Comission Changes in the Real Estate Market

Like most people I have a love-hate relationship with realtors.  I know a few personally, including family members who dabble, but my experience with realtors has been mostly negative because they either sucked or worked against my interests (realtors I knew always worked outside the state or region where I was buying so could never use a friend or relative).

That main problem with realtors - working against my interests - was when I was on the buying side because when you buy a house, you are not the client!  The realtor is being paid by the seller as a percentage of the sales price, so the realtor's interest is not aligned to the buyer, but to the seller with the highest priced house with the highest commission.  A realtor would rather put you in a $1M house with a 3% sellers commission, and not even show you the $800K one offering 2% to the selling agent.

This dynamic played out in my current home, which I found had all sorts of issues after I moved in.  The inspection report, from an inspector recommended by "my" agent, had outright lies, and my theory is the two agents paid off the inspector to give the house a clean bill of health so they would each collect their 3% from the seller.  By the time I figured this out the inspector had shut down his business, so I couldn't go after him, and the hassle of a lawsuit against the realtors or sellers was not worth it as it would take a lot of money and take a couple of years.  I ended up having to do a lot of work and spend a lot of money to fix problems that should have been called out in the inspection report. 

So besides declaring to never again trust a realtor to use "an inspector I've known for years who is great!", the other thing I decided that moving forward I would find a "buyers agent" that I would hire, and get out of the situation of the seller paying "my" realtor.  That way the person helping me with the house would be aligned to me, then I would find my own inspectors and any other third parties related to the sale.  But that model was actually hard to set up, until now.

Thanks to a settled lawsuit, my preferred model is what the real estate industry will start moving towards this summer:

Under the current rules, buyers typically don’t pay their own agents out of pocket. Going forward under the new system, buyers might have to foot the bill if they want an agent to represent them.

Starting in the summer, the new rules will require most home buyers to sign agreements detailing how much their agents will be paid for their services. If home sellers are unwilling to cover the cost of the buyer’s agent, these agreements would likely require the buyer to pay the agent directly.

The counter-arguments that buyers have to come out of pocket or can't roll the fees into the house financing run into the saying used for social media: if a service is "free" you are the product!  Basically the real estate industry has been ripping off buyers for years by aligning agents to only the sell-side of the street, so this this settlement is a welcome change to the industry dynamics, and look forward to using for my next real estate transaction.