Death of the Buyer’s Agent

A case is currently playing out in the court system that could forever change the real estate landscape. Accusations of anti-trust violations have been levied against the Multiple Listing Service (MLS) for their stranglehold on the real estate listing market and the undue influence they hold over agents and brokers nationwide. With other resources available such as Realtor.com and Zillow, one might think this claim is exaggerated. But any competent licensed professional will likely tell you this is more true than the powers that be would like us to believe.

For those who do not know, here is how the MLS works in a nutshell. But first, it is important to understand realtors cannot list property directly on Realtor and Zillow; these sites only allow the homeowner to list their own property. Any other listing appearing on these sites originates from a listing on the MLS, a service the agents and their brokers must pay for. Interestingly enough, a brokerage is not required to join the MLS. But for illustrative purposes, humans are also not required to breathe; we can stop anytime we choose. That might sound slightly drastic, but when you realize listing a property to the widest audience is virtually like air to a realtor, there is not much choice involved.

If a brokerage opts out of joining the MLS, then none of the agents working there may participate. On the other hand, if the broker has opted into the MLS monopoly, every agent working at that firm is compelled to join or risk massive fines levied against the broker. These fees vary by state and region, but in the metropolitan NYC area, a broker is likely to spend about two thousand dollars per year, with each of their agents also paying a couple hundred dollars per year. Heavens forbid a listing get entered incorrectly, then the MLS has the power to fine the brokerage for the infraction and further increase their revenue.

If that is not bad enough, MLS memberships are only valid at the local level. What does this mean? Well, for someone licensed in three states like myself, it means I would have to join and pay for three different MLS memberships. Even if I was only licensed in one state but wanted to do business in a different region where another local MLS has jurisdiction, I would have to pay their membership fees too. Considering the majority of real estate agents do not make much money, these fees can become prohibitive to doing business. So, if the argument against monopoly status is that brokers have the choice of subscribing, the verdict does not look good for the MLS.

So, why did we spend all this time on the MLS when we are supposed to talk about the death of buyers’ agents? Because tied into this lawsuit against the MLS is the frivolous, and quite frankly, insulting argument that the way buyers’ agents are compensated is unfair to property owners who have listed their homes for sale with a realtor. To understand that process, it looks something like this. A seller’s agent charges the homeowner a commission, typically 5% – 6%. They then offer a pre-determined split of that commission with any cooperating agent who brings the buyer.

Part of the argument posed in the lawsuit and news articles covering the events claims buyers’ agents are collecting “inflated” fees for adding no value to a transaction, which is a broad sweeping, and unfair characterization of what most buyers’ agents do. You would be hard-pressed to find any transaction ever where the buyer’s agent made more of a commission than the seller’s agent; at best, they make the same split and, at worst, can walk away with less than half what the other agent did. It could also be argued that the seller’s agent imparts less value on the transaction because once it is listed (a process only requiring minimal paperwork and some photography), they can, and usually do, sit back and wait for an offer.

That’s not to say all buyers’ agents are good, either. Many do simply serve as door openers, reacting to listings their clients send them, and scheduling the showings. But that is just a small percentage. Most buyers’ agents work countless hours without any guarantee of compensation. It can literally take hundreds of hours scouring listings for the right properties, traveling to showings, submitting offers, and coordinating everything needed for the closing process. When a buyer’s agent walks away with a check for $5k, $10k, or even $20k, the average outsider thinks they make an “inflated” commission. But when you divide that payout by the number of hours worked on not only that transaction but all the others that may never turn into a sale, it can look like McDonald’s is a better employment opportunity.

Pundits vying for the seller to no longer pay the commission for both parties make several other assumptive arguments to buoy their standpoint. The first is that the buyer should pay the commission to their agent. In theory, that does not sound unreasonable. But it is not practical. Considering how much money buyers already need to come up with for down payments and closing costs, asking for thousands of dollars more could prevent them from qualifying for their mortgage or stretching their cash reserves to a point where the purchase no longer feels comfortable. Who wants to buy a house and deplete the entirety of their savings?

The other argument is that buyers can work directly with the listing agent instead of engaging their own realtor. This currently happens regularly enough with sellers’ agents serving in a dual-agent capacity, but it is a slippery slope. While it is a legal practice so long as both buyer and seller are informed and the seller’s agent acts in the best interest of both parties, the second part of that statement opens the door for potential conflicts. In a seamless transaction with no unforeseen obstacles, it would be easy enough to comply with this requirement. But what happens when a dispute that cannot be resolved through negotiation arises? At some point, the agent must choose a side or allow the deal to fall apart. Think of it like being married to two different people and splitting the week evenly between them – until you get to the seventh day!

With the elimination of the buyers’ agency comes a host of problems the real estate world is not ready to handle. Only a small percentage of buyers have the knowledge and capacity to represent themselves or work directly with a seller’s agent without fear of being defrauded. The belief that the MLS is a necessity beyond the fact that it is a requirement is fictitious. In a world of fair and transparent competition, agents should have a choice on how and where they list properties, and buyers should be afforded the same level of protection and service as sellers. But only time will tell what the courts decide on the topics at hand.