Starting Over: Getting Paid

Over the next couple of years, the real estate industry will undergo a complete transformation. This transformation will not be the result of some new Broker gimmick, pyramid scheme or charity scam. This transformation will be one of math and demographics.

Millennials are now becoming home sellers for the first time. They loved the “old” real estate business model when they bought. But, they’re really not going to put up with it when they go to sell.

You have to admit, forcing a seller to pay the sales commission of the person he is negotiating against is really a stupid idea. Outside of the real estate industry, no one on earth would EVER do such a thing. Say what you will about Millennials, but they don’t exactly have a track record of blindly following the stupid rules of their parent’s generation. Look for them, to finally touch the “third-rail” of real estate.

Why do sellers have to pay the sales commission of their Buyer’s agent? 

Buyers don’t want to pay. It’s a universal given; home buyers don’t have a lot of extra cash lying around to hire a Realtor. The process of buying always depletes a buyer’s cash reserve. The Sellers on the other hand, through their sale, are sitting on a pile of cash. Of the two principals, the only one able to pay for Realtors are the Sellers.

So, a marketing story was created to justify this “unique”, one-of-a-kind, sales model. And, in the pre-Internet era, logic could be bent to make this sound at least reasonable. Besides, in the pre-Internet era, there were no other choices. 

But today, this business model needs to die. The new generation of sellers will demand it. Or, they will simply ignore it and work around it. Either way, the “protecting of the buyer’s Agent” will slowly become history.

Why do industry groups, NAR/GAR, continually push a business model that hurts home sellers?

Promoting a business model that unnecessarily takes from those they’re charted to protect, all under the guise of fiduciary responsibility, is masterful marketing. Keeping it going for 50 odd years is either genius or criminal—depending on your point of view.

While these groups offer value, never forget, their core mission is keeping the status quo. They’re not interested in changing their business model.

How do we stop this?

If we want both sides of a real estate transaction to be represented by agents; and everyone does, there has to be a new way for the Buyer’s agent to get paid. The “third-rail” has to be fixed.

Logic says, both parties need to pay for their own agents. Therefore, one way to fix the problem would be to allow buyers to fold their Realtor cost into their mortgage. Basically burying the cost of a Realtor. But, financing the cost of your Realtor over 30 years also sounds a bit wacky. It does until you consider real estate will eventually need to move from percentage base system to one of multi-level flat fees.

If buyers are allowed to bury their Realtor costs into mortgages, count on the mortgage companies to ditch the percentage based compensation system. There is little business justification for it. Levels of compensation based on property type would make more sense.

But, imagine a world where Realtor fees could be put into a mortgage. The change would be staggering.

The “third-rail” would be fixed. Home sellers would save/keep tens of millions of dollars of their own money. The real estate industry would move to a long term sustainable fee based system. Mortgage companies would replace the national realty franchises in sales agent development. And yes, sales agents would make less money per transaction. (A positive with the general public) All changes long overdue.

This is going to happen. How? Not sure. But, you can bet the bank the generation that gave us Social Media and the shared economy isn’t going to put up with the dated BS our industry continues to spew. Good luck on trying to hold them back.

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