Listing agents have long complained about crappy buyer’s agents. It was the biggest drawback of the unilateral offer of compensation. The listing agent would offer compensation to any agent who brought a successful home buyer – regardless of the competency of that agent. Industry wide, most new agents start out as buyer’s agents. All too often, the listing agent winds up helping the buyer’s agent through the transaction. Unilateral is just too uncertain. It’s a crap shoot. When a home buyer hires an agent, it should be on a skill-for-rate basis. It’s like attorneys – some charge $150 per hour, others charge $1,500 per hour. You get what you pay for.

The whole idea of unilateral compensation is flawed.

It feels to me like operating a service business basing commission upon the sale price is flawed, too. Changing a tire should cost the same regardless of the price of the tire. The process for representing a home buyer on a $300,000 home is the same as a $3 Million home – usually. Why would you pay an agent so much more because of the home price? The service does not change! There are extremes to be considered – like it sometimes takes a lot more work to help first-time home buyers or home buyers with poor credit on the low end of the housing market. It is also known that some high-end sales are much more complicated because the properties have elaborate systems – like well water capacity on a home with a vineyard, or ocean front sea walls, etc. Sometimes agents listing high end properties need special expertise with trusts and other exotic purchasing or title structures.

The saddest part about the buyer commission litigation is that the new standard is no better than the old. Under the draft terms of the settlement agreement, the seller may – and probably will – continue to offer unilateral compensation to the buyer to offset the fees related to hiring their agent. The seller should have the right to ordain any sale terms they want, and unilateral compensation can be an option, but it does not seem like the best option. In fact, the quality of the buyer’s agent is not really the concern of the seller at all.

A huge percentage of lower and medium price point listings are home buyers who will need mortgage financing, and struggle to come up with the down payment. Adding a buyer’s commission to the down payment tab only makes that worse. The seller’s offer of compensation as an incentive does inflate the price.

The buyer needs to come up with the cash to pay their agent, along with a down payment, then they just buy a lower-priced home that they can afford. I am not advocating to disallow seller concessions to incentivize home buyers at all. In fact, I believe that this whole buyer’s agent litigation will have no impact on the price that buyers and sellers pay their real estate agents because of the unilateral offer problem.

I believe that a better system that optimizes for the best buyer’s agents to be compensated for their worth would be for the buyers’ offer to include a request for commission concessions, if any. Some buyers will pay all cash and not request a buyer’s agent commission concession at all. Other buyers’ offers may request agent concession, mortgage points buy downs, new roof, and more. Heck – why don’t home buyers also offer to pay the seller for their agent’s commission, and even throw in the cost of moving? If the seller wants a new car, the buyer will pay for that too! If the seller wants some cash to pay down the mortgage points on their next home, or help with the down payment, the buyer can cover that also.

In California, the property tax rate is based on the transaction price. It’s all part of a law called Proposition 13. The lower the transaction price, the lower the tax rate for the new owner. Moreover, sellers pay capital gains tax on homes that sell for a profit of more than $500,000. I know, in most areas of the nation, a $500,000 gain on a home is inconceivable. But in California, it happens on just about every transaction where the family has owned the property for more than 15 or 20 years. Moreover, $700,000 homes that were purchased in 2020 are likely to sell for more than $2 Million today. Why not put in a low offer to save the seller and the buyer tax? Clearly I am not a tax advisor – but this seems strategically sound.

MLSs may be deploying a bad strategy

MLSs in many areas are adding in the capability to place pre-sale seller unilateral conconcessions in the MLS. Previously, seller concessions were added when the listing was marked sold to help appraisers get information about items that may need to be adjusted out of the sale price. Maybe the sale price included the furniture, or something like that. It seems like this is some sort of work-around that is supported in the settlement agreement, but impresses me as a slippery slope. Just get rid of it. Let buyer and seller agents work it out, like they do with everything else. The value of the MLS is the data. The high quality remains in records of past transactions, pending sales, and active listings that allow for pricing research.

Fixed priceUnilateral compensation of any kind creates a poisoned system that levels the playing field in a way that hurts great agents and benefits crappy agents. It proclaims that every service provider is equal. Clearly, this is an unreasonable economic condition. We all know that some agents are better than others. If we want to really fix the broken system, then disengage from anything that is unilateral. As the judge has ruled, anything unilateral that involves competitors is price fixing under the per se adjudication of the Federal Antitrust laws.

Regardless, MLSs will do whatever they think is best. But, brokers have a choice. From a liability perspective, firms may want to carefully consider allowing any form of unilateral seller concession for buyer’s agent commissions. Of course, all buyer offers are accepted and paying the buyer’s agent commission can be a term of the offer like any other term of the offer.

Sellers should be permitted to offer any incentive they want – just allow for it in the property description- not an MLS field.

Author’s Note to Readers: I normally write articles in 20 to 40 minutes. This one has been sitting in my browser for more than a week. It is easy to find a solution when you are just thinking about the seller or the buyer. It is really difficult when you are thinking about both. I feel like I am talking out of two sides of my mouth on the issue. I harken back to Larry Romito’s agent satisfaction product – QSC Certified. It was a far more comprehensive measure than any star system we see today.