The Proposed Sitzer-Burnett Settlement: What Changes?
- Unbundling - a major step toward pay-per-service - a menu
- Expect total dollar value of commissions to fall meaningfully
- Expect the number of agents and brokers to fall meaningfully
- Expect significant price competition between brokers/agents for listings and buyer representation
- Expect buyers to negotiate on two fronts: a gross and net price for property
- Do not expect significant change in the price of housing
This is Transformational: National Association of Realtors Concedes
The proposed NAR settlement of the Sitzer-Burnett fiasco would, in the words of the NAR letter sent to members (March 15, 2024), provide for:
- Buyer representation agreements to become standard/mandatory by mid-July2024
- Compensation offers moved off the MLS: a new rule prohibiting offers of compensation on the MLS. Offers of compensation could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. And sellers can offer buyer concessions on an MLS (for example—concessions for buyer closing costs). This change will go into effect in mid-July 2024.
The new Buyers Representation Contract to state specific compensation to agent – buyer to pay- can be a combination of seller contribution and buyer out-of-pocket. Similar to the way commercial real estate transactions are done
Unbundling - A Menu of Real Estate Services
The evolution of technology and the googleization of information created the likes of Zillow and dozens of information services that were once the domain of the few, available to the many.
Googleization (to googleize) is the process of data addition to the Google database; transparency and access to information increase as data acquisition costs approach zero. The term’s first use is credited (2003) to John Battelle and Alex Salkever.
The result is consumers and professionals alike can access information and will demand the ability to pay for one service (negotiating a transaction), and not pay for another (finding a property).
Real Estate Agent Commissions Will Fall
Deregulation, competition, transparency, and access to information inevitably lead to lower commission rates on average and in sum.
Similar to MayDay 1975, the deregulation of stock trading commissions that led to discount brokerages (Schwab), the average commission rate paid to agents will fall.
Not Same as It Ever Was – But Not the End of the Business
MayDay opened the floodgates of change and the gradual, then torrent, of melting commissions.
Note the chart below and envision May 1, 1975. The chart ends in the year 2000/2001. The trend is drastic and unmistakeable.
Let me further state and ask that it be accepted as axiomatic that in the 24 years hence, commissions have continued to drop and approach zero.
A discussion can be found here: “The Death of Brokerage Fees Was 50 Years in the Making“, Stephen Mihm, Bloomberg 1/3/2020.
The basis for the reduction in employment has been led by technology. The addition of the NAR settlement will further accelerate this trend.
Creative destruction combined with AI’s multi-layered matrices and a bevy of Department of Justice and private party lawsuits, enhanced regulation, and transparency is recreating the compensation structure for generic real estate transactions and mortgage financings.
I believe the income level of 70-80% of working agents will fall in excess of 25% over the coming decade. Those who specialize, have a niche, or an embedded client base will face similar pressure but may gain market share and/or demand higher commission rates for specialty services.
Price competition among professionals will place downward pressure on the average commission rate and, when coupled with the new pick-and-choose menu of services offered, will further drive rates lower.
Buyer Representation Agreements Become the Norm
The buyer contract will outline compensation to the agent – where the buyer is to pay their side in full, or it can be a combination of seller contribution and buyer out-of-pocket.
The negotiation is to be between client and broker, not posted on the MLS and provides a forum for professionals to distinguish themselves AND argue for an appropriate fee.
Buyer's to Negotiate on Two Fronts
Expect the buy side of the transaction to think about negotiation from two perspectives, a gross and net price for property.
No Significant Change to Housing Prices as a Result of Sitzer-Burnett
I do not foresee a significant change in the price of housing due to the proposed settlement.
While not explicitly wrong, I disagree with the magnitude and emphasis of the NY Times comments (March 15, 2024). Decoupling of commission removes the requirement that two commissions (buyer and seller) be included in the contract and deducted from seller proceeds.
In many cases, who pays will be shifted, but a reduction of 1-3%, as total commission drops from 5-6% to 2-5%, is the maximum likely impact on housing prices.
It’s just math.
“Decoupling will allow commissions to be removed and negotiated down, lowering both housing prices and overall consumer costs,” said Steve Brobeck, the retired executive director of the Consumer Federation of America. Mr. Brobeck said that Americans spend about $100 billion a year in real estate commissions, and with the settlement, that number is expected to dip by at least $20 billion and up to $50 billion.
Since commissions are tacked onto the price of a home, “Over time, both sellers and buyers will force rates down through negotiation and comparison shopping in a more price-transparent marketplace,” he said. Source: NYT 3/15/24
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Sketching Business Strategies - About Tom Levine - Los Angeles
Through his role as the founder of Zero Hour Group and his multifaceted career as a business advisor, strategist, fundraiser, and real estate broker, Tom Levine has demonstrated a consistent ability to deliver quantifiable results.
His comprehensive understanding of finance and a keen interest in technology, media, and capital formation positions him as a valued advisor with a global perspective.
His proficiency in real estate analysis and interest in Transit-Oriented-Communities is highlighted by the California Real Estate Broker license (CADRE #02052698). He formed Native Angelino Real Estate in 2017.
His approach is characterized by adaptability and innovation. He tailors his strategies to meet the unique needs of each client and organization, ensuring that partners thrive in an ever-evolving business landscape.
