– The real estate industry has gone through many changes and challenges throughout history and has always come out stronger.
– Friction and breakdowns can lead to breakthroughs and make individuals and businesses stronger and more resilient.
– Commission rates in real estate have always been negotiable and based on the value that agents bring to the table.
– Agents have the right to choose not to negotiate their commissions if they believe it is fair and reflects their worth.
– The recent lawsuit has made commission conversations more difficult, but agents can present multiple commission structures and options to clients.
– Listing appointments should focus on educating clients about the value of working with a real estate professional and the benefits they bring.
– The ruling in the Sitzer | Burnett lawsuit will be appealed by NAR, as the rules and practices in the industry serve the best interests of customers and promote competition.
The Sitzer | Burnett verdict has thrown many real estate professionals for a loop, causing them to question how they do business and whether they’ll still be in business a year from now. The sticker shock of that $1.78 billion award (which could go over $5 billion), plus the ill-informed responses in the media, have made it difficult to imagine where we go from here.
For the agents I talk to and work with, I aim to offer perspective and provide a deep dive into some mistaken assumptions and incorrect rhetoric around this lawsuit and its aftermath. Here are eight things to remember right now that offer a framework for how you’ll operate in the days ahead.
1. We’ve weathered storms before
As an industry, real estate brokerage goes back more than 200 years. There is no question in my mind that we’ll be around for another 200 years and more. One thing that’s been consistent during all of that time? We’ve had to adapt. We’ve had to change. Every time, we as an industry have come out of times of change stronger.
Some of you have been around for the transitions from tear sheets to books to the internet. Remember when real estate agents were all going to be replaced by online listings? Then discount brokers? Then iBuyers? The pandemic?
Pro tip: During all of these supposed setbacks, we actually became stronger. We reinvented ourselves. That’s what we’ll do this time as well.
2. The strong will get stronger
How does a pencil get sharp? Through friction. When you have friction in your personal or business life, you become stronger and more resilient. Breakdowns aren’t bad if you’re committed to turning them into a breakthrough.
Pro tip: You have to look for your breakthrough. You have to cause it. You have to read, pay attention, attend training. That’s what will make you better and make it easy for you to communicate your value.
3. Commission is and has always been negotiable
There’s no point in relitigating Sitzer | Burnett, but you’d better have counterarguments for buyers, sellers or members of your sphere of influence who bring it up. One of the most damaging talking points you’ll hear is that we “colluded” on commissions. That’s when competing companies get together and say, “Hey, here’s what we’re going to charge everybody.”
When attorneys work on contingency, they get a percentage of the award at the end of the trial. There’s an ordinary percentage of 33 percent, but it could be less or more, depending on the attorney and the market. When I go to the website of the New York City Bar Association, they say that the ordinary commission is 33 percent. How is that not collusion by the standard used in Sitzer?
My point is that commission is always negotiable. In other words, commissions are based on what any given agent feels they are worth, not set in stone or “standard.”
Pro tip: Don’t get defensive, but dial down deep into the value of working with a professional who can help them efficiently reach their goals.
4. You have the right as an individual to choose not to negotiate
One of the things that came out at trial was that some coaches and trainers were saying not to negotiate commissions. Is that the same thing as saying that commissions are non-negotiable? Of course not.
Here’s my take on it: I have a speaking fee. When people want to hire me to speak, I tell them my fee. If they ask me to cut my fee, I say, “I’m sorry. I can’t.”
As an agent, you have the same right. You can set the commission that works for you to leave your house and to leave your family. You’re saying, “This is what I’m worth.” There’s nothing wrong with that.
Pro tip: Know your bottom line and make sure to have your value breakdown available to educate your clients.
5. Here’s how to have the commission conversation now
The lawsuit has made commission conversations more difficult. To help agents navigate that, we’ve put together a few example options.
Pro tip: On any of these options, your broker will be driving the bus on how they want to go. Make sure to consult with your supervising broker, and state guidelines before pursuing any conversations around commissions with clients.
You could even discuss multiple commission structures depending on the services you’re providing and the way you’re structuring the deal. The point is that you’re communicating clearly and giving the homeowner options. Here are a few potential options.
Option No. 1: Separate the listing commission from the selling commission
Now, this option is essentially how we have been doing it, but it is explained differently. Instead of trying to convince a homeowner to pay your normal fee that includes both the listing side and the selling side, all you need to do is have them agree to your listing side commission.
Now, after they agree to that number, you discuss how the selling agent side needs to be covered. For example, if the buyer pays their agent the commission themselves, it could be difficult for them to pay those additional thousands out-of-pocket and still qualify for the home. It hurts their buying power, which in turn hurts the seller.
So, you can break the two commissions apart and have the seller sign a separate acknowledgment that they’re willing to allow the buyer’s agent to put their fee up to whatever percent on top of the contract price, and they’ll receive the commission at closing.
Option No. 2: Present your fee just for marketing and managing the listing side of the sale
Explain that the buyer will pay their agent directly.
Option No. 3: The selling agent can make the selling commission as part of the offer
The buyer offers, plus they add their fee on top of the offer, so it’s financed instead of the buyer paying out of pocket.
Pro tip: Creating multiple strategies will give you the flexibility you need to move your business forward.
6. Shore up your listing appointments
Your job is not to sell on price or commission. Your job is to educate. Go through comps and explain your pricing. Convey the value you’re bringing and how that translates into the prices that those comps could garner because of the skill of the Realtors who represented those properties.
Here are the things to keep in mind when you go on a listing appointment:
- Be honest and be a good coach, counselor, real estate professional, and tell them what you know about the current market and their home’s value.
- Focus on communicating about and validating the real estate industry. Right now, we have a black eye, and we need to be able to articulate what we’re really about.
- Make sure that you don’t come into the conversation in a way that’s self-serving. Articulate the value of working with a real estate professional and why working with you is better than trying to go it alone.
- Help homeowners do the math on the value you add through superior pricing analysis and marketing, even during down markets. According to studies from NAR, Zillow, USA Today and more, FSBOs sell for less, proving that agents are worth their commissions.
For buyers, you’ll need to explain why going to a FSBO doesn’t save them money. You’ll need to put together all of the steps of the buyer process from search to closing.
Pro tip: In every one of those areas, you’re helping the buyer, holding their hand, connecting them with the people they need to get the deal done. Don’t lose sight of your duty to buyers.
7. We will appeal the ruling in Sitzer | Burnett
NAR said it will appeal the liability finding because we stand by the fact that the rules serve the best interests of customers, support market-driven pricing and advance business competition. I totally agree.
However, in the meantime, while we wait for an appeal to wind its way through the courts, buyers will face even more obstacles in an already challenging market. They’ll forego help that they need on what is likely the most complex and consequential transaction they’ll make in their lifetimes. It’s your fiduciary duty to help your clients navigate these choppy waters.
Pro tip: Make sure to stay up to date with conversations at a franchise, national, and state level. Especially if your franchise is involved in the active litigation process.
8. Changes are already underway in the industry
Bright MLS, one of the largest MLSs in the country, already said that a listing agent can offer zero to selling agents. So the writing’s on the wall that this will happen in every MLS and every association.
Anywhere and RE/MAX, in their settlements, said that they will now prohibit company-owned brokerages and affiliates from claiming buyer agent services are free. They’re saying brokers and agents don’t have to be members of NAR, don’t have to subscribe to the Code of Ethics or abide by MLS rules. They want to make sure that agents tell people that the commission is not set by law and it’s fully negotiable.
Pro tip: Set up Google alerts with keywords that directly impact your business( Like your MLS) to stay on top of all the updates.
Everything will be OK
More than anything, I want you to know that it will be okay. We will weather this and, undoubtedly, what else is to come. It will take time and we’ll have to adjust to a new normal, but we’ll survive as an industry and as professionals. Talk to your broker, stay in the know, and serve your clients enthusiastically. You can’t go wrong with that formula.
Property Chomp's Take:
The recent verdict in the Sitzer | Burnett case has sent shockwaves through the real estate industry, leaving many professionals questioning the future of their business. With a staggering $1.78 billion award and the potential for it to exceed $5 billion, coupled with the misinformed media responses, it's difficult to envision what lies ahead. However, amidst the uncertainty, there are several important factors to remember that can guide you through these challenging times.
First and foremost, the real estate industry has weathered storms before. With a history spanning over 200 years, it's clear that the industry has the resilience to adapt and evolve. From transitions like tear sheets to books to the internet, real estate professionals have consistently emerged stronger. Despite previous predictions of online listings, discount brokers, iBuyers, and even the pandemic replacing agents, the industry has reinvented itself time and time again. This time will be no different.
Additionally, the strong will always get stronger. Just as a pencil sharpens through friction, personal and business challenges can lead to growth and increased resilience. Breakdowns are not setbacks if you are committed to turning them into breakthroughs. Embrace the obstacles and seek opportunities for growth. Invest in education and training to enhance your skills and communicate your value effectively.
It's crucial to remember that commission has always been negotiable. The notion of collusion on commissions is a damaging talking point that arises from a lack of understanding. Attorneys who work on contingency also receive a percentage of the award at the end of a trial, with an ordinary percentage of 33 percent. Commission rates in real estate are not set in stone; they are based on an agent's perceived value. Use this opportunity to communicate the value you bring to the table and help clients understand why it is worth it to work with a professional.
As an individual, you have the right to choose not to negotiate. Just as you have a speaking fee as a speaker, you can set your commission rate as an agent. Know your bottom line and be prepared to educate your clients on the value you provide. Transparency and clear communication will go a long way in these conversations.
Given the complexities brought about by the Sitzer | Burnett case, commission conversations have become more challenging. However, there are strategies you can employ to navigate these discussions. Consider options such as separating the listing commission from the selling commission, presenting your fee solely for marketing and managing the listing side, or allowing the selling agent to include their commission as part of the offer. Flexibility and open communication will be key in finding the best approach for each client.
When it comes to listing appointments, remember that your role is to educate, not sell on price or commission. Be honest, convey the value you bring, and articulate why working with a real estate professional is advantageous. Help homeowners understand the importance of superior pricing analysis and marketing, even in a down market. For buyers, explain why going the For Sale By Owner (FSBO) route may not actually save them money and highlight the benefits of working with an agent throughout the entire buying process.
Finally, it's important to note that NAR will be appealing the ruling in the Sitzer | Burnett case. The organization firmly believes that the rules serve the best interests of customers, support market-driven pricing, and advance business competition. While waiting for the appeal process to unfold, it's likely that buyers will face additional obstacles in an already challenging market. Stay informed and adapt accordingly.
In conclusion, the verdict in the Sitzer | Burnett case may have raised concerns and created uncertainty within the real estate industry. However, by embracing change, communicating your value, and adapting to new circumstances, you can navigate these challenges and position yourself for success. The old way of doing business may be over, but the opportunity to defy the market and bet big on your future is still within reach. Join us at Inman Connect New York from January 23-25, where we will conquer today's market challenges and prepare for tomorrow's opportunities.