ON Foreclosing America’s Real Estate Workers: A few weeks ago, the National Association of Realtors announced a settlement over a lawsuit involving real estate agent commissions. I’ve been trying to understand what is happening here and what the impact will be. How this will impact real estate agents. They are the workers in this industry.
I’ve bought four homes in my life and sold three. (Actually, banks bought and sold four homes with my name on the deal.) In one of our transactions the home had been foreclosed. It was a great place, recently remodeled and in a solid neighborhood, but had gone unsold for an unreasonably long time. That made us suspicious that something was wrong with the place that was not being disclosed to us. After putting the home on our “B” list for a while, we decided we really liked the place best and decided to buy it. That’s when we found out that our real estate agent wasn’t getting a commission on it.
In a normal transaction the entire home sale includes a 5-6% real estate agent commission that is split between the seller and buyers’ agents. Seems when a bank foreclosure is sold, there is a minimal realtor’s fee, and that went to the agent’s firm. That’s why the place stood vacant for so long. No one was showing it because they couldn’t make any money on it. The agent had shown us a ton of homes and spent hours working to find us a place. We paid her out of our own pockets in appreciation for her work.
It seems that this new legal settlement will require that of all home sales. The buyer will have to directly pay the agent. In essence a real estate agent now must negotiate their commission directly with the buyer. It seems this cost will be “outside” the sale and mortgage, so it will have to come out of the buyer’s pocket. The selling agent also has to negotiate their commission, but it remains part of the financial deal (coming out of the selling price).
The media coverage, and indeed the industry take on this, is that it’s a good thing. But a change they admit is full of uncertainty. One result can be easily seen. The buyer’s agent is going to get screwed. Already there are predictions that half of the nation’s real estate agents, some 2 million workers, will leave the industry. Other analysts feel it will depress home sales because lower income people won’t have the cash to come up with the buyer portion of the commission. Logic says that the lack of agent interest in showing a home, like the foreclosed one we bought, will skyrocket where a buyer can’t ante up a decent commission. As the number of agents declines, it is predicted that home sales will move online in a new era of agentless real estate transactions.
How good a change is this? Home purchase costs may be slightly lower. But its hard to see that a 3% commission is worth losing millions of jobs over. Seems to me the real estate agent/worker is the main loser. Everyone else in the deal is either untouched or better off. When viewed in this light, the settlement is an attack on the wages of at 2-4 million real estate workers. The banks, the sellers, and the real estate brokers aren’t taking a hit. Just those who actually have to walk us through endless home searches and contend with the human frustrations over home purchasing. (Oh I don’t like that paint color!). It’s estimated that the average home buyer looks at ten homes over ten months before finding their “dream” home. That’s nine non-sales per one payday for the real estate worker.
About 62% of real estate agents are women. The job is a pathway to a decent life that doesn’t require a lot of overhead or up-front costs. It also is that flexible work that can accommodate family needs.
This is being portrayed as a win for home buyers. I see it as a forced wage decrease for a whole lot of workers. Particularly in the way the settlement is structured. Before we cheer on what is happening to real estate workers, think about how we would feel if this was being done to us. The cost of homes has almost nothing to do with real estate workers commissions. It’s driven by housing shortages, low mortgage rates, location, neighborhood quality, construction costs, zoning rules and government attention to our housing stock. So, hooray for America. We’ve foreclosed on yet another group of hard-working folks. Eroding a lucrative entry-level opportunity for women. And most-likely made the housing problem worse for ourselves in the bargain.
ihg 4-19-2024. If you like these commentaries, join my blog for free at: https://ikegittlen.substack.com/ and share. Let’s see what we can build together
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Thank you Ike! I appreciate your words of wisdom. I wish the media would just stop reporting incorrectly and let people truly know what is happening here. We have a lot of scared agents, not knowing if they are going to have to go find another line of work.