Here's what's going to happen: (part 2)
This follows up to a previous post about the legal challenges facing the real estate industry, that post can be found on this link: https://bit.ly/46xWZME.
Over time, the industry has struggled with increasing competition, traditional real estate companies have experienced tighter profit margins, with an increasing amount of commission dollars going to third parties and agents. While some big companies have maintained sizable reserves, these reserves pale in comparison to the damages resulting from these cases.
If the damages were much smaller, the real estate industry could probably continue much as it has, just with minor modifications. However, with judgements of this size, meaningful change will occur.
Here are some examples:
1. Separate Representation Agreements for Buyer’s Agents:
In Oregon, separate representation agreements are currently optional. Even without the lawsuits some states already require representation agreements and it probably will be that way in Oregon soon anyway. Among other things, these agreements stipulate how much the buyer’s agent gets paid, and offers will need to be written to include this fee in the transaction so the buyer isn’t out the additional cash.
2. Increase in Unrepresented Buyers:
More unrepresented buyers also means more lawsuits, as transactions with unrepresented buyers are more likely to wind up in litigation. Supposedly consumer groups are happy about the results of the lawsuits, have they considered this aspect?
3. Greater Variability in Buyer’s Agent Commissions:
When a buyer’s agent IS involved there will be more variability in their commission rates. A likely outcome of the lawsuits is future listing agreements won’t state a buyer’s agent commission, agents will need to set their own rates using separate agreements. This also means the average buyer’s agent commission will likely drop somewhat. Not only is this a challenge for buyer’s agents but also for companies. Companies derive significant revenue from buyer transactions so this could meaningfully impact profitability.
4. Troubled Transactions:
When a buyer is faced with challenges the best answer can feel like “I want out” rather than sorting through issues without guidance.
5. Potential Increase in Listing Side Commissions:
Currently, listing agents typically share 50/50 with the buyer’s agent, but working with the buyer while representing the seller is challenging, and worth an additional fee. Instead of 2.5% - 3% I would expect about 4.5% to be more common.
6. Rise of iBuyer Companies:
If the legal environment of house selling seems more challenging then choosing a solution that seems easy will become more attractive even if that means selling at a lower price.
Those are some of the expected changes, I’m sure there will be others. This post is reaching it’s character limit so an upcoming post will be about what agents and companies can do to adapt.
If the damages were much smaller, the real estate industry could probably continue much as it has, just with minor modifications. However, with judgements of this size, meaningful change will occur.
Here are some examples:
1. Separate Representation Agreements for Buyer’s Agents:
In Oregon, separate representation agreements are currently optional. Even without the lawsuits some states already require representation agreements and it probably will be that way in Oregon soon anyway. Among other things, these agreements stipulate how much the buyer’s agent gets paid, and offers will need to be written to include this fee in the transaction so the buyer isn’t out the additional cash.
2. Increase in Unrepresented Buyers:
More unrepresented buyers also means more lawsuits, as transactions with unrepresented buyers are more likely to wind up in litigation. Supposedly consumer groups are happy about the results of the lawsuits, have they considered this aspect?
3. Greater Variability in Buyer’s Agent Commissions:
When a buyer’s agent IS involved there will be more variability in their commission rates. A likely outcome of the lawsuits is future listing agreements won’t state a buyer’s agent commission, agents will need to set their own rates using separate agreements. This also means the average buyer’s agent commission will likely drop somewhat. Not only is this a challenge for buyer’s agents but also for companies. Companies derive significant revenue from buyer transactions so this could meaningfully impact profitability.
4. Troubled Transactions:
When a buyer is faced with challenges the best answer can feel like “I want out” rather than sorting through issues without guidance.
5. Potential Increase in Listing Side Commissions:
Currently, listing agents typically share 50/50 with the buyer’s agent, but working with the buyer while representing the seller is challenging, and worth an additional fee. Instead of 2.5% - 3% I would expect about 4.5% to be more common.
6. Rise of iBuyer Companies:
If the legal environment of house selling seems more challenging then choosing a solution that seems easy will become more attractive even if that means selling at a lower price.
Those are some of the expected changes, I’m sure there will be others. This post is reaching it’s character limit so an upcoming post will be about what agents and companies can do to adapt.
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