Redfin has reported that following revisions to industry rules required by the National Association of Realtors lawsuit settlement, commission negotiations have grown more regular in certain markets and at higher price points.
The analysis centers on in-depth interviews conducted nationwide with numerous Redfin agents regarding the reactions of sellers and buyers to the changes. Redfin representatives are observing varying effects around the nation, even though customers and representatives are still getting used to the new regulations. While fee negotiations have not changed at all in some markets, they are growing more usual in some.
“We’ve found a tale of two markets,” said Daryl Fairweather, Chief Economist at Redfin. “In slow markets where there’s less demand from homebuyers, like Austin, agents report that most sellers are still willing to pay the buyer’s agent commission to attract buyers, and agent fees are mostly the same as before. In markets with low inventory and robust demand, like San Francisco and Boston, agents report more instances of negotiation around fees, with sellers asking buyers to make their best offer rather than preemptively deciding what they want to offer a buyer’s agent. Now, like the amount of earnest money deposit or including an inspection contingency, the amount the buyer is asking the seller to pay her agent is a term that impacts the strength of the offer. That will likely drive fees down over time.”
The average buyer’s agent commission, according to a Redfin report from July, was 2.55%, a little less than it was prior to the settlement’s announcement. The new regulations have eliminated fees from the MLS, making it more difficult to track them.
Listing agents are now required to disclose their fees to prospective buyers before they begin showing properties, and they are no longer allowed to unilaterally offer the buyer’s agent commission in NAR-affiliated multiple listing services (MLSs). The new regulations went into effect on August 17.
Buyers Confused About Signing Agreements Before a Home Tour
Fees are supposed to be more open, which is why agents and purchasers must agree on fees before they tour. However, it seems sense that buyers are hesitant to sign papers when they visit properties. Redfin’s strategy is to require prospective homeowners to sign a brief fee agreement—which can be completed online—prior to their initial property tour. The agreement is meant to inform potential clients of what Redfin would charge if a Redfin agent were to represent them; it does not bind the consumer to utilize Redfin.
Many agents at other brokerages are adopting a stricter stance, requiring purchasers to sign a comprehensive buyer agency agreement before scheduling a showing. For a predetermined amount of time, these agreements usually require the buyer to deal only with that agent on the purchase of their home.
“I showed a $4.75 million home in Carlsbad,” said Alex Galanis, a Redfin Premier agent in San Diego. “The buyer told me she tried scheduling a showing with another agent, but immediately that agent sent her a 12 page buyer representation agreement for signatures. She found it very off-putting, and appreciated our approach. I want to win a customer’s business as much as the next agent, but I don’t think anyone should be forced to make such a big decision before we’ve had a chance to meet.”
Buyers & Sellers Negotiating Who Pays the Buyer’s Agent
More sellers are realizing that commissions are negotiable and that they may be able to get the buyer to pay part or all of the buyside commission as a result of the NAR settlement. Agent consensus: Demand for the listing determines how much a buyer or seller can negotiate, much like in typical real estate transactions.
“While I’ve always let my sellers know they can offer whatever commission they want and don’t have to offer anything at all, my sellers are having the conversation with me in more depth than ever before,” said Blakely Minton, a Redfin Premier agent in Philadelphia. “I recently had a seller decide to offer 1.5%. I let them know offering less commission would most likely mean the buyer has to make up the difference, and it would only matter if you don’t have demand for your home. That 1.5% home listed at $350,000 and got 12 offers. It was a great little home right near the University of Delaware. Half the offers we got still asked for 2.5%. But the two highest offers accepted that the seller would pay just 1.5% to the buyer’s agent.”
Las Vegas Redfin Premier agent Fernanda Kriese added: “It’s all price-specific and seller-specific. Sellers understand that agents aren’t going to work for free, but they’re thinking about what percentage they’re going to offer the buyer’s agent: Maybe it’s 2%, maybe it’s 2.5%, maybe it’s 3%, depending on how desirable the listing is. And ultimately, the commission goes together with the price. Sellers may have to list slightly higher if they’re offering to pay a higher commission to the buyer’s agent, and vice versa.”
Overall, there is an increasing downward pressure on buyer’s agent commissions for high-end listings, according to agents.
While Negotiations are Becoming More Common, Most Sellers Still Willing to Help Cover Agent Fees
“Buyers and sellers of luxury homes are more likely to negotiate agent fees, which makes sense because on a $5 million home every half a percent is $25,000,” says Mimi Trieu, a Redfin Premier agent in Silicon Valley. “They want to make sure they are getting value from their agent. My luxury listings aren’t offering a certain buyside commission. If the buyer makes a great offer, they’ll consider paying the buyer’s agent.”
In the past, sellers actively promoted in the Multiple Listing Service (MLS) a commission they would give to any buyer’s agent. Furthermore, the buyer’s agent frequently took the given commission. Presently, sellers are weighing their options and selecting a course of action in light of the housing market and the competition they anticipate for their property. As long as they still get their desired amount, the majority are still generally prepared to pay the buyer agency cost.
In New Jersey, Redfin Premier agent Amira Elgoneimy continues to see sellers proactively offer a commission to buyer’s agents. “Sellers in my area are still offering to pay commission to the buyer’s agent in all price points, so far. I wrote five offers the first two weeks the rules were in effect. In all five, we knew the seller was offering to pay commission.”
After the offer of pay was removed from the MLS, there was an increase in the amount of back and forth between agents when arranging a showing. Specifically, more buyers’ agents contacted listing agents to inquire about whether the seller was open to receiving compensation or not. According to Redfin agents, some listing agents are using inventive methods to convey to buyer’s agents the amount that the seller is willing to pay. For instance, agents have observed instances of “3%” written on a lockbox in Portland and Dallas. Nevertheless, the majority of agents say they mostly talk about fees over the phone and through SMS.
Gregory Eubanks, a Los Angeles Redfin Premier agent says,“With sellers, I’m laying everything out upfront, presenting the options for payment to the buyer’s agent. One, don’t offer a buyer’s agent commission at all. Two, state that you’re open to paying buyside commission but don’t provide an exact number. Three, go ahead and put a number out there–it can’t be advertised over the MLS, but listing agents can communicate it to buyer’s agents in different ways.”
To read the full report, including more data, charts, and methodology, click here.
The post Buyers & Sellers Respond to Recent NAR Reforms first appeared on The MortgagePoint.
