Real Estate

Real estate coach Skye Michiels on why sell-side commissions might rise and new models could emerge

Michiels: ‘I think there's going to be a lot fewer buyers who actually have good representation in the future’

Three days before the new business practice changes mandated by the settlement of the National Association of Realtorscommission lawsuit went into effect, HousingWire caught up with top real estate coach Skye Michiels to talk about how his agents are handling the big changes.

Michiels, the former head of coaching at Compass who now runs his own real estate agent coaching firm, With Heart Coaching, said the first six months are going to determine how agents adjust to the many variables. And it will be messy at times, he said.

Skye Michiels Headshot
Sky Michiels

In an interview with HousingWire Managing Editor James Kleimann, Michiels shared his thoughts on how buyer broker compensation will evolve, how lower-income buyers will be affected, the legal scenarios for agents, and what new business models may emerge in the coming years.

This interview has been edited for clarity and conciseness.

Kleimann: What are you advising seller’s agents and buyer’s agents about the changes?

Michiels: So obviously, some of this is market specific. In some markets, like in Texas, for example, I have agent clients who are in a little bit more of a buyer’s market. In those markets, listings are starting to sit and so there is some logic to the seller offering a buyer’s agent commission.

You want to make your listing more attractive to more buyers. In markets where inventory is tight, the way my agents are approaching it — and the way I’m advising them — is basically to use commission as a negotiation point in the sale. In other words, if the seller is willing to provide it, you a) have the option of not disclosing it upfront; and b) you can use that as a negotiation point during the sale.

I think agents need to be very, very aware of market conditions and the seller’s goals and desires. Do they want it to go fast? It’s similar to installing hardwood floors, right? If you want to move your property, you’re going to invest money in it to make it more marketable to a buyer.

Kleimann: How much of the market dynamics are now coming down to the fact that every buyer and seller knows that commissions are now on the table?

Michiels: So, at this stage, every real estate agent knows. But I would probably say that 60% of the public still has no real idea. If you’re searching for real estate, you probably do know about it. The vast majority of the public, in my opinion, really does not have any clue right now what this is, or what it even means. If you’re in the market, those numbers are probably a lot different.

Kleimann: This is purely a hypothetical, but let’s say a buyer agrees to compensate their agent 3% and they make an offer on a house. But the seller only agrees to pay 1%. Are such deals taking place with the agents you work with? What are we seeing in terms of negotiations in those situations?

Michiels: So, let’s take your scenario, where I’m a buyer, and let’s say I agreed to pay my agent 2.5%. We move forward, we buy a home and the seller is offering 1% toward commission at that stage. I understand that I’m responsible for the additional 1.5% on that — I’m contractually obligated to compensate.

So, we are just starting to see this unfold in markets. I do have agents that I’m coaching right now that are having some of these harder conversations. We are starting to see some of the zero compensation — or 2% or 1% [seller offers to buyer’s agents] — show up in the markets. … There are conversations in this transitional phase that are really hard at times because you’ll have buyers that have been looking, let’s say, for six months, and this is a new sort of concept and a new cost structure that they’re encountering.

Kleimann: How long do you expect this transition period will last?

Michiels: I think we’re going to see about a six-month transition time between the “old way” of doing things versus the new way. We’re going to encounter agents who are going to really have some challenging conversations in front of them with buyers, especially the buyers who are on the bubble. They have the money for the down payment, but they don’t have a lot of extra money for extra closing costs, aka commission, right now. They’re going to be the ones that really need to be careful with what they’re buying; they could get in a situation where they owe money on a property that they don’t have the money to pay for.

Kleimann: Will there be scenarios where a buyer signed the BBA (buyer broker agreement) and is under contract but says, ‘Look, I can’t pay you 2% commission on this. I can only come up with $5,000. Sorry, Mr. Realtor?’ What happens then?

Michiels: These will be the key questions we’re going to encounter, and I would argue today that we don’t really know exactly how it’s all going to play out. And I think it’s going to play out agent by agent. If an agent has a signed contract, similar to a lawyer who is representing a client, that agent could attempt to enforce that contract.

And then there’s the unanswerable question, how enforceable is it? How far is the agent going to take it? Are they going to prevent the person from buying the home because of the fact that they are owed money? This is where the next six months in this industry are going to become extremely interesting and extremely challenging in a lot of ways.

Kleimann: And it’s not just the agent who is affected, right? Let’s talk about the brokerage aspect. Are they going to be out there suing people in their communities? What brokerage wants that publicity?

Michiels: Whatever your opinion was of the way real estate was done, there were a lot of positives to that old system. I think there’s going to be a lot fewer buyers who actually have good representation in the future. I think this is actually going to hurt consumers in many ways, especially in the early days as things are getting shaken out. But at the end of the day, this is the reality of the real estate world, and the occasion of right and wrong is sort of irrelevant at this stage now.

This is what it is, and the question is, how do we move forward in a way to protect consumers, enhance agents’ businesses, and make sure this process of buying and selling real estate — which is a huge vehicle for wealth in this country — remains as a main feature of our economy?

Kleimann: One theory I’ve heard is that we’re going to return to a version of subagency for some buyers, especially in the lower price brackets, where maybe the buyer got an FHA loan and had to get a down payment assistance package. There are pretty strong limitations to what they can do. And of course, what agent is going to work for $500, $1,000? One challenge here is that American consumers, no matter what they’re buying, still generally expect full service.

Michiels: The biggest question that we’re going to see is, essentially, what is the tolerance level for agents? What is that bottom ceiling that they’re willing to work for on the buy side? And where will that lead the consumer at the end of the day? It’s a big question. To your point, the lower-tier consumer is the one I think that’s going to, unfortunately, be hurt the most here as well.

Kleimann: Do you see an opportunity for a new player to provide a standardized brokerage service to someone who’s, say, getting an FHA loan and doesn’t have an extra $5,000 to pay their agent?

Michiels: I think we’re going to start to see very different models of real estate services emerge. Almost like, if you were to picture a menu or a pay-for-service kind of model: ‘I’m going to pay X percent for paperwork to be completed.’ ‘I’m going to pay X percent to be shown properties.’ Almost like breaking up the process and paying per the service that you’re receiving.

I could see a model like that emerging as we move into the future. Innovation is always bred out of times like this. So, I think it’ll be really interesting to see what kind of models emerge, and the way that agents adapt and help people, guide people.

It really goes back to training and coaching becoming a huge part of what most agents really should be leaning in on. And I’m not saying that selfishly — I’m saying that for any agent out there who’s not really improving their skill, their trade and their craft. I think they’re missing a big opportunity here as well.

Kleimann: Commissions historically being paid as a percentage of the home’s value means it’s tied to the price of the asset, not that the job has gotten harder or the quality of the service is necessarily better. But the cost of services has gone up because it’s pegged to the home’s value. Do you expect to see more flat-fee models?

Michiels: The offsetting factor to that is that as home prices go up, equity also goes up. And the reality is, most of the time the commission has been paid out of equity, not necessarily cash, so I personally don’t believe that the consumer is actually going to save a tremendous amount of money on commission.

I think you’re going to see the commission on the listing side rise even, and that’ll offset the commission on the buy side going down. And that’s because I think you’re going to see more experienced and skilled agents taking over market share and therefore commanding a higher list commission. Because that commission is being paid mainly out of the equity of the property, I think that’s where I actually don’t see a huge emergence of flat-fee models, especially in the higher end.

Kleimann: If I’m a legit, everyday agent with a good book of business, should I be excited about these changes?

Michiels: I do believe that this is going to force professionalism into the industry that is not really current there. So, I do think it’s going to up-level. I think it’s going to force people to be way more transparent and be really clear in the value they bring in.

And trust me, I have agents I coach who are excited about this. It’s probably not the majority of the population, but once they get through the initial phase, they see a huge upside to the whole situation. Most of the agents I coach are listing-heavy, but they also do buy-side. The biggest value they see on the buy side is they’re only going to be working.

One of my agents, for example, has lost two buyers because of the fact that he’s requiring they signed a contract. And once again, he’s been showing them some properties without it, and now that he’s requiring it, they sort of went the other way. And he’s actually OK with it, because, in fact, he’s like, ‘You know what? I might have shown them properties for years without anything.’

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