Real Estate Evolution: How Did We Get Here?
As of August, the real estate industry is navigating a new landscape shaped by additional complexities, primarily impacting buyers. So, how did we arrive at this point, and what does it mean for you?
To understand the current state of the industry, it’s helpful to start from the beginning. In the pre-digital era, sellers relied on newspapers and yard signs to showcase their properties. This traditional approach was often costly and ineffective.
Then came brokers, who professionally represented sellers and collaborated with other brokers in a process known as “co-brokering.” Typically, this involved two brokers and potentially two sales associates, all working to serve the seller’s best interests. In exchange for signing a listing agreement, the seller compensated all parties, gaining loyalty and confidentiality among other benefits. This system was effective for many years because all agents were aligned in their goals.
However, as buyers began to question this arrangement, seeking more than fairness and transparency, the industry had to adapt. The cooperative dynamic shifted; brokers no longer worked together solely on behalf of the seller. This inefficiency soon led sellers to push back against paying the buyer’s broker.
Fast forward to today, and we are witnessing a paradigm shift. For instance, brokers’ opinions on property value are increasingly influenced by compensation structures. When comparing two identical properties—a $1 million home where the seller pays all parties versus one where only the listing broker is compensated—the perceived value may differ. This change means buyers will need to navigate various commission structures when evaluating multiple properties, prompting many sellers to recognize the importance of compensating buyer agents.
Additionally, it’s essential to understand that commissions are negotiable. This has always been the case. Sellers benefit from paying full commission rates because even a small difference—like 6% versus 5%, or 3% versus 2.5%—can significantly impact a broker’s motivation to show a property. For agents, a 2.5% commission represents a 20% cut in their income, which can greatly affect their willingness to prioritize that listing.
Ultimately, buyers fund all fees through their purchasing power, while sellers determine their market position by deciding who to compensate and how much.
If you’re a buyer, be mindful of how the property is marketed and the compensation structure involved. If you’re a seller, remember that attracting buyers is your primary goal, and ensuring broad exposure—including adequate compensation for buyer brokers—can be key to achieving that objective. Keep in mind that buyers may prefer properties listed by brokers who offer adequate compensation.
To learn more visit the NAR website on the subject;