Real estate agents are bracing for the impact of the commission lawsuits

In the nearly two months since a Missouri jury found the real estate industry liable for colluding to artificially inflate real estate agent commissions, Jason Posnick has fielded a lot of questions about commissions and cooperative compensation from clients.

“I’ve been on about 11 listing appointments in the last three weeks and about 50% of the people had heard about the Sitzer/Burnett suit and trial and they have questions about it,” the sales manager for the Massachusetts-based Chinatti Realty Group said.

So far, Posnick said he feels encouraged by how clients are responding to his answers.

“They actually seem more on the side of the real estate agents,” Posnick said. “It has been cool to hear that. I was at a listing appointment for a $2.5 million listing and the owner said they would never buy a home without an agent and that they would prefer to do things the way they have always been done instead of paying their buyer’s agent out of pocket.”

Todd Alperin, a Better Homes and Gardens Real Estate The Masiello Group agent based in Southern New Hampshire, has had similar feedback from his clients who know about the commission lawsuits.

“Sellers have brought up the affordability issue with housing and they have wondered how much resources buyers have and if they would be able to now all of a sudden potentially pay a buyer’s agent fee on top of their mortgage down payment and closing costs,” Alperin said.

While agents like Alperin and Posnick are optimistic, they are still wary of what the mounting uncertainty surrounding the final ruling on the Sitzer/Burnett trial, the wildfire-like spread of copycat commission lawsuits, and the National Association of Realtors’ vow to appeal the verdict, will all mean for the business of real estate.

“I think my biggest fear is that it becomes more adversarial,” Posnick said. “Real estate agents and salespeople in general are an emotional bunch and my fear is that now agents will become more concerned about their commission and I think that is the worst thing possible for the industry.”

And Posnick is certainly not alone in his apprehension.

“It is definitely not business as usual,” Leigh Brown, the broker-owner of North Carolina-based One Community Real Estate, said. “We are three and a half years into a ridiculously low inventory market, a year and half into a high interest rate market, transactions are harder to come by, agents are exhausted — they’ve been working seven days a week for years now, and it’s the holiday season and panic is rising.”

As brokers, team leaders and managers look to help their agents navigate this challenging time, many are encouraging their agents to go back to the basics.

“A wise agent right now is talking to buyers and sellers,” Brown said. “They are answering those questions, they are available to explain things and also to remind the public that they are out there still doing the best job they can for their neighbors and friends who live in their area.”

Brown also suggests agents, especially newer ones, find a mentor they can rely on to help them navigate what she and others are expecting to be a rocky time in the industry.

“We don’t know what things will ultimately look like,” Brown said. “I personally think we are nowhere close to the final result of these lawsuits — we are at the outer bands of this hurricane.”

As Mark Meinhardt, the president of Ohio-based StarOne Realtors, looks to help his agents navigate the real estate landscape created by the commission lawsuits, he is starting with the basics, including buyer’s agency agreements.

“There is a lot of uncertainty as to which way things will ultimately go,” Meinhardt said in regard to the final ruling and possibility of appeal for the Sitzer/Burnett suit. “One of the most advisable things we are recommending to our agents is to enter into exclusive buyer agency agreements.”

Meinhardt said that unlike in other markets, buyer’s agency agreements are not prevalent in the Ohio market, so he has made a point to educate his agents on these types of agreements and has worked to implement them in their routine practice.

“I think you need to maximize transparency, clarity and understanding with clients and these agreements help do that, as well as create a more formalized relationship between the agent and their client,” Meinhardt said.

In Minnesota, while buyer’s agency agreements are already de rigueur, Ryan O’Neill, the team leader of the RE/MAX Advantage Plus brokered The Minnesota Real Estate Team, is taking a similar approach with his agents.

“We are working to address this head on,” O’Neill said. “We are just trying to be clear with our clients that there is a cost to our representation, but that they do have the option to go unrepresented directly to a listing agent.”

O’Neill said he is also working with his agents to help them be better prepared to fully explain the homebuying transaction and the services they as an agent will provide to prospective clients.

“A large part of it is just not being afraid of the conversation,” O’Neill added.

Agents will certainly need to be prepared to articulate their value proposition and negotiate their compensation with prospective clients, as currently 42% of sellers say they are less likely to work with an agent if they are unwilling to negotiate on commission, according to data from Clever. The same share of sellers is also unaware that under current industry practices, they are expected to pay the buyer’s agent fees.

“That is going to change dramatically,” Luke Babich, the co-founder of Clever, said. “Agents need to be bringing these things into the spotlight.”

Data from Opendoor also highlights a disconnect between agents and their clients, that real estate industry professionals are going to have to work to bridge if they hope to be successful in the coming year. In a recent survey, Opendoor found that the top reason agents believe they are hired or recommended is because they’ve proven to have their client’s best interests at heart, with 48% of agents selecting this option. However, among sellers, this was the least beneficial aspect of the agent-client relationship, with just 30% of home sellers selecting this response.

Despite all of the uncertainty and now facing agents, on top of the already challenging housing market and macroeconomic conditions, agents remain confident they have what it takes to be successful.

“Many in the industry are very distressed,” O’Neill said. “Many agents and brokers are facing a lot of uncertainty and are unsure of what this means to their livelihoods and how this will impact the industry. But it is going to be a process and it is important that agents and brokers are cognizant of the consumer and doing their best to keep their head down and focus on what they can control. As long as I have been doing this job there have been changes to processes and regulations and just like in anything else you have to roll with it and not get too hung up on it.”