Michael Seward's Blog
The struggles that the middle class face these days are real. Real estate agents shouldn’t be perpetuating that struggle by being greedy, especially when the real estate industry had a hand in the financial crisis that created much of those problems. When a listing goes on the market, real estate agents publish what percentage the buyers’ agent will be paid for the sale. There is no set rate. That would be violation of anti-trust laws. Some commissions are higher than others. And agents spend a lot of time justifying higher commission rates, and usually their justifications are disingenuous.
I read one blog article by a successful 30 year veteran of Massachusetts real estate sales that even had the temerity to claim that REALTORS® are required to put their clients interests first as stated in the REALTORS® code of ethics, but then turned around and claimed that it isn’t so in the real world.
"Ideally, all agents should show all houses available," the agent that wants 6% wrote. "But in the real world, people work so they get paid. There may be several other houses that will work just as well for the buyer’s client. Why choose the one that pays so little? So the next time you are wondering whether a real estate commission matters hopefully you understand that is does!"
I call it the “realtors subscribe to a code of ethics, but not really” argument. This agent was basically arguing that sellers should pay more to get their home sold because agents can be shady. It seems to me that it is self-destructive to reward unethical business practices by surrendering to unethical business practices. It just perpetuates the struggle.
Home sellers should protect their bottom line, not an unscrupulous real estate agent's bottom line. The public should do something about that by demanding lower commission rates than what is largely determined by one of the largest lobbying groups in Washington D.C.. The National Association of REALTORS® is among the top spenders influencing politicians and the policies that frame the housing market, for better or worse, in Washington D.C., second only to the U.S. Chamber of Commerce between 1998 and 2017, according to the Center for Responsive Politics. Further, regardless of where one stands politically, when a champion of consumer protection in the wake of the financial crisis ran to become a Massachusetts senator, the finance, insurance, and real estate industries were the top donors to prevent Senator Elizabeth Warren from doing something to prevent another financial crisis and further harm to the middle-class, also according to the Center of Responsive Politics. The only candidates who received more money from those industries were to the then presidential candidates. This is telling. Think of that what you will when deciding how much to pay your real estate agent.
Some listing agents don’t charge astronomical commission fees, and the buyers commission comes from that fee. Although 5% or 6% of the sales price may not seem like much, it could account for most or all of the equity in a home seller’s home. Equity is the difference between what is owed on a property and for how much it sells. That’s why some buyers’ agent commissions are lower than others, and it should have no effect whatsoever on which homes you are shown or sold if agents are as honest as they are required to be.
A buyers’ agent has an obligation to put their clients’ best interests first. It’s called a fiduciary duty. But some buyers agents breach their fiduciary duty when they don’t show their clients all of the options available based on what they will be paid. So home buyers lose. Sometimes a buyer will request to see a home and the buyers’ agent will employ unscrupulous tactics like tell their dishonest critical about the house, or advise them that they were not able to schedule a showing. If they have shown their clients several houses, some buyers’ agents will steer them toward the house with the higher commission split. Therefore, home buyers would be well-advised to ask for the commission split information when working with a buyers agent to protect themselves from unscrupulous real estate agents. The transparency will make real estate agents more honest. It is unfortunate that buyers should do this, but honest real estate agents will not have a problem with it.
I was recently at a class at the REALTOR Association of Pioneer Valley, where it was said more than once that: “It is like the wild west out there.” They were speaking of agents failing to comply with real estate law in their advertising, but it applies to other ethical aspects of real estate sales. In a recent National Association of REALTORS® (NAR) press release, NAR Chief Economist Lawrence Yun explained that low inventory is hurting the market, despite strong buyer demand. ”What's ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it's putting on prices in several parts of the country,” Yun said. “Sales have been unable to break out because there are simply not enough homes for sale.”
It should be noted that the previous NAR Chief Economist claimed there would be no real estate bust prior to one of the greatest financial crises in U.S. history..
Massachusetts is struggling with low inventory. Yet real estate agents are still charging cost-prohibitive commission fees. Perhaps if wasn’t so expensive to sell a home, more homeowners would sell. What’s more, some real estate agents aren’t showing all of their clients the available options despite low inventory because of co-broke commission rate. That is a gross breach of the trust their clients place on them, it hurts the real estate market, it hurts their clients, and it is a violation of the law and ethics rules.