Don’t believe the doomsayers — buyer agency is here to stay
Following the Sitzer/Burnett verdict, the internet has been buzzing about the end of buyer agency. Industry expert Russ Cofano says that's just a lot of noise.
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I have been concerned about the probability of this outcome since I first started studying and debating the implications of these cases four years ago. And while I have been unwavering in my opinion that the plaintiffs would indeed win, I have gone back and forth on the potential implications as a result.
For the TL;DR folks: Buyer agency is alive and well, and I'm convinced it will be for a long time. If you want to know why, read on…
Leading up to this week, and especially since the verdict was announced, the digital sphere has been rife with opinions and speculation that the result of this case and others will be the elimination of a seller's ability to pay the buyer agent's fee.
Nope. While the claims in the cases are complex, the most basic explanation is that the court found that requiring a mandatory payment of a fee to a buyer's agent as part of the MLS is a violation of antitrust laws. There's a big difference between allowing payment and requiring payment. It's why smart and leadership-minded MLSs like Northwest MLS in Washington State and Bright MLS in the mid-Atlantic eliminated that requirement.
You may be thinking, "True Russ, but what about our friends at the DOJ and FTC — aren't they just waiting in the wings, ready to throw the knockout punch to completely eliminate compensation from the MLS?"
Maybe. The government is still in the picture and may try to eliminate commission-sharing completely from the MLS.
So, if there is no requirement to pay a commission or, worst case, commission-sharing is removed from the historical MLS construct, the doomsayers conclude that buyer agency as we know it will implode.
The argument goes like this: The common buyer, without funds to comp their own agent, will have to use the listing agent as the only agent in the deal (either representing the seller or as a dual agent), and buyer agency will become a luxury only affordable to well-heeled buyers who can pay their agent out of pocket.
Not happening, and here's why.
It comes down to human psychology. According to a 2014 survey done by Edmonds.com, one in five Americans would rather say so long to sex for a month than haggle over the price of a car, and one in three people surveyed even said they'd rather do taxes instead of experiencing the historical "hot-box" process of buying a car. Celibacy and taxes over car shopping? While buying a car can certainly be an emotional and stressful experience, homebuying ranks far higher on the sweat-meter. We also know that "loss aversion" is a proven cognitive bias that describes why, for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining.
So how does this relate to buyer agency? Even with all the tools available to modern buyers, the reluctance to self-negotiate and the fear of loss in the largest economic transaction of their lives have meant job security for buyer agents.
OK, but what about payment? Buyer agents won't work for free, and most buyers won't have the means to pay despite their psychologic longings. That's why the existing system of compensation has worked so well.
Let's turn to the psychology of sellers. Generally speaking, their primary concern is getting the best deal, which is why most listing agents prepare a net sheet for sellers when they take the listing.
Today, that seller net number usually has the buyer agent's fee built in because that's how the system works. Tomorrow, maybe not.
Despite what happens in federal court, and despite what the government might do, I believe the industry is still in control of its destiny. Post Sitzer/Burnett, buyers and sellers will continue to want the emotional support and guidance that real estate professionals have delivered so well for decades.
An efficient and cooperative marketplace, facilitated by strong and progressive MLSs, will lead us to a new way to work through compensation. One that allows sellers and buyers to independently negotiate their agents' fees and allows for an orderly flow of agent compensation funds, originating from the buyer (and their lender) to the seller and eventually to the agents. The courts cannot stop this. The government doesn't want to.
Russ Cofano is the CEO of Collabra Technology, which operates the digital marketing platform SphereBuilder™. He has more than 30 years of senior leadership experience in brokerage, technology, MLS, associations and affiliated businesses. Previous roles include president and general counsel of eXp World Holdings and SVP of industry relations at Move, Inc. The views expressed in this column are solely those of the author.