Many news outlets are reporting about a lawsuit against the National Association of Realtors, Realogy, HomeServices of America, RE/Max, and Keller Williams about how sellers pay the buyer’s agent’s commission.
For those who have never been involved in a real estate transaction, it is common for seller to pay the buyer’s commissions out of the proceeds of the sale of the home. The lawsuit claims that this drives real estate prices up, and that it isn’t fair for sellers to pay for services that negotiate against them.
Besides the fact that these entities have plenty of money to prevent such a lawsuit from being successful, there are many issues with buyers paying their agents’ commissions. Here are four reasons why:
- The struggle with affordability: It is already difficult for buyers to come up with the down payment and closing costs, now they would have to come up with a commission? It would delay first time home buyers from emerging into the market. From a seller’s perspective, that just creates an even smaller pool of buyers.
- The sellers are paying regardless: Because buyers would have to pay a commission, that just means they would most likely offer less on the purchase, driving values down. Sellers would most likely net close to the same anyways. An argument could be made that if buyer’s agents require the full commission to be paid by buyers, then buyers may offer even less. This is because if buyers want to buy sooner rather than later, that difference in value is going towards the commission rather than what would have been towards the down payment.
- Most commissions are tied to a percentage, not a flat rate: This means that, even if a buyer’s agent negotiates a lower price, the percentage stays the same, but the dollar amount would decrease. For example, if a buyer’s agent negotiates a sales price from $1,000,000 down to $900,000, the seller pays $22,500 commission instead of the $25,000.
- If this lawsuit is successful, then there is a chance buyer’s agents would decrease, leaving listing agents to represent both sides. Although dual agency isn’t always a bad thing, in some cases, it can be more beneficial for individual representation to make sure everyone is protected. From a seller’s perspective, consider paying a buyer’s agent’s commission as an insurance for individual protection against buyers. Kind of like a seller paying a home warranty on the home. If there are issues after the sale, then a warranty kicks in to take care of it, protecting the seller.
We will see what happens, but I’m not optimistic anything beneficial will come of it.
For more information on the lawsuit, check out these articles:
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