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The following Q&A comes from the HW+ exclusive Slack channel, where HousingWire Senior Real Estate Reporter Matthew Blake answered questions about his three-part HW+ series on the past, present, and future of real estate commissions. After talking to some of the biggest stakeholders in the industry about real estate commissions, he shares his findings and takeaways in this ask-me-anything conversation.
During the discussion, he talks about what real estate agents should be most concerned about when it comes to legal challenges to real estate commissions, what role alternative models like Redfin and Clever are playing, and so much more. The following Q&A has been lightly edited for length and clarity.
HousingWire: To start, from your perspective, can you outline or summarize why this series was so notable or interesting to you?
Mathew Blake: I think it was notable because it touches on a very sensitive topic, but an elemental one for most people, which is “how much are you paid” and “how do you make that money.” What I really like about HousingWire is that we look at all real estate professionals, not just executives, and so this was an effort to explore and explain this vast and varied labor market.
HW+ Member: What was the most profound or interesting information you discovered while working on this series?
Mathew Blake: The most interesting information, to me, was learning that the way real estate agents have been paid has been around for 100 years, and their accruing 5% to 6% of a home sale has been around for about 80 years. I didn’t know about this history. As a journalist, my profession and the way our sector has worked has changed constantly in just the last 20 years alone, and I think that’s the case with many professions. So learning about the stability in agent real estate commissions was the biggest takeaway for me.
HW+ Member: Hasn’t the marketplace allowed for lower commission rates to be established into the economic ecosystem? Some people just choose to go with certain agents and pay more for that service.
Mathew Blake: I think that’s really unclear to me at this point. You might be right, but many academics who’ve looked into real estate agents and agents themselves that I’ve talked to say that the consumer really doesn’t understand there are commission alternatives available. I think it’s on a consumer-by-consumer basis, for sure. But the vast majority of consumers (unfortunately) don’t read HousingWire and don’t know they can pro-actively negotiate rates or that a Clever, or Redfin, or REX exists.
HW+ Member: No longer do consumers wait for their agent to “find” houses for them. Potential homebuyers use Zillow and Realtor.com to do their own hunt. But the real estate agent gets paid for the advice, guidance, and process that leads to a closed deal. Do you think this evolution is part of the counterbalance that helps brokerages/agents protect their model from the low fee folks?
Mathew Blake: I think Ryan Gorman, the Coldwell Banker CEO, and others have articulated well that the agent is changing into the advisory role you mention – a counselor who sorts out the wealth of indiscriminate online information for them. I think what’s controversial – and why there are lawsuits – is that there allegedly hasn’t been a reckoning in the market as to what this advisory role is worth.
The good brokerages have provided a reason for their continued value amid Zillow, but is that value basically the same as it was in 1990? I need to learn more, but I’m sympathetic to the idea that there hasn’t been enough of a market correction in agent commissions.
I’d also add that this doesn’t mean I think agents should be paid less. Perhaps a more just compensation for them in 2021 involves a base salary or some safety net they don’t currently enjoy
HW+ Member: Did any large brokers mention a position on this that they would be willing to convert to an employee-based model? There is a reason there are so few that are. Also, the DOJ settlement will be changing the disclosure of the buyer agent’s commission. Was that discussed at all during the interview process?
Mathew Blake: “No” to – brokerages firmly want their agents still in IC status. These brokerages operate on razor-thin margins and ask them to consider an employee-based model. I think they consider it too expensive. Redfin has been the only brokerage so far with the capital to really pull it off on a meaningful level.
HW: Why was the going rate raised to 6%, and why did it stay there for decades?
Mathew Blake: I think a lot of it had to do with the promotion of homeownership in the 40s and 50s, which the NAR and other groups were at the forefront in doing. Arguably, much like today, there were government incentives to encourage home buying generally. Then the agent was seen as the gatekeeper to the specific homes on the market that you could purchase.
HW+ Member: The first article mentioned that real estate commission rates have been dropping a lot faster in many other countries than they have in the U.S. Were you able to uncover reasons why that is? Are real estate commission fees structured differently in, say, Sweden than here?
Mathew Blake: Regarding Sweden, yes, each “side” of the deal, I believe, negotiates the real estate commission instead of the seller’s agent setting it and splitting it with the buyer’s agent. The U.S. structure is generally unusual. What I found most important, though, is the sheer number of agents in the U.S. In other countries, real estate agents are a small profession, and those agents may do 50 deals a year instead of 5. With quantity more of an economic incentive, agents in, say, England are less concerned about commission per sale and more concerned about a constant volume of work.
HW+ Member: What should real estate agents be most concerned about that you might not have touched on yet?
Mathew Blake: I think an agent should be concerned that – from a 30,000-foot-view of antitrust lawyers in Washington, D.C. – the profession writ large of residential real estate could look to them as a massive collusion scheme. So, I think the agent needs to articulate why they are, from my conversations, savvy, industrious people that do have a role in the 21st Century economy and aren’t faceless conspirators. My unsolicited advice to the agent community is to speak out on these lawsuits and state the case for continued relevance because I think these are serious legal challenges.
HW+ Member: Do you think standardizing listings would have an impact on real estate commissions? Such as requiring the disclosure of all real estate commissions in the listing? Redfin discloses commissions, but Zillow doesn’t, for example.
Mathew Blake: I’m not sure. Steve Murray at RealTrends has done some research into this and says that Washington state MLS disclosed real estate commissions, and it didn’t make a difference. What I would say is that I find it very interesting that Redfin is an outlier in disclosing commissions. Zillow – a website that gets almost one billion hits a month – now has the ability to tell consumers what their buyer stands to earn on a real estate commission. And they choose not to. Zillow is the industry leader in terms of popularity, which is why I’m singling them out, but brokerage websites also aren’t disclosing real estate commissions. So, yes, it seems the DOJ settlement giving sites the option to disclose commissions has not made a difference, and that only required disclosure would make a difference.
HW+ Member: The NAR/DOJ settlement will be mandating the disclosure of the buyer agent’s commission. Was that discussed at all during the interview process?
Mathew Blake: From my understanding – which could be wrong – is that websites have the option, and, so far, Redfin except, they have not availed themselves of that option.
HW+ Member: What can readers look forward to next from you and any parting thoughts on real estate commissions?
Mathew Blake: In terms of “coming attractions,” I’m looking now at how ibuyers are perhaps just becoming another brokerage. I have a piece that takes a deep dive into Opendoor coming out soon. I’m also starting to branch out into looking at home building – and the close nexus between issues in home building and real estate. But my everyday job is figuring out as best I can what is happening with agents and other related professionals and what their thoughts are.
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