Buyer agent and clients viewing a home - Will buyer's agents become obsoleteReal estate is always shifting, and now that is more true than ever. Will buyer’s agents become obsolete with the cataclysmic transitions we’re facing? Today we’ll touch on:

  1. The role of expertise in real estate transactions
  2. What do buyer’s agents do?
  3. The impact of the recent NAR settlement and industry changes coming

Do consumers value expertise? If so, don’t expect that buyer’s agents become obsolete.

After all, a lot of data is online. The thinking goes, travel agents are mostly gone and journalists are being replaced by bloggers.  It’s possible that this will be the case for buyer’s agents in the future, as there is a trend in thinking that there are no real experts if everyone has access to information.

A few years back, I heard about a book that takes on this concept regarding expertise and it really resonated with me. The title is “The Death of Expertise: The Campaign against Established Knowledge and Why it Matters“. Confession: I have not yet read it, but want to do so. I did hear it discussed on KGO Radio by Pat Thurston, who was one of the radio personalities there, and her take on it was that it presents the concept that everyone’s opinion is as good as everyone else’s opinion.

That certainly does happen in real estate, along with the persistent idea among some consumers that buyer’s agents don’t really add any value other than unlocking doors. (I wrote about this idea that “it’s all on the web” so buyer’s agents aren’t perceived to be needed back in 2013.) Even this morning I had someone email to ask me if I would split my commission if they bought a home with me and would “do all the research”.  The answer, by the way, is no.

You can have a 20 or 30 year veteran Realtor with oodles of transactions, but a home buyer armed with a real estate app may not always know what he or she doesn’t know. And that’s dangerous. Information does not equal knowledge or skill.

Will buyer’s agents become obsolete? Before thinking that they will, learn what they do and what they know and why their clients appreciate them.

What do buyer’s agents do that consumers don’t do as well for themselves?

A good buyer’s agent will be able to help with these items (and many more, depending):

  • explain the contract and forms (some of which are written with obscure vocabulary and very important nuances)
  • give information on what is customary in an area (whether transfer taxes or contractual norms or seller concessions)
  • identify red flags in disclosure paperwork (and point out what is hinted at but not said explicitly, where there are gaps or incomplete answers or required but missing information) – the escrow officer does NOT do this
  • provide guidance on what to look for in a good home or setting (not always intuitively obvious), what may impact resale value in the future
  • investigate what it will take for your offer to be accepted, when you do decide to write on a property
  • understand the significance of the natural hazard disclosures and associated risks, and to raise issues that these don’t contain but will be a concern to consumers if they know about them
  • determine if more inspections are warranted or not (sometimes the inspections only HINT at issues –  experience can help navigate these things)
  • set the buyer up for success with a strategy that includes a strong pre-approval, massaging the relationship with the listing agent, obtaining answers to follow up questions
  • educate the buyer on construction issues or strengths (within limits – most of us are not contractors)
  • find the appropriate experts for whatever is needed
  • analyze the real estate market for the particular home you want to buy (not just the city, not the zip code, but your particular home’s market, whether it’s mostly influenced by a school district, a price point, or any other criteria – this is custom info not found online)
  • know that homes of certain vintages may come with particular risks, for example, houses or townhomes of a particular period may have electrical panels that should be replaced for fire safety
  • spend significant time crunching the numbers to arrive at the probable buyer’s value or where it is likely to sell
  • will go to bat for you should there be a conflict over negotiations, repairs, or any other issue
  • address any post-sale problems, questions, or issues
  • and so much more – each transaction is different, so the agent will address and improvise as needed on each one

Home buyers may, without good guidance, sign purchase agreements or contracts and not understand the impact of various clauses or paragraphs and assume that because they are boilerplate, they are “fine”. A good buyer’s agent will carefully review everything and explain the ramifications and the “what ifs” that go with them.

A home buyer may read the disclosures and decide that something is normal or OK because it’s common in an area. Just because all of the neighbors have water in the crawl space does not make it a desirable condition. A good buyer’s agent will go over the risks and costs that can come from water intrusion into the crawl space. (In that case, water in the crawl space can lead to cracked foundations, diminished safety in an earthquake, an increase of mold, the attraction of pests, etc. – all of which can be expensive to fix and none of which may be apparent to some buyers.)

Red flags and stories

A good buyer’s agent will help identify red flags in properties and also in disclosures. They will pull out for their clients the things that perhaps the other agent and the seller missed. These are skills honed over years.

Talk with agents who’ve  been in the industry for 5 years (85% will drop out before then) and ask what they’ve learned and you’ll get an earful on red flags and crazy real estate stories that needed a lot of guidance, nudging, bailing out, and more. Ask a Realtor who’s been selling homes for 15 years or more and she or he could write a book on what’s been learned. Ask one who’s sold homes for 40 years and you’ll likely hear “I learn something new with every transaction”.

A good buyer’s agent can make the purchase, escrow, and closing look effortless. Without visible high drama, home buyers may not understand which skills and experience helped to navigate the “easy sale”.  Perhaps above all, a buyer’s agent will have his or her client’s best interest at heart. For that Realtor, it’s not a matter of selling you his or her listing, it’s about finding the right home for you and providing you the professional representation you deserve so that you can make an informed decision every step of the way.

If you went to court, you’d want to be represented by your own attorney, someone whose work is geared toward helping you, who has a fiduciary relationship with you.

So too with a buyer’s agent. That person does far more than open doors and get paperwork signed. Perhaps those of us who work with buyers don’t do enough to promote ourselves or make it apparent in the public eye how hard we work to get our clients good information so that they can make the best decisions for themselves. Yes, buyers will also do research and get home alerts as to when listings hit the market. More information and data is better, especially with large purchases as in real estate transactions. That does not undermine what a buyer’s agent does, though, it only makes for a stronger partnership.

The NAR settlement, various real estate lawsuits, and the possibility that some or many buyer’s agents will become obsolete

In recent years there have been real estate lawsuits over the ways that buyer’s agents have been compensated. Before I became a Realtor in 1993, the “old system” was that the seller paid all commissions and therefore both the listing agent and the buyer’s agent represented the seller, who had an agent and a sub-agent. Financially that made sense, but imagine being a seller and knowing that someone (anyone) you’ve never met could be “your agent” and represent you. This was a legal quagmire!

Subagency gave way to buyer agency, but the payments stayed the same – from the seller. Some sellers felt that they wanted the buyer’s agents to represent them, the seller, since they were paying the fee.

Now, decades later, the issue of agency and buyer agent compensation is back in the limelight, and more changes are coming.

The recent National Association of Realtors or NAR settlement does not cover all brokerages, nor all MLSs.  But changes are coming and most likely all or most real estate organizations will be adjusting how business is done.  These include, to the best of my knowledge right now:

  • Buyer representation agreements will be required before showing homes to buyers.
  • These buyer representation agreements, often called buyer broker contracts, include buyer responsibility for compensating their own agents.
  • The buyer agent fee or commission can no longer be listed in the MLS.
    • Sellers MAY still pay the buyer’s agent fee, but it will be handled differently in the future than today.
    • We have no idea how common or uncommon that will be, or what may be normative in the future (if anything does become typical or common – it’s never fixed by law)
  • The buyer agent fee can be negotiated with the listing agent / seller, but it won’t be in the MLS. (I anticipate a form will be used for this, perhaps one that already exists in the California Association of Realtors’ vast forms library.)
  • Some buyers may forgo having their own real estate agent and go directly to the listing agent (some already do that).
  • All of the above may (1) cause commissions to go down and (2) cause home prices to come down (3) cause a significant number of real estate professionals to leave the industry.

How soon any of this may happen is unknown right now. There are many lawsuits out there – some from sellers regarding the commission payment structure, some from buyers complaining that home prices were artificially inflated due to the payment system for buyer’s agents.

Changes create opportunity and loss. What are we losing?

  • If buyers must pay their own agents directly, this will be an enormous hardship for VA and FHA buyers, who are not permitted by their lender to pay those fees.
  • For the majority of home buyers, just scraping together the down payment is a tremendous effort. Most of them will have trouble being able to afford their own agent. As of right now, that fee cannot be rolled into the mortgage. Will buyer’s agents become  obsolete? This is the biggest reason why the whole system may be upended: buyers may not be able to afford to have their own agent and instead be forced to work with the listing agent and into a dual agency situation.

To me, it would be a catastrophe if all buyers were pretty much forced to work with only the seller’s agents (the listing agents).

That said, it may not happen as feared. Some buyers will understand and appreciate having their own guidance and may elect to skip homes where the seller won’t cover or at least help to pay the buyer agent fee.

What about sellers? Right now, perhaps 30% of all buyers are cash buyers, no loans. They may have enough cash to simply cover their own agent’s fee.

For 70% of buyers, they will have a choice to work with their own agent and be committed to him or her, including paying that fee if the seller won’t, OR they can have a buyer’s agent and skip homes of the seller won’t assist financially with the buyer’s agent fee, OR maybe they just won’t want to be tied down to a Realtor or other real estate professional at all.

If the sellers want to attract all buyers, not just those who have enough cash to cover their own agent, then they may want to consider all possible options and scenarios.

There are too many moving parts (and too many lawsuits) to know exactly how this will play out. It’s going to take some time. But for sure buyer representation agreements will become mandatory here (as they are in 18 other states) and the MLS won’t be the channel for commission information. It will be conveyed outside of the MLS.

 

Will buyer’s agents become obsolete? I hope not.

Many times Clair and I have discovered issues that were not disclosed by homeowners, their agent, or their inspectors (some inspection companies are better than others, of course).

Just last weekend, we noted mouse droppings in the heater closet of a Santa Clara condo. That was not mentioned in the seller’s disclosures, the listing agent’s Agent Visual Inspection Disclosure, the Pest Inspection, or the Home Inspection. How many buyers or their agents would open the closet door, see the furnace, and close it again without noticing anything else? How would it be to close that sale and then discover the problem?

The clients of mine from other countries where there are only listing agents were wildly enthusiastic about having a Realtor in their corner, helping them to understand their choices and options with the negotiations, inspections, and myriad of other decisions to be made. To them, having a buyer’s agent was a huge upgrade in their home buying experience.

Related reading to Will buyer’s agents become obsolete?:

How to get a great buyer’s agent in a seller’s market (when most Realtors would rather assist home sellers)

How does a multiple counter offer work?

The percentage of all cash sales in Santa Clara County