Real Estate's New Reality-Part 2

 Hopefully part 1 has made sense and you're ready to hear more!

First, let's address how this is viewed by Realtors. When the first ruling was issued in the first lawsuit, I think most of us (here in Virginia) felt generally confused and somewhat angry. This suit portrayed us as greedy liars who only want to rip off the public and now this judge has set everything straight and housing will be cheaper for everyone. This is what was all over the media, and even our own President said it would make things cheaper. The only one getting anything here besides the lawyers is some and yes I mean some sellers. I will address who now pays what below but what has happened is that now the buyer's are responsible for their agent's commission thus actually raising the cost of purchasing a home. In theory the only one saving is the seller, but in practice this isn't happening regularly, yet.

The second thing was that the suit says that we were not being transparent with the public and that the sellers (in the lawsuit) said they were not aware that that's where their money was going (in reference to the buyer's agent). I can't speak to the contract they signed but here in Virginia it is plainly spelled out where the broker's fee is going. It says that the broker's fee is X amount and that Y amount will be given to the buyer's agent from X amount. There's no hidden agenda about that. The other transparency issue they had was that buyer's were not aware of what their agent was being paid and that ultimately it was coming from their money. (They were giving money to the seller and the seller was giving it to the brokers). It was decided by powers that be before the lawsuit settled that the buyer's agent's commission would be posted publicly for all to see, but in reality only some websites posted it while others did not. Again, this really wasn't hidden in that it was disclosed on the Settlement Statement, but yes it was not known before the transaction began. I think the original sentiment behind that was that the buyer's agent's commission was technically being paid by the seller's broker from their fee and therefore the buyer was not involved in that transaction. If you want to get technical about it, this was strictly a broker to broker transaction the buyer's agent was paid by the seller's agent.

The third allegation was collusion. It was perceived that we all got together and decided that we were all going to get the same amount from our clients and if we locked arms and stood strong, they couldn't break us. Give me a break, seriously. Curt has been doing this for over 30 years, I've been here for over 9. We've been sales agents, associate brokers and now broker owners of our own company. Never, ever, ever, have we been party to any such doings. In fact anytime Realtors get together and commission comes up, we all sit up straight and button our lips. We aren't even allowed to mention a number, we usually talk about it terms of "chickens" or "apples", let alone discuss charging the same fee. Remember back in part 1 where I said that about 10 years ago we began seeing fees drop? The competition became real even further back than that. There used to be only a few brokerages and they were all big. Eventually agents had enough of being told how to do business (technically we are independent contractors not employees) and started opening up small brokerages of their own, where now the majority of brokerages in our MLS are small independent firms. There are so many brokerages and soooo many agents, everyone knows at least 2 I'm sure, that you have to be competitive with your fees. What we've also seen over the past 10 years is new business models. Brokerages offering different services for different fees. Some have become more warehouse style, less service for lower fees. Others have become more high end boutique style, more service, higher fees. Both Redfin and Zillow blew up the standard model and terrified agents, at least for a short while, we've all recovered from that now. My point is that we don't have some large council that gets together do decide that we all do the same thing for the same fees.

Now, my thoughts on these top three allegations. 

First, like I said above, the cost of housing did not get any cheaper for the buyers, it actually increased their cost to buy above and beyond the purchase price of the home. Currently this is only affecting some buyers while we are in a state of limbo. The DOJ would ultimately like to see the real estate transaction run differently, until that comes into play the majority of sellers are still paying the buyer's agent. I'll address why shortly.

Second, like I said I can't speak to the contract of the original complainants but our contract here in central Virginia plainly spells out where the fees are going, who they are going to and at what amounts. If you as a seller did not know this then you didn't read your contract. Stop signing things you haven't read!

I've mostly addressed the third allegation and I understand that the public might guess it happens that way, but it doesn't. Think of it like a gas station. If Buddy's Gas on the corner charges $3.50 for gas then Joe's Gas just one block down might charge $3.50 also because he knows that's the market rate for gas in his area and why shouldn't he make as much as Buddy. Now if their cost to buy the gas goes down, then Buddy might decide to lower his price to get more customers. This of course is going to cause Joe to look at his costs and perhaps he decides to lower his gas prices as well. But maybe he figures that he has the best chocolate bar selection and better coffee so even if he keeps his cost at $3.50 customers will still come to him. It's the customer's decision if they want cheaper prices with crappy coffee or a slightly higher price and great coffee. Businesses use many models when deciding on their particular practices, sometimes they charge the same as their competitors because that's the going rate for their product and other times they will change their prices for various reasons. It's Econ 101 folks, not collusion.

Don't fall asleep! I'll actually go to part 3 to discuss where we currently stand and why. Take a break, check your email, get some coffee....go ahead splurge for Joe's good stuff.