Q&A on Massachusetts real estate commissions

Before I dig into the Q&A poetion of this Boston condo for sale blog post, let me give you some of my thoughts.

When I first started in this business, the Boston condo for sale brokers ommission was 6%, than it dropped to 5% and today, I’mm seeing more and more 4%.

Since the NAR settlement was announced on March 15th, more of the listings are offering less than a 2.5% commission to the buyer-agents.

There isn’t a new rule that directed listing agents to offer less commission. They just felt like doing it.

Is it due to the listing agents being weak and inexperienced? Or are the listing agents are still charging their full fee and taking more for themselves? Either way, they are under-appreciating of the job of buyer-agents, which isn’t good for their sellers.

What’s going on?

Agents who lack solid sales skills will offer a reduced commission rate as their reason to hire them. Importantly, these agents are unwilling to improve their skill set. They believe that completing the forms is all there is to being a realtor, and offering a reduced fee is the only way for them to stay in business.
Those who still charge their full fee but are now paying less to the buyer-agent are flat out greedy. If the DOJ wants to focus on the nefarious, they can start right there.

Would you want either of those agents in your corner when the action starts?

Smart home sellers will recognize a critical issue.

The eventual sales price matters more than the commission rate.

Homeowners who don’t want to pay ANY commissions can sell their Boston condos for sale on their own.

In addition, there are plenty of agents who offer a reduced rate in exchange for reduced services – but what real estate services can you do without? What are the vital sales skills needed to sell for top dollar?

The best agents have sales skills that cause your home to sell for more money, and they are successful enough that they don’t need your listing. Do you think they are going to discount their rate?

Are you going to hire a great agent who will push the sales price higher? Or will you settle for any old licensee just to save a point on the commission?

Reducing commissions aren’t going to make agents better, or have them put in extra effort. They aren’t going to do the same job for less pay. Because they agreed to be paid less, they will want to do less.

Is that who you want working for you?

The top agents employ a collection of superior sales skills that deliver a top-dollar sales price AND make the experience easy and enjoyable. Isn’t that what you want?

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Q&A on Massachusetts real estate commissions

Last week the National Association of Realtors announced a settlement agreement in the Sitzer Burnett case that would take effect in July. For those who missed the declarations in the media that this outcome will render transacting real estate almost free, protect consumers, and make homeownership affordable once again, the settlement does none of that.

Here’s the truth.

1. The settlement forces brokers to reduce their compensation. False.

The settlement in no way establishes a standard or limitation on Realtors for what they may charge, nor services they elect to deliver. Those fees have always been negotiable and there has never been any collective bargaining. In every market, there is a wide variety of fees, just as there are levels of marketing, service and competence.

2. The settlement will, for the first time, allow sellers to no longer pay compensation for an agent bringing the buyer. False.

There has never been an obligation for a seller to pay buyer agent compensation, yet it is a practice that’s worked well. A past rule requiring an offer of some amount of compensation was a rule of display on a Realtor-owned MLS, yet it could have been as low as $1. That limitation was removed and today the MLS accepts all listings, regardless of buyer agent consideration.

3. The settlement prohibits sellers from paying a commission to a buyer’s agent and relieves sellers of the financial burden. False.

The mandate restricts properties with an offer of buyer agent compensation from displaying on association-owned MLS, yet the practice can’t be restricted in any other form of marketing. Sellers may still elect to pay buyer agent compensation to differentiate their properties. While sellers can elect not to pay buyer agent compensation, that doesn’t mean they will avoid the economics as buyers may write into any offer a contingency requiring the seller to cover the cost or request other concessions.

4. The settlement will serve to meaningfully lower prices and make homeownership affordable again. False.

Values in real estate are determined by supply and demand. Fees in a real estate transaction represent additional expenses, yet these include not only commissions but many other related charges. Should real estate commissions be reduced by 1% because of compression, that $500,000 home will now cost $495,000. Not only is the potential impact marginal at best, but do you think the seller now believes the home is worth less and will happily give the difference to the buyer? The reason home ownership is increasingly less affordable is that homes in our market have significantly risen in value these last few years.

5. The settlement is a win for buyers who will now be able to negotiate the fee for representation again. False.

First of all, the broker fee in Massachusetts was always negotiable.

For readers who have purchased homes, it is more than likely you were happy to have the seller compensate your agent so you didn’t have to. For buyers who had to provide the down payment and closing expenses, having the commission paid by the seller and incorporated in the home price allowed them to finance the amount over time instead of coming up with additional cash at closing.

6. The settlement will result in significant restitution to consumers who were “harmed” over recent years in their transactions by Realtors. False.

The settlement is huge, yet when one divides the amount by the number of potentially qualifying consumers it works out to about $10 per person. Those benefiting are the attorneys who have submitted a request to the court for over $80 million in fees.

Source: HeraldTribune

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