Agents Decoded - J. Philip Faranda
Illustration by Lanette Behiry/Real Estate News

Agents Decoded: Commissions lawsuits won’t doom agents 

Real estate agents hate change — but lawsuit outcomes like buyer agreements and greater transparency are nothing to fear, says industry veteran Phil Faranda.

November 18, 2023
5 minutes

The direction of your business depends on decisions you make every day. Agents Decoded can help you by presenting the perspectives of seasoned pros who have been there, made mistakes, and found success.

If you've been paying attention to the news about the recent commissions lawsuits, then you know change is coming. 

People hate change. And real estate agents hate it far more emphatically than most, because it isn't viewed just as an inconvenience, but as a threat to their livelihood. And yet here we stand, involved in a higher percentage of transactions than ever despite the challenges of technology, private industry, and governing authorities changing the landscape. 

This isn't the first time agents have responded to change with predictions of doom, and it won't be the last. Here are two examples from recent history: 

  • In 2008, the Department of Justice ruled that Virtual Office Websites (VOWs) could not be treated like second-class citizens by associations or MLSs. Many people were concerned that this would lessen agents' value proposition as the gatekeeper of information to the public, yet it ended up being a nothing burger. 

  • In 2010, Zillow introduced what would be known as their Premier Agent program. For many agents, that was the last straw — Zillow already had the Zestimate and other data that brokerage and IDX websites did not offer. The vitriol and conspiracy theories lobbed at Zillow still echo today as their business model evolves. 

In both cases, many in the industry were concerned that the disruption brought on by these developments would put us out of business. Instead, NAR membership increased by about 50%, and the percentage of FSBOs that eventually list with an agent is higher than ever. 

Change should be welcomed, not feared

This is not to say that the commissions lawsuits are not going to be disruptive or affect how we do business. If my company were found liable and had a $1.8 billion judgment, I'd be concerned. But what it does say is that whatever changes occur downstream, they should be welcomed. 

Mark Seiden, a competitor of mine for 18 years before he joined my company two months ago, is in a quiet minority of  brokers who think the verdicts were correct and will bring on long-overdue change. Mark's team has signed 100% of his buyer clients to an exclusive right to represent for at least 10 years. That translates to almost 500 buy-side closings worth nearly $250 million from a model that is actually more listing-centric. 

"We won't need to change," he said to me. "We were already fully disclosing to all parties and 'listing' our buyer clients for more than a decade. This won't change how we do business at all. And I didn't do this to not be sued, I did it this way because it made sense."  

The brokerage business is here to stay — but mediocre agents can go

For as long as I have been licensed, professionalism in the agent population has been represented by a trade association whose moral authority to oversee professional standards has been severely undermined, and governmental oversight at the state level that is underfunded and a year behind complaints filed. To put it bluntly, our self-policing has been awful for too long, and that has yielded a horde of poorly trained, ethically challenged agents who should be shown the door anyway. 

So where do we go from here? 

First of all, the real estate brokerage business is not going away. And your job might even get easier if more mediocre or terrible agents leave the industry and no longer complicate the other side  of your transaction. 

Transparency, exclusive agreements will not destroy buyer agency

The big change for many agents will be new paperwork where you'll have to disclose more to the consumer than you may be used to. Agents who are terrified about getting buyers to officially hire them with an exclusive agreement need to get over that and learn their value proposition. And agents who are anxious about disclosing to sellers what they will pay the buyer agent also perplex me, because we've always done that in New York, and it hasn't added an iota of difficulty in my experience. 

Some states may need to change laws so buyers can roll the buyer agent commission into the proceeds of the sale — which is essentially what we have always done. Banks may also need to alter rules about what costs a buyer can roll into their mortgage. Again, this is more a matter of disclosure and semantics than the actual mechanics of a transaction. Purchase money will fund proceeds, and proceeds will be distributed as they are today.

In short, if you do your job, you'll be fine. And if you don't do your job, you don't deserve to be fine. 

This is the largest expenditure of most people's lives. Discomfort about full disclosure or getting clients to sign a new or different form shouldn't factor into the mix. The vast majority of clients know this and understand the value of having an agent advocate. They deserve full disclosure from those they pay to represent them.

J. Philip Faranda is a manager and associate broker at Howard Hanna | Rand Realty serving Westchester and Putnam Counties, just north of New York City. He was previously a broker-owner at J. Philip Real Estate, the top independent brokerage in the two counties by transaction sides, which he founded in 2005. He also writes a real estate blog which has been cited by major media outlets. The views expressed in this column are solely those of the author.

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