise, it was implied (or stated) that agents might refuse to show their property, fostering fear that their home would not sell. A cursory review of sales in recent years shows remarkable uniformity in the commission rate offered to buyer’s agents. If Sellers did not believe that 2.5% was fixed or obligatory, then it would be quite a remarkable coincidence that 94.9% of the 871 listings sold in Palo Alto from January 1, 2021 to October 31, 2023 (ranging between $2 million and $10 million) offered exactly 2.5% commission to the buyer’s agent.

Sellers Do Not Have to Offer Commission to the Buyer’s Agent

NAR has issued specific guidance that agents should always tell clients that “compensation arrangements (including commissions) are, and have always been, negotiable and set between a broker and their respective client. This includes compensation offered through the MLS to the buyer’s agent, if any.” Further, NAR has clearly stated that, “Listing brokers in consultation and agreement with their seller clients decide how much compensation to offer to serve the seller’s best interest, and it can be $0, a penny, or any other amount. NAR rules do not specify an amount. This is solely a matter that’s negotiated between brokers and their clients.”

Irrespective of NAR’s guidance that buyer’s agents “have an ethical duty to show” homes they believe their clients would love, even if “the commission being offered by the Listing broker is lower than what [the buyer’s agent] wants to be paid,” some real estate agents are acting counter to the best interest of their Sellers and misstating the rule. They are inaccurately conveying to Sellers that they have no alternative but to pay a 2.5% commission (or some other figure), suggesting that agents will boycott the listing otherwise.

However self-serving, this threat is simply not true − or, at the very least, no longer true. In the past, a listing could not be uploaded to the Multiple Listing Service (“MLS”) unless there was a unilateral and nonnegotiable offer of compensation to the buyer’s agent (typically, as mentioned above, 2.5% for homes in this area between $2 million and $10 million). Back then, unless the listing agent paid for a significant amount of marketing, Buyers might not know about the home’s availability.

Now, however, it is established that homes can be entered into the MLS, which syndicates to thousands of websites such as Zillow, Redfin, Realtor.com, and even brokerage websites such as Compass, Coldwell Banker and Intero, even with an offer of consideration as low as $0, let alone a more substantial amount like $10,000 or 1% of the sales price. In other words, even if an unethical agent refuses to tell potential buyers about a listing due to a perceived inadequacy of the offered commission, it is highly likely that the Buyer will discover the listing through online resources or conventional marketing channels like newspaper ads, TV commercials, radio spots, or online advertisements. Moreover, numerous competent agents are willing to submit offers, even if the compensation is “only” $10,000, $20,000 or 1% of the purchase price. Furthermore, innovative and client-centric brokerages, such as DeLeon Realty, will provide experienced, licensed agents to represent Buyers on their listings at no charge to either the Buyer or the Seller.

As one of the nation’s top Listing agents, and a California real estate attorney, I’ve gained valuable insight from the listing appointments I’ve attended since the Burnett v. NAR verdict. Adhering to the guidelines set by NAR, I’ve engaged in discussions with numerous potential Sellers regarding various compensation options for buyer’s agents. To date, only one Seller expressed the desire to offer no commission to buyer’s agents, and only one opted for a 2.5% commission, citing concerns that buyer’s agents might refuse to represent Buyers for less than $125,000 (for a $5 million property). It should be noted that this particular Seller came to such a conclusion after speaking with another agent that made those comments and was able to instill fear. In time, I expect most Listing agents will follow DeLeon Realty’s example, as well as NAR’s guidance, to give Sellers the option to offer lower commissions to the buyer’s agent.

Irrespective of the outliers mentioned above, most recent Sellers chose a buyer’s agent commission ranging from a flat fee of $10,000 up to 1.5%. Many agents should find this range more than acceptable given the amount of work that they do in many transactions. However, highly experienced agents offering additional services or exceptional negotiation skills may command a premium above the Seller’s offered amount. In such cases, Buyers can provide additional compensation through Buyer Representation Agreements or similar forms.

Buyer Representation Agreements

Recently, most of the local brokerage managers I’ve spoken with say that they are actively training and encouraging their agents to use Buyer Representation. Agreements with their Buyers. These agreements, and similar forms, are contracts between the buyer’s agent and their clients, wherein the Buyer agrees to compensate the agent for rendered services at a negotiated rate. This agreed-upon amount is generally expressed as a percentage of the sales price (e.g., 1.5% or 2.5%) or a fixed sum (e.g., $20,000). Importantly, the specific terms are negotiated between the Buyers and the buyer’s agents based on factors, such as the agent’s education, professional background, experience, the level of services provided, and the time expended. Potential Buyers that encounter agents that imply that commission is fixed should look for a more honest agent. Commission amounts are negotiated based on the client’s needs, the agent’s education and experience, and the time invested.

For example, a first-time Buyer unfamiliar with the Bay Area may require guided tours covering multiple cities and neighborhoods, extensive advice on financing options, detailed summaries and explanation of the disclosure packets and considerable guidance with regard to the purchase contract. Such a Buyer maybe willing to pay their agent a higher percentage compared to an experienced Buyer residing in the same neighborhood seeking a larger home nearby, especially if they already visited the property at an open house.

The benefit of this structure is that the potential Buyers can interview multiple agents and pick the one that best aligns with their criteria. Plus, competition among agents is likely to benefit consumers, with agents potentially reducing their commissions and enhancing their services to differentiate themselves. In a competitive market free from price-fixing and collusion, consumers stand to gain. Additionally, the competitive environment encourages Buyers to be more methodical in interviewing and selecting the agent who will represent them. This renewed focus on selecting a buyer’s agent is bound to benefit the very best buyer’s agent capable of justifying their comparative value.

Cost-Free Alternatives for Buyers from Listing Brokerages

It is foreseeable that, over time, other brokerages will adopt DeLeon Realty’s approach, providing Buyers with a cost-free option to purchase their listings if Buyers don’t have an agent willing to represent them for the compensation offered in the MLS. In the meantime, DeLeon listings will attract a lot more attention from Buyers who do not want to pay their agents a commission.

Since March of 2017, DeLeon Realty has been the only major local brokerage that does not take commission from both sides of any transaction. This unique practice enables Buyers to purchase one of our listings without incurring any Buyer’s-side commission paid by either the Buyer or the Seller. This tremendous competitive advantage, coupled with DeLeon Realty’s industry-leading marketing, will surely alleviate concerns that buyer’s agents may refuse to tell potential Buyers about available properties for the relatively modest amounts, such as $10,000 or $20,000, offered by the Seller in the MLS.

By Michael Repka

CONTACT

Michael Repka | michael@deleonrealty.com Tel: 650.900.7000