It's Not the End of the World 🌎

You know what they say: you don’t have anything if you don’t have your health! You may have noticed (or not) that I didn’t send out my customary Tuesday message (and video) last week – I was sick, in bed (pneumonia!), where I’ve spent the better part of the last two weeks. I managed to crawl out of bed for a few hours today to shoot this week’s video, but now I’m back under the covers and dashing out this message to you.

As I’ve gone in and out of consciousness over the past couple of weeks, I’ve been seeing a lot about the recent $418 million settlement the National Association of REALTORS has proposed for the various commission-based lawsuits that have been going on for years. Large brokerages have worked out their own settlement agreements, with Compass, my own brokerage, agreeing to pay out $58 million over the next two years (while admitting no wrongdoing).

It is unclear who exactly comes out ahead with this settlement. Certainly not the recent home sellers who formed the class(es) for these class action lawsuits; they’ll probably end up getting a check for around $25 each.

If there’s any clear-cut winner, it is of course the law firms that put these class action suits together. I’m not sure how much they’ll end up keeping, but it may come to over $200 million. That’s a pretty sizable check for sure!

It could be though that future sellers do end up saving something on the commission when they sell their homes. That’s possible. However, I think it’s a mistake to believe that simply paying a lower commission on the sale of your home means you’ll walk away with more than the cost of the saved commission. I think that for every person who does save something, there will be a greater number that come out losing.

That’s because commissions are not a zero-sum game. Buyers who will not be needing the seller pay their agent a commission will surely work to negotiate a lower sale price to reflect that fact. And those buyers who have no representation will, I am sure, fall out of contract at a much higher rate than buyers who have agents. And there are few things more costly to a seller than when a contract falls apart.

And of course there are myriad concerns for the buyers – especially first-time and limited-means buyers – who will forsake a paid agent to represent them. They will often end up getting the short end of a sharp stick – which may end up being turned around and pointed at the seller after the sale, when the buyer thinks the seller misrepresented something to them and feels compelled to take some kind of legal action as a result.

So there will be winners and losers as a result of these lawsuits and settlements. The total amount of money spent on commissions nationwide may well decrease somewhat as a result of this. But ironically, I expect that very little of it will end up being money that a seller saves, and that savings will, I believe, usually come at considerable cost to their bottom line.

Usually, but not always. Some sellers will, I am sure, end up netting more money by paying little or nothing to a buyer’s agent. But the irony is, a seller has never had to pay anything (beyond a $1 token amount, a requirement to be listed on the MLS) to a buyer’s agent.

At the end of the day, I expect there will actually be little practical changes in the way homes are bought and sold in the Bay Area…because very little will actually be changing. Except I do believe there will be more discussions about commissions, how they work, what is an appropriate amount, and why sellers have been well-served, by and large, by the commission sales model for well over 100 years. And those are discussions well worth having.

If you have any questions about how these changes may impact you, please feel free to contact me any time.