The impact of real estate commissions adversely affects the bottom line of both the Buyer AND the Seller. For decades, Real Estate Agents were schooled by their Brokerages to misstate the facts and imply their services were free of cost to the Buyer. The truth is the commission for both the listing and selling side of the transaction were being paid out of the Seller proceeds at time of closing, after having been built into to the sale price of the property itself. The ethics violations associated with the failure to disclose, as well as the misrepresentation of the cost of services offered, has resulted in multiple class action lawsuits, investigations and settlements with the Department of Justice as well as numerous policy changes within the National Association of Realtors, Board of Realtors and Multiple Listing Services.
This is only the beginning of the shakeup in the commission driven real estate industry. The jury trial for Sitzer/Burnett is currently underway whereas the trial for Moehrl will take place after the first of the year. Anywhere Realty, which owns Better Homes and Gardens, Century 21, Coldwell Banker, Corcoran, ERA, etc. has already settled both Sitzer/Barnett and Moehrl for 83.5 million dollars and RE/MAX settled both for 55 million dollars. Moving forward both companies have agreed to disclose to all Sellers they are NOT required to pay a buyer brokerage commission. Berkshire Hathaway, Keller Williams and the National Association of Realtors continue to fight the suits in court while facilitating numerous internal changes within their organizations to ensure compliance with ethics and disclosure.
Whether home prices are likely to come down as a result of the settlements and changes of policy remains to be seen, however there will definitively be an unbundling of commissions per se, as the Sellers set the compensation they wish to offer Buyer Brokerages to attract their services.
Ohio Broker Direct has been a trendsetter in the industry for nearly 2 decades, offering flat fee MLS listing services in which the Sellers reserve the right to choose what compensation they are willing to offer to a Buyer Brokerage. Ohio Broker Direct empowers the Seller by offering a pricing model with à la carte listing services in which the Seller selects only the listing services they need. The Seller then determines the amount of commission they are offering, if any, to a Buyer Brokerage who procures a Buyer on their behalf. These services are utilized by traditional homeowners as well as Builders, Investors and Institutional Sellers. Most Sellers save between 3% and 6% of the sales price in real estate commissions. This model offers a Seller more flexibility when negotiating terms within a purchase agreement as well as the opportunity to improve their bottom line.
INTENTIONAL MANIPULATION OF THE MLS DATA
Both Buyer and Listing Agents intentionally manipulated the MLS to their advantage, a blatant failure in their fiduciary duty to their clients and customers. The National Association of Realtors and Boards of Realtors colluded in supporting deceptive practices to ensure inflated commissions via the MLS. The organizations strategically created and enabled search criteria in the MLS to allow agents to blackball listings based upon the commission structure.
Buyer Agents utilized the filter to set up searches in which their Buyer would only receive alerts on homes that offered commissions equal to or greater than 3%, rather than an alert with ALL properties matching their buying criteria. While the vast majority of ethical Buyer Agents chose not to use this filter, I believe many Buyers and Sellers have been unjustly harmed due to use of this filter. This filter was recently removed during the time period in which the Department of Justice was investigating the National Association of Realtors.
Listing Agents incorporated commission structures that adversely impacted both Buyers and Sellers in ALL market conditions. For decades, traditional real estate companies did not disclose in their listing agreements how much of the commission would be shared with Buyer Brokerages. This practice did not change until after lawsuits were filed. While the Seller assumed the commission was being split equally between the listing and buyer brokerage, the truth is many listing agents were charging 6 to 7% commissions and offering only 1 or 2% of said commissions to the Buyer Brokerage.
The practice of offering a smaller commission to the Buyer Brokerage often gave the listing agent the advantage of time as they sought to procure their own buyer. This enabled the listing agent the opportunity to earn the entirety of the commission, knowing some of the buyer agents manipulated the search fields in the MLS and only introduced their buyers to homes offering more lucrative commissions. Knowing that time is money, this practice put the Sellers at a disadvantage as they were often locked into a 6 month listing agreement with no recourse. Recently most Brokerages have revised their listing agreements to disclose exactly how much of the commission will be offered to a Buyer brokerage.
A national radio show reached out to me last week and facilitated an interview in which we discussed a variety of issues plaguing the industry. Along with current and upcoming lawsuits regarding disclosure, real estate commissions, and ethics, we discussed tax liability and the interest burden often associated with commissions. Today I will use an example utilizing the sale of a million-dollar property in which a traditional real estate brokerage charges a 6% ($60,000) commission included in the sales price. A buyer with 30 year fixed rate mortgage at a 7.5% interest rate would ultimately pay $90,000 over the life of the loan to cover the services rendered. Additionally, the $60,000 commission incorporated into the sales price is reflected in the value the county auditor / assessor assigns to the property. This directly impacts the calculation of property taxes paid each year. On the other side of the spectrum, if the Seller did not own the property for a minimum of 2 of the past 5 years prior to the sale, the Seller will have a capital gains tax burden associated with the sale of the property. While this figure itself may be reduced when calculating the net gains of the sale of real estate, if the sales price exceeds a certain price point, other tax ramifications to the Seller may kick in, with the ultimate winners being the mortgage institutions collecting the interest, the Internal Revenue Service (IRS), and the real estate industry itself.
This begets the question I have been asking for decades – If a listing Brokerage is satisfied with a 6% commission on the sale of a $100,000 home totaling $6,000 (often shared in part with a Buyer Brokerage) – why demand an additional $54,000 in commission for selling a million dollar home? A first-time home Seller or Buyer involved in a hundred thousand dollar transaction will need significantly more hand holding per se than seasoned Sellers and Buyers involved in a million dollar transaction. Hence there is no justification other than greed, for the inflated commission on properties in higher price points.
CHANGE IS ON THE HORIZON
- The MLS has completed the removal of the commission search filter utilized by unethical Agents which had prevented their clients from receiving notifications of all listings available that met the Buyer’s criteria.
- Real Estate Agents and Brokers will no longer infer their services are free.
- The MLS will modify their system to allow listing Brokerages to offer zero compensation to a Buyer Brokerage if that is the Seller’s preference.
- Sellers will determine what amount of money they will offer to a Buyer Brokerage for procuring the Buyer, which is likely to translate into more of a flat fee scenario rather than the percentage of the sales price.
- Buyers may choose to pay a flat fee or hourly rate to agents for opening doors per se.
- Buyers may opt to retain either an agent or attorney to facilitate all aspects of negotiations at a flat fee or hourly rate that would be significantly less than 3% of the sales price itself.
All of the above may result in a significant reduction in membership to the National Association of Realtors as real estate agents leave the industry to pursue more lucrative sources of revenue.
Stay tuned for updates as the Sitzer/Burnett case wraps up and others move forward.
When the time comes to sell your home, it may be prudent to consider utilizing an Ohio Broker Direct Flat Fee MLS Listing rather than going the traditional route.
Selling real estate on your own without the assistance of a traditional service Real Estate Brokerage will require both commitment and due diligence for which you may be rewarded by saving thousands of dollars in commissions. Maximizing marketing exposure is key. We have SOLD well over a BILLION DOLLARS in Real Estate & Saved Sellers Millions of Dollars in Real Estate commissions. Please contact our team to learn how the For Sale By Owner Flat Fee MLS Listing Options at Ohio Broker Direct will enhance your marketing exposure to ensure a more expeditious sale, yielding a higher price with better terms that suit your specific needs. Reach out to us directly, visit our blog page or sign up for our newsletter to receive the latest information to ensure you have the knowledge to maximize your profit.
Joan Elflein, Broker / Ohio Broker Direct
Ohio Broker Direct & its Brokers or Associates assumes no responsibility or liability for any errors or omissions in this blog, we advise all participants engaged in the buying or selling of Real Estate to enlist the services of a Real Estate Attorney.