3 ways commissions lawsuits will change the industry
Lending changes, outside-the-box compensation options and some amount of agent attrition are likely outcomes, say T3 Sixty executives.
- Any changes resulting from the many buyer-broker commission lawsuits will be gradual as cases and appeals make their way through the courts.
- Financing rule changes are likely, allowing buyer agent compensation to be folded into a home loan.
- A fixed-fee model or retainer system for professional services are among the compensations options available to agents.
There's plenty of trepidation in the industry right now about the commissions lawsuits and how they'll change buyer agency. But the transition may not be as painful as some real estate professionals fear.
Even if cooperative compensation eventually goes away, that's not a doomsday scenario for buyer agency. The more likely outcomes, said Jack Miller, CEO of T3 Sixty, and Paul Hagey, EVP of publications, are new financing rules, more compensation options and — yes — some agent attrition.
Miller and Hagey discussed the implications of the lawsuits and the future of compensation during a recent webinar. (Note: T3 Sixty and Real Estate News share a founder, Stefan Swanepoel.)
Change is coming, but it will be gradual
In the coming years, Miller and Hagey expect rule changes will allow for buyer agent commissions to be folded into the mortgage, providing more flexibility for homebuyers who want and need an agent's expertise to help close a deal. They also believe enterprising agents will create new, easier-to-understand fixed-fee models. Neither change, they said, will have much of an impact on the overall price of a home.
Miller emphasized that while these shifts are likely, they will also be gradual. Cooperative compensation, where the seller continues to pay the commission fees of both the buyer and seller agents, won't disappear overnight.
That's due in large part to continuing court battles. A judgment in the Sitzer/Burnett case — where the jury found for the plaintiffs and awarded $1.8 billion in damages — is months away and will almost certainly be appealed. And there are now more than a dozen other major antitrust lawsuits challenging buyer agent compensation.
While a legal resolution could be years away, consumers are already pushing for changes, and some brokerage companies are taking action. During this transition period, agents, brokerages and the industry as a whole will need to do a better job of explaining and promoting the value of real estate services.
Financing rules will change
Pressure on first-time homebuyers, particularly those using Veteran Affairs loans, is likely to spur lending changes, said Miller.
"VA buyers are in a really bad spot because they can't pay their buyer's agent out-of-pocket under the terms of their loan," Miller said. "So it does seem likely that loan caps will be raised in order to finance some of the closing costs."
Agents will find new ways to get paid
But even if buyers can't (or don't choose to) roll the commission payment into their loan, agents have other avenues for getting paid. Instead of seeking a percentage-based commission, working on retainer might be one way to go, said Hagey.
"It may look like another professional services field where there's a monthly retainer… or an hourly rate or a combination," Hagey said.
Miller agreed, adding that agents are going to find ways to get paid — whether that's with a retainer, flat fee or another approach — without taking a huge hit to their compensation.
"Some of the real estate teams are very good at adapting to things like this quickly," Miller said.
Not all agents will stick around
For agents who are struggling, compensation changes might be the last straw. Miller said agent attrition is already happening, mostly because of the challenging market. If it becomes harder to operate, he expects agent numbers to continue to decline, particularly among those who only do real estate part time.
"Some agents… they'll say 'You know what? This sounds like a lot of trouble. I don't want to have to navigate this new reality,'" Miller said.