Confused about your commission? Your client will be too: LeBarton

Key Takeaways:

– The Sitzer | Burnett verdict on commissions in the real estate industry is still being analyzed and its impact is uncertain.
– Both brokerage executives and agents believe that the ruling could drive a significant number of agents out of the market.
– The verdict is not currently a concern for clients, but it will eventually become a topic of conversation and could impact their decision-making.
– A survey of potential homebuyers showed that most believe a good agent is worth the commission they are paid.
– Less than 5% of respondents said they would not pay a commission, while the majority were open to negotiating a lower rate.
– Brokers and agents should be prepared to explain and demonstrate their value to clients in light of the potential changes in commissions.

inman:

The industry is still unpacking the Sitzer | Burnett verdict and its impact on commissions, Inman Director of Research Chris LeBarton told Intel. After that, expect even more queries from clients.

This report is available exclusively to subscribers of Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

It’s not just brokerage and proptech executives on the edge of their seats.

The impact of the Sitzer | Burnett ruling last month on commissions and the future of real estate has compelled an entire industry to wait in suspense for answers, Inman Director of Research Chris LeBarton told Intel last week.

Indeed, while the industry unpacks what the verdict means for agents, soon their clients will ask what it means for them, said LeBarton, who shared his latest findings from the second-ever Inman Intel Index survey, or Triple-I, as well as results from a joint survey by Inman and Dig Insights on the impact real estate professionals anticipate as a results of the verdict and other lawsuits.

He also explored why brokers and agents should prepare now for a delayed wave of questions from clients amid the possible sea change in how commissions are earned. The conversation below has been edited for length and clarity.

Intel: Both [brokerage executives and agents] are leaning toward this being a development that drives a ‘significant’ number of agents out of the market. A majority of both groups agree with that idea — either in the form of cooperation becoming optional or banned outright. 

We’re at a moment, it seems, where a lot of people in the industry expect this to drive agents away from real estate.

LeBarton: I would be shocked if they didn’t. Because it’s not just the legal cloud. It’s the legal cloud hanging over the top of a landscape that is very difficult structurally, with very little inventory and high interest rates. 

So you already have those headwinds, and then you tack on this ecosystem-changing event. There’s no way this would have led to anything else, other than people saying, “Yeah this is gonna cut out a lot of this industry.” 

It’s going to have that type of impact. But you can’t remove the other factors involved, because each weighs on the other.

This is no surprise, I think, to anyone in the industry: At the time that the trial was still going, the vast majority of agents reported almost none of their clients had brought this lawsuit up. This just isn’t on the radar of the clients who work with the agents who responded to this survey.

Even as substantial as these lawsuits are, who follows class-action lawsuits that aren’t in your industry? There are other things on other people’s plates. They’re more interested in their mortgage rate than someone’s commission rate.

When I was a mortgage broker and we were going through all that the Great Financial Crisis and the subprime meltdown wrought, at first, consumers just heard, ‘Oh my God, the world is ending.’ They weren’t hearing about all the regulation and potential change needed in mortgage disclosures, yield spread premium, etc.

This will, in time, seep in with consumers. Right now — and I’m guessing for some number of months — it will not be on their plate. But it will invade the space, the communication. People will start talking; it will make broader news. Regulation will be happening.

But for now, how do you get ahead of it? Now is the time, if you do not know exactly how to explain and demonstrate your value, you better be doing it. Because the conversations are coming.

Along those lines, you recently worked with Dig Insights to survey a large group of 3,000 potential homebuyers. What did we learn from asking these consumers about how they might actually react once they do get up to speed on how this might impact them in the housing market?

When we put 2 percent to 3 percent of a final sale price in a question, people can do the basic math. And they knew sort of a price range where they’re looking because these people were active homeshoppers. They should have been running those numbers and saying, ‘Yeah, I would pay that because I value them.’ 

And we saw that in a couple of other parts of that Inman-Dig survey. The consumer — perhaps because this is the way the homebuying industry has run forever — believes that a good agent, a good Realtor, is worth what they get paid. And 35 percent of our survey respondents who were actively shopping said, ‘Yeah, I’d cut them a check.’

I think the bigger number that we saw was that less than 5 percent absolutely said no. 

Then there’s a lot of that squishy middle — ifs, maybes, buts. But this is ingrained. The real estate agent is part of that process, whether someone has worked with them or not. They’re a known entity. And more than likely, it is the biggest investment someone will ever make. 

It might be tougher for some to cut that check directly. But I bet they’d rather negotiate a little bit down than go with an agent they don’t trust for less. There’s too much on the line.

Email Daniel Houston


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Property Chomp's Take:

The real estate industry is still grappling with the implications of the recent Sitzer | Burnett verdict on commissions and its potential impact on the future of real estate. The verdict has left the industry waiting anxiously for answers, as both brokerage executives and agents speculate on the possible consequences. Inman Director of Research Chris LeBarton recently shared his insights on the verdict and its implications, based on the findings from the second-ever Inman Intel Index survey and a joint survey conducted by Inman and Dig Insights.

LeBarton believes that the ruling will likely drive a significant number of agents out of the market. He attributes this to the already challenging market conditions, such as low inventory and high interest rates, which are further compounded by the legal uncertainty surrounding commissions. The combination of these factors makes it inevitable that many agents will reconsider their careers in real estate.

Interestingly, LeBarton notes that the verdict has not yet registered as a concern for clients. According to the survey conducted by Inman and Dig Insights, the majority of agents reported that their clients had not brought up the lawsuit. This is not surprising, as class-action lawsuits are typically not on the radar of consumers who are focused on their own mortgage rates and other financial matters. However, LeBarton predicts that as the news spreads and regulations take shape, clients will start asking questions about the impact of the verdict on their transactions.

In light of this, LeBarton emphasizes the importance for brokers and agents to be prepared to address their clients' concerns. He advises them to start proactively demonstrating their value and explaining their role in the transaction process. While consumers may have to pay a higher commission, LeBarton believes that a good agent is still perceived as worth the price. The survey conducted by Inman and Dig Insights showed that 35% of respondents who were actively shopping for a home were willing to pay a commission fee, while less than 5% were against the idea.

Overall, the industry is still in the early stages of understanding the full impact of the Sitzer | Burnett verdict. As more information becomes available and regulations are implemented, both agents and clients will need to navigate through the changes. Brokers and agents should take this opportunity to communicate their value and expertise to clients, ensuring that they are prepared to address any concerns that may arise.

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