The Changing Landscape of Real Estate Transactions

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In this special update I am going to address changes that will be occurring to how real estate agents are compensated. Buyer’s agent commissions are no longer going to be advertised in any Multiple Listing Service “MLS” in the United States starting in July. Home sellers may decide not to pay for the buyer’s agent’s commission in some instances. When negotiating a home purchase, in instances where the seller refuses to pay, this would leave the buyer on the hook to pay for their own representation if they wanted to proceed with buying the home. In spirit, this is perhaps the largest change to how real estate transactions have been negotiated in the United States since the late 1800’s. However, we did see the creation of buyer’s agency in the 1990’s. I am going to explain the history of how real estate transactions have been negotiated, the lawsuit, what a buyer broker agreement is, and the implications for home buying. Anyone that intends to buy or sell real estate during their lifetime should probably read this.

Commission sharing started in the late 1800s. Real estate brokers would gather at the offices of their local associations to share properties they were trying to sell. They agreed to compensate other brokers who helped sell their properties and the first MLS was born. It was all based on the idea that “if you help me sell my inventory, I’ll help you sell yours.” The National Association of Realtors “NAR” was founded in 1908. It wasn’t until 1917 that California was the first state to introduce real estate licensing so there would be oversight in real estate transactions. Now every state has licensing and presently there are 540 MLS across the county. Even though real estate transactions were regulated at this point, buyer agency in its current form didn’t actually exist until the early 1990’s. Prior to that, both agents technically had agency relationships with the seller with one agent representing the buyer in spirit. This was changed by a spree of lawsuits in the late 1980’s which resulted in the creation of buyer agency. This allowed each side of a real estate transaction to have independent representation rather than the “buyer beware” mentality that preceded that time. Dual agency also exists. This is where one agent represents both the buyer and seller in a more neutral stance similar to how title companies help both sides during the transaction. However, the vast majority of transactions have one agent representing the buyer and one agent representing the seller.

In 2019 the National Association of Realtors and a few brokerages were sued in a class action lawsuit by some home sellers in Missouri. The lawsuit was over the fact that listing agents currently play a role in determining buyer’s agent commissions. Commissions are advertised through the local MLS and are presently paid by the seller. When a listing agent secures a listing, they determine along with the seller how much to offer the buyer’s agent as part of that process. While the listing contract used in Portland clearly defines a certain amount of buyer’s agent compensation in it, the presumption of the lawsuit was that total commission per transaction was being pushed higher by the fact listing agents had a role in determining what buyer’s agents were paid. The Sitzer-Burnett Trial, as it’s most commonly referred to, took place in October 2023. The NAR and the brokerages ended up losing by decision of a jury. In 2024, the Department of Justice became involved in negotiating the final terms of the settlement. The NAR subsequently settled in March 2024 and the terms of the settlement are leading to changes in how transactions are negotiated.

A buyer broker agreement is a contract between a buyer’s agent and home buyer that stipulates the agent’s responsibilities to the buyer, outlines how compensation will be paid and how much it will be. Buyer broker agreements are already mandatory in the states of Washington and California but not yet in Oregon. It won’t be legal to tour properties in the state of Oregon starting in July without a signed buyer broker agreement outside of walking through open houses. This means you will not be able to call Zillow or Redfin to tour a property anymore unless you want to sign an agreement with the agent on the other end. You will have to interview and hire an agent as the first step in the home buying process; but this could be good in a sense. People might ask their friends and family for more advice in this area. This might be positive given buying or selling a home is such an important transaction in someone’s life. Even though a buyer broker agreement has to be in place, it likely will not be the norm for buyers to pay for their own representation starting in July. Negotiating commission with the seller will just become another part of the process once the buyer finds a property they want to purchase.

I keep seeing articles from national news agencies are claiming that “6% commissions are going away” when, in reality, only a certain number of states on the East Coast still charge 6% on average. We aren’t even supposed to cite averages in listing appointments but it seems relevant here. 5% total commission has been very common for many years in Oregon, California and Washington. Commissions are also not set in stone. Realtors are all independent contractors so we can charge different amounts in various situations. The 2023 lawsuit was flawed by being based on the idea that real estate agents price fix. Many different commission structures are offered by various agents in Portland. There is a vast spread of listing fees already in the market place. These range from 3.5-6%, with the lowest fees not associated with full service listings. You get what you pay for.

The barriers to entry for buying a home have traditionally been having a down payment, being able to afford the monthly mortgage payment and budgeting for property maintenance, taxes, insurance etc. Closing costs can also be a barrier, but if you have a good buyer’s agent, and the properties you are pursuing don’t have multiple offers, it can sometimes be negotiated for the seller to pay that for you. Now that buyer’s agent commissions won’t be advertised in the MLS anywhere in the country after July, buyers in theory could be on the hook to pay their agent out of pocket at closing. However, I don’t think that is what will initially happen since the first sellers that refuse to pay buyer’s agents might have difficulty selling their properties. We are talking about overturning 130 years of how real estate transactions have been structured. I think that once these agreements are signed, it won’t be difficult for the buyer’s agent to negotiate their compensation being paid by the seller in most cases. Especially by the more skilled agents.

Realtors who are going to have staying power are going to need to have a really good value proposition. I have been in real estate for over 7 years now and have been involved in over 200 transactions. I have sold at least 120 homes and was in charge of marketing an additional 40 listings for my old team. 65% of the offers I have written in my career have been accepted. I have won 45% of the bidding wars my buyers have participated in. 95% of the listings I have taken on have sold with 32% of the listings setting price records. What factors into these results is using multiple types of strategies. I am constantly thinking about timing, the financial strength of offers, buyer and seller psychology, and building rapport with other agents to achieve excellent results for my clients. Quality control of marketing and having artistic vision are also very important for listings. I have overseen over 20 renovations – large and small – of properties prior to going on market. Taking the time and consideration to do finishing touches like this contributes to setting so many price records as a listing agent.

Buying or selling real estate is such an important event in someone’s life that they should have adequate representation. I think the flawed part of the home buying process is people going to their friend who sells real estate on the side. If you were in a lawsuit, would you hire your friend who is a part-time lawyer, and may or may not specialize in the area of the law you need, to represent you? That kind of behavior is where I think the perception realtors are overpaid comes from in the first place. That and the fact listings can be found online by anyone. Just opening a door is hardly the role of a good buyer’s agent. For example, I point out repair issues and can even help price out cosmetic updates before an offer is written. That way a client doesn’t waste time and money paying for inspections on the wrong property. In a market that usually goes up 2% per month for half the year, time is so valuable. I would rather my buyer pay less and be happy than inspect the wrong house, wasting time and money, and then end up paying more for the next house they like.

Lawsuits to adjust the compensation model back or to a different form could stem from two scenarios. One scenario is listing agents going into dual representation and not advocating for both clients fairly. The second, and far worse scenario, will be buyers writing offers and purchasing properties without representation when they don’t understand what they are buying. Inspecting a property is one thing but what about reading a title report? Understanding the tax structure of a property is extremely important and that’s something I look at before writing an offer. Examples of things that can be missed without an experienced buyers agent are endless. For example, detached condos are sometimes listed as houses. Some “townhome style” condos are listed as townhomes. Some condos have an HOA in a very bad financial position and are about to be subject to a special assessment. This is where you would receive a large demand from the HOA for money for repairs. They usually fall in the $10,000-$80,000 range. That’s where studying a reserve study is so important since it goes over the next 30-50 years of liabilities of the HOA. I am the only agent I know of that reads reserve studies and explains them to clients since I have such a strong background in finance. Older houses sometimes have hidden problems that you need to do special invasive inspections to discover. Things like non-decommissioned oil tanks or septic tanks are discovered through a tank scan which you need to list when submitting the offer to have permission to do one. Popcorn ceilings installed prior to 1992 should be tested for asbestos even though the use of asbestos was Federally banned in 1989. There are plenty of other inspections that might potentially be necessary when buying a home on a case by case basis.

The biggest issue resulting from the trial is a certain percentage of buyers will go unrepresented, not understand what they are buying or not properly inspect, and subsequently sue to change the rules again once they realize their mistakes. That’s my biggest fear from these changes. However, all I can do is explain the value of using an experienced buyer’s agent and let people decide for themselves. I strongly believe honesty is still the most important trait in a realtor. I have talked clients out of buying so many properties in my career. I wasn’t paid in any of those situations but that’s not the point. Almost all of those clients found better properties without the types of material defects we initially encountered and they are now clients for life. It is the same situation if you win a client’s dream house for them in a bidding war. It creates a strong connection. My motivation will always be to help people achieve their dreams. I sincerely hope that I will have the opportunity to help many more people achieve their real estate goals once these new rules come into effect. If you ever have any questions about any of the upcoming changes or are planning a home purchase or sale and not sure what to do, feel free to reach out.