The Times They Are A Changing, But It Is Not The End Of The World….

As I prepare for the Spring C.A.R. Business meetings here in Sacramento, I find myself reflecting on how different the business of Real Estate is from when I started selling in 1992. Mostly, the process is the same but the paperwork is definitely more. We went from 4 pages then to 16 just for the contract and another roughly 28-36 for disclosures and advisories. This is thanks to the highly litigious state of our human condition. We are definitely putting in the work to list a home and to sell a home yet the public is largely aware of how we do what we do and why we earn the money that we do. That may be a failure of the consumer just as much as the Real Estate professional for lack of clarity so let me dispense with few myths and just tell the plain truth. The real estate profession is one that requires a good deal of intestinal fortitude because it is an independent contractor profession. I mean that it takes grit to wake up everyday feeling unemployed and go out and find a new client to work with. The costs that are incurred daily to engage in the practice of real estate no matter if you earn a commission or not are huge. No one is fronting an agent the money and they are definitely not making an hourly wage. The cost of gas, vehicle insurance, health insurance, license fees, errors and omissions insurance, building a retirement account, subscriptions to Multiple Listing Services and lets not forget taxes are on the agent to plan for and have funds available for because the business has to be run and life goes on not matter what. If the agent is lucky enough to have a listing, they will have to pay for marketing the property long before it actually earns them a commission. That means photography, print marketing, digital marketing and listing preparation all before you get a paycheck. If the agent has a buyer that they are working with, the time alone that is spent showing homes and educating the buyer is staggering. From there they will be assisting with inspections and understanding the disclosures and reports that the buyer needs to make a good choice for their future. All of this they do not earn an hourly wage for. In an effort to be brief, this just scratches the surface of the work that goes into being a real estate professional. It takes real skill to get a transaction to come together let alone get to the finish line known as closing the escrow. Skills such as negotiation expertise and navigating the highly emotional state of a buyer or seller along with being able to explain the mortgage process and transaction process are not even talked about routinely. A day in the life of a real estate professional is multifaceted and dictated by the needs of others over all else. It is not unusual for the agent to spend nights and weekends away from family and friends just to make it all work. The odd misconception from the public is that buyer’s agents just open doors and write contracts is wholly untrue. That along with the statistic that buyers believe their agent spends less than 15 hours working to get paid is also untrue. The buyer’s agent will likely spend more than 60 days nurturing a buyer and educating them before they get into a home. Just another sad misconception that has been perpetuated.

So lets talk about how an agent does get paid. In the current environment, the Seller and their agent decide when the home is being listed how much commission will be earned. This is for both the listing agent and the buyer’s agent. This is a negotiation between the seller and the listing agent and has always been this way. There is nothing that dictates how much is charged to the seller other than this negotiation. There are local customs of normal commissions that can be demonstrated over time in the MLS for each area that are used as a guideline for the offering of compensation to the buyer’s agent. Since many government backed loans do not allow the buyer to pay compensation to the buyer’s agent, the system of displaying the offer of compensation from the listing agent to the buying agent on the MLS has worked for more than 50 years. If the escrow closes the agents both get paid for their services. This practice of splitting or offering of compensation is now under great attack and will likely be changing due to litigation that is underway between a class action sellers and the National Association of Realtors. With headlines that are more for shock value that spelling out the truth of it all, the consumer is sitting there scratching their head and wondering what to do now and how it will impact their home sale and purchase. For now, the case is still not completely settled and many agents are confused too. The only thing that is certain is change will come and as a profession, Real Estate will survive. Practices will shift to accommodate the change, people will still buy/sell real estate and as sure as people will still need a roof over their heads Real Estate professionals will still be at the heart of the transaction process to guide and protect the consumers while making financially impactful decisions. Change is never easy and it provides us all with an opportunity to continue to grow our professional skills. These changes will be good and require an open mind and flexibility to navigate. As for the consumer, at least you will know how it works and be able to make a clear choice. The proposed changes will not make the homes more affordable and the cost to sell a home suddenly less expensive unless you are willing to sacrifice being exclusively represented and protected. I suspect that the disruption that will come from changes to the overall way Real Estate is transacted will be just that- a disruption for now. The good thing that will come from this is that over time the public will understand the process and serious legal ramifications of treating real estate professionals as options in the dating scene instead of recognizing the serious nature of a home sale and the related contracts.