What would you pay for a buyer agent?
All industries have systems that have evolved over time for a certain workflow. Sometimes these flows make sense to consumers and sometimes they don’t. Most consumers don’t spend a lot of time following real estate events and more specifically lawsuits. Right now, there are several lawsuits, one a class action lawsuit, that will likely be a game changer for the flow of commission money in real estate transactions. In the end, it will determine what a buyer agent is worth to a consumer.
An incredibly brief real estate history lesson
(You can read the long version here).
Back in the 1800s, there were real estate exchanges, where real estate brokers, much like traders, would get together and exchange information about their listings and create an auction for homes that needed to get sold. There was a Board that would meet at these exchanges with the intent to buy and sell properties for their clients. Since there weren’t really exclusive listings back then, any agent that brought a homeowner a buyer got paid for that effort and the other agents didn’t get paid. These exchanges eventually morphed into Multiple Listing Services that were run (mostly) by local REALTOR® boards as part of a service for their members which is what consumers know today.
As this was a very efficient system for selling homes, it became THE way to sell homes. Agents that brought a buyer to the listing agent were guaranteed a certain fee for doing so. This guarantee meant listing agents were paying experienced and rookie agents the same fee as long as they brought in a buyer. With that kind of system advantage, came commission fixing in the 1970s which caused the DOJ to step into the world of real estate.
Buyer agency is born
Due to another lawsuit in the 1980s, buyer agents became a thing. Before that, ALL agents represented the seller, either directly or indirectly as they were being paid by the seller to find them a buyer. As the MLSs were a very effective way to sell homes, the listing agents just shifted to paying the buyer agent directly, since the system was already in existence. Now, the buyer agents had legal fiduciary duties to the buyer while being paid by the seller. It is the buyer agent’s job to get the buyer the best terms and conditions possible while being paid by the seller who wanted to get the best terms and conditions possible for themselves. Clearly, that is a conflict.
So why are sellers still paying for the buyers to have representation? The inability of sellers to negotiate buyer agent commissions as part of an offer is at the crux of a class action lawsuit. The lawsuit aims to have sellers have the ability to negotiate buyer agent commissions separately from listing agent commissions which include not agreeing to pay a buyer agent while still being on the local Multiple Listing Service. These lawsuits would be game-changing if the plaintiffs win. I personally think it is likely that they will prevail and buyer and seller agent commissions will be “decoupled” from each other. So that begs the question, how much would you pay a buyer agent to help you in your real estate transaction when it comes out of your own pocket or shows up on your own closing statement?
For those of you that purchased recently or in the past what fee do you think would be fair to your buyer agent? What is a buyer agent worth to you? I’m genuinely interested to see what people think of the monetary value of their buyer agent.