What is up with all the media & news about real estate commissions?  Is there a change coming?  And the big question is, are real estate commissions going to decrease?

Lots to cover, but we will keep it brief and our goal is to be unbiased.  We have always held our role as a fiduciary to the highest degree and our best business practice is to take amazing care of our clients and put their needs first.

Instead of rehashing the topic, here is a summary from the Associated Press, VIEW ARTICLE which does a pretty good job summarizing it all, though we don’t agree with everything.

Through the years, industry norms & policies were developed, which is the heart of the lawsuit.  Why should the seller have to pay the buyer agent’s commission? And are real estate commissions negotiable?

The National Association of Realtors decided to settle instead of continuing to litigate. Currently, there is a proposal awaiting court approval that could go into effect in July of 2024 that would do the following:

• The offer of compensation to the buyer’s brokerage will no longer be required on the Multiple Listing Service.
• All real estate agents working with buyers must enter into a buyer’s broker agreement before showing a client property.  At that time, the buyer’s agent and buyer must discuss and agree to the buyer’s brokerage compensation amount.  Meaning if the seller doesn’t offer compensation, then it is on the buyer to provide the agreed-upon amount.
• NAR is to pay out a $418M settlement over the next 4 years and not raise members’ dues in 2024 & 2025.

The Big Picture:  Though a few mechanics of a transaction are likely to change soon, four main things will remain unchanged.

1. The Seller is ultimately looking at their bottom line, how much will they net from the sale of their home.
2. The Buyer is ultimately looking at how much it will cost to purchase a home.
3. The Seller’s agent will be compensated for working and guiding a seller through the process.
4. And the Buyer’s agent will be compensated for working and guiding a buyer too.

Most will understand this and will continue to elect to use an agent for the expertise we bring.  And like it has always been, a few buyers or sellers will elect to buy or sell unrepresented.

Talk about possible changes abound, but we are confident that we will continue to have a vibrant career in real estate with both buyers and sellers because of the value & knowledge we contribute and the quality of service we provide. And side note, we hope some of the poor quality of service we see at times is weeded out.

Still to be worked out in practice is how will the buyer’s agent get paid?  It could be directly from the buyer, or seller may pay, or both.  And how will lenders account for this change?  Will they allow a buyer to finance the cost of a buyer’s agent?

Overall here is a simple picture that helps me.  If a buyer has $1M to buy a home, no matter how it is distributed, the seller can only receive what is left after paying any real estate agents, escrow fees, title fees, taxes, repairs, etc… If the seller pays the buyers agent or the buyer pays the buyers agent, at the end of the day, there is only $1M to be distributed.

Two Positive Changes

• First, transparency is being improved which is fantastic. In the past, the buy side compensation was not always clear to every buyer and now it will be crystal clear.
• Second, it has caused us to ask one question, What is fair?  Both for our clients and us.  What is a fair compensation amount to charge to both buyers and sellers?

We admit, we had relied on industry norms which is not a good answer.  Rather looking at what we offer, the years of knowledge & experience, the connections and relationships, the amount of work, the unknown of the profession, etc… and the fact that we only are compensated when we successfully complete a transaction need to be factored into our service fee.  And what needs to be factored out of the equation in our minds is greed.  Not how much can I get paid, but rather how can I best serve our clients and what is fair.

Are real estate commissions negotiable?

The short answer is yes.  Over the years, what people call the “standard” commission dropped from 6% to 5%, showing that they are negotiable.  On top of that, both the agent and the owner is not forced to work together.  An agent might agree to only work for 2.5% and not get a listing because the seller would only like to pay 2%. In the past, brokerages have come and gone offering a lower commission. Most brokerages offering lower commissions have been unable to stay in business overall.

The changes ahead position us well to excel in the industry.  It will also cause us to grow in sharing our value.  Upfront, we need to educate our clients in all that is involved in our day-to-day business and then follow through with exceptional service.  We are very much a full-service real estate team.

So will there be major cost saving because of this settlement and changes? Our guess is no at most price points.  We might see some variation in realtors compensation, but our guess is it will be more tailored around the service level provided, full or partial service.

As an industry, we are working through the details and structure.  We are confident that is positive and that we will find a good footing as we work through the changes.

THE HIGH & LOW

March 2024 Highest Sale  | 319 San Ysidro Rd, Montecito |  Sold for $32,000,000

March 2024 Lowest Home Sale  | 4671 9th Street, Carp. |  Sold for $973,000

The Statistics

YTD | Jan. – Mar. 2024

• Total Sales:  274 in ’24  vs  241 in ’23  |  UP 14%
• Total Home Sales:  193 in ’24  vs  168 in ’23  |  UP 15%
• Total Condo Sales:  81 in ’24  vs 73 in ’23  |  UP 11%
• Median Home Price:  $2,200,000 in ’24  vs  $2,000,000 in ’23  |  UP 10%
• Median Condo Price:  $910,000 in ’24  vs  $990,000 in ’23  |  DOWN 8%
• Sales Above $8M:  10 in ’24  vs  17 in ’23  |  DOWN 41%

March 2024

• Total Sales:  100 in ’24 vs 99 in ’23  |  DOWN 1%
• Pending Sales:  107 in ’24 vs 83 in ’23  |  UP 29%
• Total Off-Market Sales:  14 Sales  |  14%
• Total Cash Sales:  42 Sales  |  42%
• Average 30-Year Fixed Rate Mortgage: 7.51% as of Apr. 30, ’24

The Market

We try to keep the newsletter brief (this one is long), so here is a quick, How’s the Market?

Our first quarter sales volume has seen a slight uptick (about 14%) from our extremely low volume experienced in the first quarter of 2023.

Inventory levels of available properties for sale continue to grow a little each week. On April 23rd, our available homes and condos eclipsed the 200 mark and came in at 203.  Again a modest improvement, but well below our historic numbers.

Home prices overall are staying fairly consistent.  In some segments of the market we continue to see a little pressure up on prices and in other segments we see prices retreating a little.  We have witnessed a few homes selling twice in the last two years, and interestingly they sold a little below what was paid a year or two earlier.

Overall, interest rates and affordability continue to keep our sales activity below historic norms.