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I have been waiting for a post on the NAR settlement and it has never come. The NAR was forced to pay out a large settlement due to lawsuits and change how buyers agents are compensated.
https://www.nbcnews.com/business/real-estate/national-association-realtors-settlement-changes-rcna143634
The standard way homes are bought and sold in a market is at a 5 or 6% commission which is then split 50-50 between the buyers and sellers agents. I believe the big change now is on the mls websites buyers commissions were expected to be listed. You are no longer required to lists and discriminate buyers concessions and some technical details I am not 100% certain on. But barriers to trade and non-standard arrangements will be easier.
I have had friends buy properties before un represented but it is frowned upon. In those cases they would make their offer and basically say I have no agent so reduce your price 3% and rework your sellers contract so your sellers agent gets 3% like he would if I had an agent. The old system made this harder since most people just like to follow the way. Which I believe led a lot of people to just hirer a buyers agent probably a friend and let them get paid.
Culture war isn’t our general culture war but you can find plenty on twitter saying things like “turn out everyone hated us” realistically though we just didn’t like real estate transactions costing us 6% (plus more in many areas with transfer taxes).
There are a lot of interesting economics to discuss on this issue. Another area is a lot of realtors don’t transact all that much. A couple deals a year. My guess is this deal makes it much harder for the casual real estate agent if commissions fall. You won’t be able to buy/sell for your friends network. Another issue with being oversupplied with realtors is many spend more time finding clients than working with clients. Trades in general with commodity products but high margins for various reasons would tend to a model of a high amount of resources being spent on client acquisition.
Another area if the new world in real estate occurs is the housing market would change significantly if commission fall meaningfully. Lower transaction costs means people can move more frequently. If your home costs $1 million and $60k commissions are happening then you are paying that $60k somehow even if it’s indirectly. It would also seem to help flips significantly. If real estate transaction were saying $0 then I would think nearly every property would be a flip as some people would have true expertise in rehabbing/remodeling. Our current 6-10% transaction costs makes it very expensive for a 6 month guy to do it. They can only step in for properties heavily degraded where no true owner (with no expertise) would be interested. This is one reason I thought the various ibuyer companies would fail because adding more fees makes it uneconomical.
Can somebody steelman a buyers agent for me? They are paid as a percentage of the total cost of the sale, so aren't they incentivized to negotiate against their purported clients?
Naive people think "they are paid more if it sells for more, and it is in my interests that it sells for more". They ignore that the agent wants to make a maximum profit per unit time, not a maximum profit per sale.
This assumes an infinite supply of potential sales. In practice I would expect to optimize over some denominator which combines time and sales, emphasized differently based on how saturated the market is.
Regardless, this doesn't address the main issue that the buyer's agent and seller's agent have near-identical incentives: have quick sales with high prices. The only distinction is that the buyer's agent's ability to market their services to future clients is correlated with low prices, but I'm not sure how strong of a correlation that is.
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