Buyer agent commission controversy

buyer agent commission
Annual mean wage of Real Estate Brokers (infographic from bls.gov)

One of the hottest controversies in real estate that you have yet to hear about is who should pay buyer agent commissions. Agent commissions controversies have been around in one form or another for decades.  The commissions issue typically becomes front and center when the housing market is doing well.  This time, however, the buyer agent commission controversy is gaining steam and has the potential of changing (and possibly upending) residential real estate and online real estate platforms.

The debate is center in an anti-trust class action law suit filed against the National Association of Realtors and a number of major real estate brokerage brands.  As I reported last month, the law suit alleges that the defendants engaged in “anticompetitive practices.”  Among the alleged issues listed in the law suit, includes a “Buyer Broker Commission Rule” that requires buyer agent compensation for a home to be listed in the MLS. 

Regardless of how a listing agreement “structures” broker commissions, the perception and general acknowledgement is that the (buyer broker) buyer agent commission is paid by the seller.  The seller typically pays the listing broker a commission, which is shared if another broker represents the buyer.  This commission “pass-through” is responsible for the growth of online platforms selling home buyer leads and contacts.  It has also been responsible for the growth of real estate groups that act as “buyer mills,” which rely on high volume leads generated via online platforms and other means.  It can be argued that because of Buyer Broker Commission Rules, the billions of dollars that are generated and spent on home buyer leads (as well as buyer rebates) can be traced back to the home seller. 

Home sellers are not the only victims.  A study conducted by Joachim Zietz and Bobby Newsome (A Note on Buyer’s Agent Commission and Sale Price; The Journal of Real Estate Research; 2001, Vol.21 No.3 p.245-254) revealed that buyer agent commissions had a positive effect on home sale price, but only on lower-priced homes.  The conclusions suggested that buyer agents “do not act in the best interest of their clients because of the institutional structure of sales commissions.

Is it possible that the MLS perpetuates steering and anticompetitive behavior?  A recent study by Barwick, Pathak and Wong (Conflicts of Interest and Steering in Residential Brokerage; American Economic Journal; 2017, Vol.9 No.3 p.191-222) has shocking conclusions that resonates with those who are wary of the residential real estate industry.  The study pointed out that real estate commissions are higher the US than other industrialized countries.  The authors concluded, “Properties listed with lower commission rates experience less favorable transaction outcomes…they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers’ agents to intermediate low commission properties (steering)…”  They “provide empirical support for regulatory concerns” because the data indicates buyer agents will steer their clients towards homes paying higher commission.

Home sellers can learn from home builders about marketing and agent compensation.  Home builders figured out buyer broker commissions a long time ago.  They will not pay advertised compensation to buyer brokers who don’t show up with their clients.  And during hot markets, they pay a modest referral fee in lieu of commission. 

All things considered, the issue of buyer broker commission is a complex issue that depends on multiple factors, including market conditions.  However, increasing awareness is inventing new business models and lower buyer broker compensation expectations. 

Original located at https://dankrell.com/blog/2019/05/24/buyer-agent-commission-controversy

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Mixed housing stats

mixed housing stats
Mixed housing market stats (infographic from keepingcurrentmatters.com)

This week’s National Association of Realtors press release (nar.realtor) sends mixed signals about the housing market.  Reports of sluggish home sales and slowing home price appreciation is not what you would expect when the spring market should be humming along.  But then again, mixed housing stats may be a vital sign of a healthy market in motion.

First, let’s talk about home sale prices.  The NAR’s report on metro home prices and affordability indicate that the average home sale price for the first quarter of the year was $254,800.  This is a 3.9 percent increase compared to the same time last year.  Average home sale prices in the Baltimore metro area were slightly higher than the rest of nation at $275,300.  Not surprisingly, Washington metro prices were significantly higher at $420,000 (a 6.5 increase from the same time last year).

The latest S&P CoreLogic Case-Shiller U.S. National Home Price Index (spindices.com) is almost spot on with the NAR, indicating a 4 percent increase in home sale prices nationwide.

Affordability is always a concern when mixed housing stats confound the market. So, how much income do you need to qualify for a home?  The National Association of Realtors Qualifying Income report indicates the average qualifying income for a 5 percent down conventional mortgage is $60,143 nationwide.  The average qualifying income in the Baltimore metro area is slightly higher at $64,982.  However, because of significantly higher home sale prices, the average qualifying income in the Washington metro area is $99,137. 

The neighboring Baltimore and Washington metro areas highlight home pricing extremes in competing markets.  Many home buyers who work in the Washington metro area are opting for longer commutes to make homeownership affordable.  Others are opting for alternative work to not only lower their housing cost, but eliminate the commute as well.  Commenting on affordability, NAR’s chief economist Lawrence Yun stated, “There are vast home price differences among metro markets. The condition of extremely high home prices may not be sustainable in light of many alternative metro markets that are much more affordable. Therefore, a shift in job search and residential relocations into more affordable regions of the country is likely in the future.”

Although home sale prices continue to climb, the national home sale picture is another story.  The 1.2 percent increase in spring home sales compared to winter sales should be expected.  However, the 5.4 percent decrease from last spring is a disappointment.  According to MarketStats by ShowingTime (getsmartcharts.com), the number of homes sold in the Mid-Atlantic region decreased 4.77 percent year-to-date.  There was a larger decline in Montgomery County, where there was a 7.25 percent decrease in home sales year-to-date! 

Days-on-market is another fundamental indicator of the housing market.  And, like home prices and units sold, days-on-market can vary depending on the local market.  Homes in the Mid-Atlantic region are taking a bit longer to sell, as days-on-market increased 7.04 percent to 76 days.  However, houses in Montgomery County are selling quicker, where days-on-market decreased about 13 percent to 65 days. 

Mixed housing stats can confound home buyers, sellers, and their agents. But consider the analysis of David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. He stated that that home sale prices gains have been slowing down until recently.  And although mortgage rates are lower, home sales have “drifted down” from their peak during February 2018.  Even new home sales and residential investment have shown weakness since last year.

Original published at https://dankrell.com/blog/2019/05/20/mixed-housing-stats/

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home buyer preferences

home buyer preferences
Trendy renovations (infographic from nar.realtor)

Homes can vary along a spectrum of many factors.  Size, style, location, are just the basic differences and are generally used by home buyers in their home search.  However, even similar homes in the same neighborhood can differ depending on the homes’ features.  Home buyer preferences and trends toward home features is usually the reason for price differences on similar neighborhood homes. This truth was validated by a study conducted by the National Association of Home Builders (How Features of a Home Impact Its Price; nahb.org; November 30, 2004).  If you’re selling this spring, consider home buyers preferences and current home buyer trends.

In past columns, I talked about how most home buyers in the current housing market want a turn-key home.  And that still holds true.  Home buyers still prefer to buy a new home.  However, buying a recently updated/renovated home is the next best thing.  Generally, homes with new kitchens, bathrooms, and flooring get multiple offers and sell very quickly.  Alas, updating and renovating a home takes time and money.  Discuss with your listing agent how making (or not making) updates and renovations affect your sale price. You may have to adjust your pricing expectations accordingly.

So, what tops the list of home buyer preferences? The National Association of Home Builders latest “Trends in Home Buyer Preferences” (nahb.org) indicates that the kitchen is a prime area of focus.  Current kitchen trends include a strong preference to either “traditional” or contemporary style cabinets.  The styling would depend on the kitchen overall (consulting with a design center would be helpful).  Additionally, water filtration has also become a desirable feature.  If not already installed, water filtration can be added when replacing a refrigerator, as it is now a common function of modern refrigerators.

In today’s growing awareness of environment and sustainability, it’s a given that home buyer preferences show a strong preference toward energy efficiency.  When updating, consider Energy Star (energystar.gov) certified appliances.  Energy Star appliances typically use 50 percent less energy than standard models.  Additionally, consider having an energy audit prior to listing your home.  The energy audit will reveal the home’s energy efficiency.  It will also highlight where improvements are recommended.  The report itself is useful to the home buyer, even if you don’t follow all the recommendations. 

New flooring is also important to home buyers.  The preference towards wood flooring has always been strong.  However, be aware that there are differences in quality of flooring products, as well as workmanship of installers.  Even if you purchase top quality hardwood, poor installation can actually negatively impact the sale price.  If you’re installing wood, tile or similar flooring, hire an MHIC licensed flooring contractor.  Your flooring contractor can also help with trendy flooring options.

As a home seller, you certainly consider your home as being special.  And you probably spent a good amount of money on customizing your home over the years.  However, a problem many home sellers encounter is that over customization and personalization can negatively affect the home sale price.  The truth is that home buyers have preferences too, and their preferences may not reflect yours. 

Home buyer preferences and trends are constantly changing.  Your listing agent should be able to help understand how current home buyer preferences and trends impact your home sale.  Additionally, consulting with a home staging or interior design professional can assist you with deciding on making relevant updates to your home.

Original published at https://dankrell.com/blog/2019/04/27/home-buyer-preferences

By Dan Krell
Copyright © 2019.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Short sale is still relevant

short sale
Market conditions makes the short sale relevant (infographic from nar.realtor)

Believe it or not it’s been over ten years since the financial crises and Great Recession, and the short sale is still relevant! And this is why…

Coming on the heels of a dismal January, the National Association of Realtors March 22nd data release announced good news declaring a home sales “surge” during February (nar.realtor).  February’s closings increased 11.8 percent, compared to January!  But the bad news is that the number of sales also decreased 1.8 percent from last year. If you follow real estate news, you know that homes sales stats were disappointing during the winter. (Consider that 2018’s total existing home sales were lower than the previous year’s total, according to NAR’s statistics).  February’s adjusted annual home sale rate of 5.51 million is lower than the same time last year, and pales in comparison to the 6.48 million home sales in 2006.    

Although February was indeed a busy month, NAR’s March 28th data release of the Pending Home Sale Index predicts a slow start to the spring market.  Homes that went under contract during February decreased 1 percent from the previous month and decreased 4.9 percent from the previous year.  This “forward looking index” indicates that next month’s home sales may disappoint. 

But there is a silver lining.  Home sale prices continue to rise, meaning that home owner equity is not eroding. February’s median existing home sale price increased 3.6 percent from the same time last year.  And according to NAR’s statistics, home sale prices have risen for 84 consecutive months (which equates to 7 years of continued gains)!

There are many reasons for a short sale

Although home sale prices are rising, there are still many home owners who are underwater. According to Attom Data (attomdata.com), distressed home sales still account for 12.4 percent of all home sales.  Of course, this is far from the 38.6 percent in 2011.  And the percentage of distressed sale continues to decrease.  However, the number is still significant. 

It’s estimated there are millions of underwater home owners.  There are a number of reasons why home owners may be underwater, including (but not limited to) years of deferred maintenance, or a negative equity mortgage.  Many short sales today include investment properties.  Some home owners don’t know they are underwater until they list the home for sale. 

Although not as prevalent as in 2011, the short sale is still relevant!  Many underwater home owners don’t have to sell, as they are not financially distressed, and are happy to stay put for many years. However, some are compelled to sell for a number of reasons (such as divorce, bankruptcy, etc.).  Some underwater home owners may have a desire to move, but can’t because they are underwater (such as empty nesters and retirees). 

If you think your home sale may result in a short sale, get the facts.  Question what you hear from others and what you find on the internet.  There is a lot of information circulating about short sales.  A majority of the information is either misleading, erroneous, and/or outdated.  Consult with an attorney who negotiates sales to help you understand the legal aspects.  Also consult your accountant for the financial implications.

There is much to consider, and a lot at stake!  Be careful when considering your listing agent.  Due your due diligence and hire an experienced short sales agent that knows the process and is savvy about appealing lender values.  Many listing agents will give up on a short sale, mostly because it’s hard work. So most important, make sure your agent has a track record of getting the short sale to settlement.

Original published at https://dankrell.com/blog/2019/04/17/short-sale-is-still-relevant

By Dan Krell
Copyright © 2019.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Negotiating agent commissions

negotiating agent commissions
Brokerage models (infographic from nar.realtor)

It’s no secret that residential real estate agent commissions are decreasing. Market forces has created new broker models that has put downward pressure on commissions. Many agents embrace consumers negotiating agent commissions.

If market forces are working in negotiating agent commissions, and commissions are decreasing, you might wonder about a recent class-action law suite.

If successful, an anti-trust class-action law suit filed March 6th could potentially change the landscape of the residential real estate industry.  The law suit alleges that the National Association of Realtors and a number of major real estate brokerage brands engaged in “anticompetitive practices.” 

According to the law firm Hagens Berman (hbsslaw.com), “the lawsuit alleges NAR and the Big Four have enacted a set of anticompetitive policies intended to prevent competition among real estate brokers, as well as stopping buyers and sellers form negotiating commissions, including: Only allowing listing brokers to list a property on an MLS if the listing broker makes a unilateral, non-negotiable offer of compensation on the MLS to buyer brokers. Prohibiting buyers and sellers from negotiating buyer broker commission. Prohibiting brokers from disclosing commissions offered on MLS. Allowing brokers to take both buyer and seller commissions, if the buyer is not represented by a broker. This anticompetitive activity has been devised at the national level and enforced at the local levels.”

I am not an attorney, but I have been listing and selling homes for over seventeen years.  These thoughts are my own. I am not speaking for anyone except myself.  I am offering insight from my professional experience.

On the face of it the lawsuit assertions are false. First, the allegations make it sound as if home sellers have no choice in how they sell their home except to use a full-service exclusive real estate broker.  As I wrote just last month, home sellers have many options in selling a home.  Besides selling “By Owner,” there are multiple broker options as well, including (but not limited to) MLS placement services, limited services and à la carte. 

These assertions also make it sound as if a home seller can only get an “exclusive right to sell” listing agreement with a real estate broker.  But again, the home seller has options in the type of listing agreement and broker agency type.  Because my space is limited and the issue of brokerage representation is technical, I won’t expound on the types of listing agreements and home seller representation.  However, each type of listing agreement has specific benefits and disadvantages.

Furthermore, commissions have always been negotiable. And market forces have been in favor of consumers negotiating agent commissions. The lawsuit’s assertions about real estate commissions are misconceived and cliché.  The matter of real estate commissions can be complex and depends on a number of factors, which can include (but is not limited to) market conditions, type of representation, types of services provided, among other things.  Additionally, home sellers are not the only party to a transaction that negotiates commission.  Home buyers who are represented by a broker negotiate the buyer agent commission as well.

The internet has created an empowered savvy consumer.  Like other industries, public access to information (internet) has been a major factor in reducing real estate broker fees and commissions.  Both listing broker and buyer agent commissions have decreased.  The internet has allowed home buyers to find home listings on their own regardless of advertised buyer agent compensation, including non-MLS listings such as home builder and FSBO listings. 

Although the NAR has yet to issue a formal statement, NAR vice president Mantill Williams was quoted as saying on Fox Business’ Bulls and Bears program, “We think this lawsuit is baseless and it has no merit. The state and federal courts have considered challenges to the MLS and they’ve concluded the Multiple Listing Service actually benefits consumers.”

Original published at https://dankrell.com/blog/2019/04/02/negotiating-agent-commissions/

By Dan Krell. Copyright © 2019.

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