Buyer’s agents play a crucial role in U.S. real estate brokerages, but have little-to-no presence in many other wealthy countries.
Could buyer’s agents also go extinct in the U.S.?
Real estate industry insiders touched on the topic in a panel hosted by the National Association of Real Estate Editors (NAREE) at its annual conference, held in Austin, Texas this week.
While homebuyers will continue to want trusted advisors, buyer’s agents may operate differently than they do today, or even disappear entirely as we know them in the U.S., depending on several factors, panelists said.
Technology has already diminished the role of buyer’s agents to some extent. Many aspiring homeowners use listing portals to find the homes they buy themselves, rather than relying on Realtors.
But buyer’s agents have hung around and enjoyed mostly steady commission rates.
Marilyn Wilson, partner at WAV Group | Credit: WAV Group
Marilyn Wilson, a partner at real estate consultancy WAV Group, said she was surprised to learn how much millennials prefer using buyer’s agents in a recent survey conducted by her firm.
“Buyers believe they need agents less than sellers do; but they both still believe that they need them,” she said. “I think it’s more I need someone by my side to make sure I don’t make a mistake.”
Commission sharing between listing brokers and buyer’s brokers has largely underpinned the role of buyer’s agents.
This system is secured by the multiple listing service, which requires listings posted by listing brokers to make offers of compensation to buyer’s brokers.
And now it is under threat. A massive class-action lawsuit argues against leading brokerages and franchisors including Realogy, RE/MAX, Keller Williams and HomeServices of America, as well as the National Association of Realtors (NAR) industry trade group, that commission sharing imposes an anticompetitive restraint. The plaintiffs claim that without the MLS rule requiring commission sharing, buyer’s agents would compete more by offering lower rates and other business models.
Glen S. Phillips, CEO of Lake Homes Realty | Credit: Lake Homes Realty
Glenn S. Phillips, CEO of Lake Homes Realty, believes that if buyer’s agent commissions become more visible to buyers, “rather than a hidden charge,” then many buyers may choose to go unrepresented.
This would be the case if buyers had to compensate their agents directly — a logical result if commission sharing were banned and the MLS dissolved.
“As a brokerage operating in a lot of states, we need to really pay attention to this,” said Phillips, speaking of the lawsuit. “This is a survival question for us.”
He expects the case to “change real estate fundamentally,” either by court order or by applying pressure that spurs the industry to change voluntarily.
Todd Teta, chief product officer at Attom Data Solutions, added that he thinks a clearer window for buyers into buy-side commissions would fuel new brokerage models.
They would include discount, limited-service options that have sputtered in the past, such as those once offered by Xome.
If the buy-side commission “becomes a line item on a statement,” buyers “might consider other players,” Teta said.
Even if the industry fends off the legal assault, other threats to buyer’s agents, including cracks in the MLS, are appearing.
Wilson pointed out that the biggest takeaway from a workshop hosted by the Department of Justice last summer was “the belief that there was not enough transparency on the [buy-side] commission rate.”
Meanwhile, some MLS alternatives, like pocket listing networks, are gaining traction. And a few tech-powered brokerages are providing options that cut out buyer’s agents.
Venture capital-backed REX, for example, is bypassing the MLS, with a policy of never paying commissions to buyer’s brokers.
Meanwhile, Redfin recently unveiled Redfin Direct, a service that guides buyers through making offers on Redfin listings without representation.
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