Now that we’re all industry experts on compensation thanks to the last article, let’s make peace with the fact that the old system is on death row. Agent compensation practices are dead; long live agent compensation practices!
Let’s inspect the changes that will go into effect if this settlement is accepted by the courts. As things currently stand, these changes will take effect in July.
Buyer Representation Agreements are Required for Showings
These are the agreement (referenced in the previous article) that state in writing the relationship between buyer and agent. These are now required before the agent can show any homes. Apparently, the BBA (remember this term?) wasn’t being used at all in some other states. To me, that seems like dating someone forever who refuses to marry you. It just sounds like a really unpleasant situation for both the agent and the client, with just as much (or more!) drama as the couple that badly needs a Define The Relationship (DTR, another very important industry term). Anyway, here in Utah–the marriage capital of the universe, probably–we were already doing this. At least, something close to it. Let me explain:
In Utah, in practice, the BBA was sometimes only showing up when the agent was composing an offer for the client. It was an “unofficial addendum” to the purchase contract. I didn’t really operate that way. In the vast majority of cases, I would sit down with my buyers and (among other things) go over the contract with them before any homes were shown, and get it signed prior to showings. Occasionally (such as in the case of people calling on yard signs, or online leads for properties) I would do the relevant showing with a buyer, and then get the BBA signed before additional showings. This is what I called my “The First Piece of Candy Is Free” policy. I didn’t like it, and now I can’t do it anyway, so that’s nice. Now people are signing the marriage contract on the first date, as it should be!
Okay that was a joke, because the marriage analogy kind of broke down. But seriously, if, by some accident of fate, you find yourself in a Buyer Consultation with an agent who isn’t me, be sure to check how long they put on the expiration date of that contract. I generally do 3 months for fast-moving clients and 6 for slower-moving clients, but whatever is there, make sure it makes sense to you.
Anyway, after the changes go through, the relationship will have to be in writing before any showings take place. I’m mostly enthusiastic about this. It will act as a pretty great filter for what is sometimes called “lookie-loos”, which is to say “buyers” who want to enlist an agent’s services, but aren’t actually particularly interested in purchasing a home. This requirement may become logistically difficult when responding to sign calls, but we’ll figure something out.
Offers of Cooperative Compensation Can’t Be Made on the MLS
This one is interesting to me. In the previous article, we talked about how BBC (remember this abbreviation too?) was published on the MLS as a marketing tool. In July, it won’t be, and the MLS cannot maintain a third-party website on which BBC will be aggregated or advertised. It can still be advertised, however, on brokerage websites (hey, like mine! Search for some homes now, why don’t you?), or simply by communicating with listing agents, but since listing agents can be notoriously terrified of their phones, I can see why this is a world-ending scenario for some agents.
Agents must make Commission Disclosures
This is kinda what I talked about in the previous article, so I won’t belabor the point here. Essentially, our contracts in Utah already do this fairly explicitly, and I as an agent have been doing this explicitly as well. So that’s double-explicit. PG-13 at least.
But yeah, Buyer Agents can’t say they’re free anymore (Hallelujah), and on top of that, the commission they put in their buyer contract will be the amount they receive. Since there’s no agreement via the MLS anymore, it’s a safe bet that BBC will be sorted out in the contract itself. One note here: the new rules will not allow the Buyer Agent to receive more compensation than is stated in their BBA. I think this is interesting, and sensible, for the reasons already given in the previous article. Essentially, this removes any ability for the compensation structure to cause a conflict of interest with the buyer’s agent.
What are the knock-on effects of this going to be?
I don’t know.
Seriously, I don’t. But let’s make some predictions based on Cavan’s Ranking Of Probability. We’ll go from most likely to least, likely, I suppose:
- Buyer Agents will have a mass-reckoning, where they have to be able to present their value beyond “I’m free”
- Some company will emerge, exploiting this in a way I haven’t yet anticipated. They will charge extremely low commissions–probably a flat rate–and their business model will hinge on giving minimal service to a high volume of buyers
- Many buyer-centered agents will leave the industry
- This will cause me a bunch of extra headache in the negotiation phase for each buyer, and I’ll raise my prices to compensate.
- Many homesellers will get fiercer and offer low BBCs, slowing down the sale of their home.
- Home sales will see a slight lull (relatively speaking) and the median sale price will decelerate for 6-12 months.
- Things will get weird and/or cliquey with how commissions are paid and negotiated.
And look, let’s be real: there’s probably a million things I haven’t thought of. But this is what comes to mind for now.
Obviously, I will be watching things closely. This is, after all my primary source of income. (I do make about a thousand bucks off various acting gigs each year, so I have diversified my revenue sources!)
See you in the next article, when we’ll talk about something fun and nonsensical, probably.