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https://www.wsj.com/real-estate/realtors-settlemen...

Link opens wall street journal article, potential pay-wall if you don't subscribe (you probably should)

I haven't gotten into the details but this would presumably help reduce lawsuit award risk for BH Homeservices (the business model and profitability are still very much at risk of course).

I haven't gotten into the details but this would presumably help reduce lawsuit award risk for BH Homeservices (the business model and profitability are still very much at risk of course).

Here's what the article says about Berkshire:

"The settlement agreement doesn’t cover HomeServices of America, a subsidiary of Warren Buffett’s Berkshire Hathaway, which is the final defendant in the Kansas City case not to settle.

'HomeServices intends to vigorously appeal on multiple grounds the jury’s findings and damage award,' Berkshire said in its annual report."

Thanks! I had missed that bit.

Legacy RE brokerages going the way of the dodo.

RDFN's ceo has an interesting post about the ramifications. Obviously talking his book about how that helps RDFN. But interesting nonetheless.

https://www.redfin.com/news/nar-settlement-kaboom/

I'm not sure Berkshire Home Services is helping themselves by not settling. Wouldn't be surprised to see a goodwill writedown in BHS next year.

Like many of you, we have bought and sold real estate. This summer we plan to sell some properties and we will use an agent. As we have done in previous times we will negotiate a contract stipulating a number of agreed items including a commission percentage.

I do not see much changing going forward for the vast majority of real estate transactions. I can speak from experience at the inherent difficulties arising from selling or buying properties without an agent between the buyer and seller. Yes, it can be done and , yes, it saves money. It also can be the pits not having a go between to politely or, if necessary, bluntly tell the contra-party what is and is not going to be agreed upon or to be done (think expensive improvements for no change in property price, for instance). In my view it is worth some percentage so as to find qualified buyers and to deal with the multitude of issues that can arise.

The above is a long way of saying real estate brokers are not going out of business in my estimation. The strongest and best will find ways to adapt.

Uwharrie

"I do not see much changing going forward for the vast majority of real estate transactions."

I do. The below is from Keller Williams (friend works there). There is panic in the disco for sure among Agents. Many will drop out. There are far too many today in the US.

My view is listing Agents will get a commission. Far fewer people will use a buyer's agent.


"Buyer Representation Agreements Required. Agents working with buyers must sign a written buyer representation agreement with the buyer before the agent can show a home listed on an MLS.

Unless inconsistent with federal or state law, the buyer representation agreement must include at least these things:

1) Agents must disclose the amount or rate of compensation they will receive or how this amount will be determined.

2) The amount of compensation must be set in the agreement, such as a percentage or dollar amount, and cannot be open-ended. For example, the agreement cannot say, “buyer broker compensation shall be whatever amount the seller is offering to the buyer.”

3) Agents cannot receive compensation for brokerage services from any source more than the amount or rate agreed to in the buyer representation agreement. For example, an agent could not accept an offer of cooperative compensation for more than the amount or rate agreed to in the buyer representation agreement.

Offers of Cooperative Compensation Cannot Be Made On the MLS.

1) Agents cannot make offers of cooperative compensation on the MLS. MLSs must eliminate all broker compensation fields on the MLS and prohibit the sharing of offers of cooperative compensation in any other MLS field. NAR (and any MLSs released under the settlement) also cannot create or support any non-MLS mechanism (such as an internet aggregator’s website) for sellers or listing agents to make offers of cooperative compensation to buyer agents.

Like many of you, we have bought and sold real estate...I do not see much changing going forward for the vast majority of real estate transactions... In my view it is worth some percentage so as to find qualified buyers and to deal with the multitude of issues that can arise.

Certainly these are reasonable observations.
But it comes down to what sort of number makes sense.

It's pretty easy to compare the US to other countries without an equivalent of the MLS service / cartel. Other places still get their houses sold.

In the UK, the average 2023 real estate commission was 1.18% plus sales tax. That is paid by the seller. It seems that most buyers don't pay a commission, unless they have chosen to hire a buyer's agent. So, though I agree with you that paying commissions makes good sense and provides real value, the US levels seem very odd by comparison.

No matter where you live, the situation you're used to makes sense and other things seem strange.
For example, to a Canadian the US idea of a bank charging "points" for mortgage initiation (a percentage of mortgage value) up front as a fee is unbelievable.

(though the MLS commission split practice is traditionally quite similar between the two countries--in both, the brokers and agents are making out like bandits)


The above is a long way of saying real estate brokers are not going out of business in my estimation. The strongest and best will find ways to adapt.

Again, this makes sense...but I think it may well settle at a much lower commission level, and a much lower overall industry revenue number. The number of agents in the US, and the aggregate fees they charge, just don't make sense. It's a lucky historical quirk which might last, or might not. I think the average US brokerage is worth materially less than it was, and it's going to be a permanent hit. Since enforcement against cartel-like corporate arrangements in the US has been so incredibly weak in the last few decades (the main reason I invest there) it may only be a hit of, say, 30%. Or 10% or 50%.

Jim

< So, though I agree with you that paying commissions makes good sense and provides real value, the US levels seem very odd by comparison.>
[O.T.] ...sounds a little like the recent CEO salary discussion.
:-)Shawn

My impression of Berkshire real estate is that it at least in the early days tended to have quite a few high end properties. I think the higher price properties will see some real pressure on commissions. I live in a neighborhood of small but expensive water front homes. They sell for three times the price of other houses in the area. The work required of a realtor is not much different for the riverfront properties than other houses, and I’m certain that negotiated commissions will be lower.
There are 2000 licensed realtors in our town of 100,000 people. They have been raking it in as the town has boomed and prices climbed to levels well above the surrounding areas. I see a shake out in the future.

agree.. where agencies exist in france , a new and growing phenmenon, they copied the USA model, of 6% +/-..for this, they show the house and do not much else. seller has to get all docs , and there are a lot !!...in the old days, the Notaire did everything including listing a house for sale, but no photos etc...some oldies still list via notaire. Notaire is colecting guv;mint taxes and does ALL the legal work and may charge a fixed fee..so the oncost of buying can range from 8-12 %..what they did there was dump the US fee on top of the existing french system...its horrendous...

an adult conversation on the new rules. https://www.cnbc.com/video/2024/03/19/ryan-serhant...

There are 2000 licensed realtors in our town of 100,000 people

In my experience about half of those make a living at it. The other half do it part-time, or not at all except when a friend or relative is selling.

Yes, there will be a shakeout, and yes, commissions will drift lower, perhaps much lower (I’m old enough to have sold a house with a 6% commission on the first $100,000, 4% on above that to $250,000 and 3% on anything above that.

The work is in the listing and prepping, and in hosting open houses if you’re trying to snag new clients looking for a house. If you’ve been at it a while you probably have a pretty good stable of past customers and referrals so you get your Sundays back.

So yeah, change. It’s about time. I’ll still use one to deal with the icky stuff of paperwork and hassle, but 6% rankled me on a $1M house, when it’s the same work as a $200,000 house.

<So yeah, change. It’s about time. I’ll still use one to deal with the icky stuff of paperwork and hassle, but 6% rankled me on a $1M house, when it’s the same work as a $200,000 house.>

Any ideas about how much money or time the brokers would be willing to spend? For example, spend money to fix cracking side boards or minor leaking that would make the house easier to sell.

So yeah, change. It’s about time. I’ll still use one to deal with the icky stuff of paperwork and hassle, but 6% rankled me on a $1M house, when it’s the same work as a $200,000 house.

To be fair, I presume it is a *little* more work to sell a more expensive place, but certainly not proportional to the cost.
More back and forth, more "know your client" and money laundering rules, more spending on photography and staging.

From what I've read, even in the US, the commissions are very much negotiated on the *really* expensive places.
Nobody selling a place for $10m would pay a lot over 1%, maybe 1.5%. Or so I've heard.

Jim

From what I've read, even in the US, the commissions are very much negotiated on the *really* expensive places.
Nobody selling a place for $10m would pay a lot over 1%, maybe 1.5%. Or so I've heard.

I don't rub shoulders with the 10 million crowd much, but I've seen a good number of the 4 million $ houses go with a 6% commission. One offered 2.5% to the buyer's agent but gave 3.0% to the listing broker. I tried unsuccessfully to get her to dump some of the riches of her very good year into BRK prior to the recent run-up.

but I've seen a good number of the 4 million $ houses go with a 6% commission.

Ouch.

I did a calculation once on a property I wanted to sell and concluded it would be cheaper to buy a local brokerage than to pay the commission they were asking which they said was "normal" but nobody smart actually pays.
(I didn't do so, but I did get a commission rate far lower than what they said was their lowest!).
Not in the US though.

With one broker I negotiated "low minimum flat fee, plus 20% of sale price above XXX".

Jim

Jim, sounds like the standard hedge fund ‘2 & 20’ to me.

Joe

"(I’m old enough to have sold a house with a 6% commission on the first $100,000, 4% on above that to $250,000 and 3% on anything above that.)"

If my calculator serves, that is $38,500 on a million dollar property. Seems an outrageous vig, as it is no more work than to sell a home of half the value.

"(I’m old enough to have sold a house with a 6% commission on the first $100,000, 4% on above that to $250,000 and 3% on anything above that.)"

If my calculator serves, that is $38,500 on a million dollar property. Seems an outrageous vig, as it is no more work than to sell a home of half the value.

Oh heck, I sold a million dollar condo in Boston a couple years ago and paid the full 6% on it. I didn’t complain because the realtor set up a marketing program that got me an extra $100,000 over list. Yes, she got $60k, but she was going to get $54k anyway, so I couldn’t complain. (Additionally the property was sold under a Reverse 1031 exchange which threw lots of extra wrinkles into it all, plus it was from a past life 1,000 miles away where we could not attend and she did everything. So sometimes it’s worth it. I don’t know how you put all of that into a contract ahead of time or figure the pay for it, but she was happy, we were happy.)

It made me realize that the tiered commission I sold the Pittsburgh house under was exactly backwards. The commission should have gone up as the price increased - to incent the agent to negotiate for a better price or do things to attract “a better class of client.” I didn’t set it up, she did, and I didn’t think much about it at the time.

I am reminded of the first example in the otherwise unremarkable book “Freakonomics” that showed how Realtors are highly incentivized to get more money when selling their own house than clients’ homes. [Basically, they capture 100% of any gains on their own, just 6% of gains on clients’. Unsurprisingly sales prices of Realtor homes were closer to list, or over list far more often than for customers.] It was an interesting use of sales statistics; I read it long after the Pittsburgh house sold. That agent was ReMax, which I believe structured workers as free agents rather than employees (so they could bend whatever rules they wanted), at least at the time, hence the unusual commission structure. Maybe still is, dunno.

So sometimes it’s worth it.

Exactly. You needed your realtor to do a bunch of work, handle all the paperwork (including the 1031 stuff, the repairs, the closing, etc). The guy next door also sold his unit 3 days later, for the same price (it's an identical unit but mirror image of yours), but his realtor only spent a couple of hours on it because it sold to the third person that looked at it, and all 3 showings were on the same afternoon! And the owner organized the minor repairs and attended the closing. He also paid 6%, or $60,000.

It made me realize that the tiered commission I sold the Pittsburgh house under was exactly backwards. The commission should have gone up as the price increased - to incent the agent to negotiate for a better price...

You think that's a bad incentive structure?!?? The way things are set up today, the buyers agent gets paid MORE when the price is higher. So if the buyers agent works hard to negotiate the price down, they get paid LESS!

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