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PaperclipPerfector  2mo ago (text post)   2956 thread views

Friday Fun Thread for March 15, 2024

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On Friday, the USA's National Association of Realtors agreed to settle a big lawsuit (in which it lost a jury trial late last year). Starting in mid-July, sellers' agents will be permitted to list houses on NAR-controlled multiple-listing services (the databases from which Zillow and Redfin copy their information) without being forced to make a blanket offer to split their commissions with buyers' agents. This will make it much easier for buyers to hire their agents separately (rather than the current practice of having the buyer's agent hired by the seller), leading to lower buyer's-agent commissions. Alternatively, it will be much easier for buyers to imitate the standard practice in Britain and Australia, and hire real-estate attorneys for a flat fee rather than real-estate agents for a percentage commission. See these articles (1 2 3 4) for descriptions of how house buying works in Britain and Australia.

Bonus: Starting on page 106 of this PDF is the testimony of the plaintiffs' star witness, economist Craig Schulman. The meat is on pages 196–211. (Unfortunately, it seems that RECAP isn't set up to process trial transcripts.)

This means many realtors may leave the industry. Good riddance.

rather than the current practice of having the buyer's agent hired by the seller

I don't think this is typical in America. Usually buyers work with an agent before they've even found a house.

Very excited for the backbreaking unbundling of realtors though. No reason this should be a commission business, especially on the buyer side.

I don't think this is typical in America.

It's effectively mandatory under the NAR's current rules that the buyer's agent be compensated out of the 6-percent commission that nominally is paid to the seller's agent by the seller. But the NAR has encouraged buyers' agents to misleadingly state to buyers that their services are free.

I guess it's a question of semantics. Their commission comes out of the six percent, but the buyer's agent is selected by the buyer. Clearly the buyer's agent wants to steer the buyer to a more expensive property, but it's arguable who "hires" the agent.

Clearly the buyer's agent wants to steer the buyer to a more expensive property

It's not clear at all. The buyer, if they have any sense at all, would already know the state of the market and how much, in broad terms, houses they look for cost. Not precisely, but in certain boundaries. Sure, the agent could show them houses that are a little cheaper and a little more expensive, but the marginal gain would be in hundreds of dollars, while the price of the whole deal is for them in tens of thousands. So the incentive of the agent is to make a deal. It is true that it's not always correct incentive for the buyer (since the agent focused on making a deal first may push for the buyer to compromise on things they wouldn't otherwise compromise) but it much, much better for the agent to get a deal at a slightly lower price than to lose a deal at higher price. So the buyer agent would steer you enthusiastically to any property they think you could potentially buy, but the marginal incentive of showing you only the expensive ones - unless you are so rich the price is obviously not an issue at all for you - would be quite small.

I've been shopping for houses in the US a number of times, both successfully and unsuccessfully, and I didn't notice a lot of drive to only go for top expensive properties. Of course, price is correlated with quality and desirability, so the agent won't show me a half-ruined cheap house while they could show me a pristine new one for slightly more, but I did not notice the overt push that often. There are a lot of agents that understand the above, and if a particular one prefers to lose tens of thousands to gain hundreds, then you get a smarter agent instead.

It'd be hard to fix the incentives completely, since а fixed-price agent would be as interested in getting to the deal as quick as possible. I guess one should get an agent that would be able to keep themselves in check and work for the client.

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