Three days before changes to new business practices mandated by the clearing house national association of realtors‘Commission action takes effect, house line Interviewed top real estate coach Skye Michiels about how his agents handle big changes.
Michiels Former Coaching Director compass He now runs his own real estate agent training company, Careful counselingsaid the first six months will determine how agents adapt to many variables. It can be chaotic at times, he said.
In an interview with HousingWire Editor-in-Chief James Kleimann, Michiels shares his thoughts on how buyer’s agent compensation will evolve, how low-income buyers will be affected, the legal landscape for agents and what new business models may emerge in the coming years.
This interview has been edited for clarity and brevity.
Kleiman: What advice do you provide to selling agents and buying agents regarding these changes?
Michels: Obviously some of this is market specific. In some markets, such as Texas, my agency clients are more of a buyer’s market. In these markets, listings start to sit on the shelf, so it makes sense for sellers to offer a buyer’s agent commission.
You want to make your listing more attractive to more buyers. In a tight inventory market, the way my agents handle inventory (and the way I advise them) is basically to use commission as a negotiating point for sales. In other words, if the seller is willing to provide it, you a) can choose not to disclose it up front; and b) you can use it as a negotiation point during the sales process.
I think an agent needs to be very, very knowledgeable about market conditions and the seller’s goals and desires. Do they want things to go faster? This is similar to installing hardwood floors, right? If you want to relocate your property, you’ll need to invest in it to make it more suitable for buyers.
Kleiman: How much of the market dynamics right now hinges on the fact that every buyer and seller knows commissions are now on the table?
Michels: So, at this stage, every real estate agent knows. But I’d probably say 60% of the public still doesn’t really have an idea. If you are looking for real estate, you probably do know about it. It seems to me that the vast majority of the public right now really don’t know what this is or even what it means. If you’re in the market, these numbers may be significantly different.
Kleiman: This is purely a hypothetical, but assume the buyer agrees to pay their agent 3% and they make an offer on the house. But the seller only agreed to pay 1%. Do the agents you work with do this type of trading? What do we see in negotiations in these cases?
Michels: So, let’s consider your scenario, I’m the buyer and let’s say I agree to pay my agent a 2.5% fee. We moved on, we bought a house and the seller offered 1% commission at that stage. I understand that I am responsible for paying the additional 1.5% – which I am contractually obligated to compensate.
So we’re just starting to see this unfold in the market. The agent I’m coaching now is really having some tough conversations. We’re starting to see some zero compensation – or 2% or 1% [seller offers to buyer’s agents] – Show up at the market. … In this transition phase, it’s sometimes really hard to have conversations because buyers have been looking for six months and this is a new concept and a new cost structure that they’re encountering.
Kleiman: How long do you expect this transition period to last?
Michels: I think we’ll see about a six-month transition between the “old ways” and the new ways. We’re going to meet agents who are going to have some challenging conversations with buyers, especially those in the bubble. They have money for a down payment, but they don’t have a lot of extra money right now to pay for additional closing costs, which are commissions. They will be the ones who really need to be careful about what they buy; they may be in a situation where they owe money on a property that they don’t have the money to pay for.
Kleiman: Is there a situation where a buyer signs a BBA (Buyer Broker Agreement) and signs a contract but says, “Listen, I can’t pay 2% commission on this.” I can only come up with $5,000. Excuse me, Mr. Realtor? What happens then?
Michels: These are going to be the key questions that we’re going to have, and what I’m saying today is that we don’t really know how this is all going to play out. I think this will unfold on a broker-by-broker basis. If an attorney signs a contract, similar to an attorney representing a client, the attorney can attempt to enforce the contract.
There is also an unanswerable question, how enforceable is it? How far does the agent have to go? Will they prevent that person from purchasing a home because they owe money? That’s where the next six months in this industry are going to be very interesting and very challenging in many ways.
Kleiman: It’s not just the agents that are affected, right? Let’s talk about the brokerage side. Are they going to prosecute people in the community? What agency would want publicity like this?
Michels: No matter how you feel about how real estate works, there were a lot of positives to the old system. I think there will be far fewer buyers in the future that are really well represented. I think that’s actually going to hurt consumers in a lot of ways, especially early on when things are changing. But at the end of the day, this is the reality of the real estate world, and at this stage, right and wrong no longer matter.
That’s the thing, and the question is, how do we move forward in a way that protects consumers, strengthens agent businesses and ensures that the real estate buying and selling process – a tremendous vehicle of wealth in this country – remains a dominant feature of our economy?
Kleiman: One theory I’ve heard is that we’re going to bring back some form of sub-agency for certain buyers, especially in the lower price ranges, where the buyer may have gotten an FHA loan and have to get down payment assistance plan. There are significant limits to what they can do. Of course, what agent is going to work for $500, $1,000? One challenge here is that American consumers still generally expect full service no matter what they buy.
Michels: The biggest question we’re going to see is essentially, what is the tolerance level for agents? What is the minimum they are willing to work on the buy side? Ultimately, where does this lead consumers? This is a big problem. To your point, I think it’s also the lower class consumers that will be hurt the most here, unfortunately.
Kleiman: Do you think there’s an opportunity for new players to offer standardized brokerage services to people who get FHA loans but don’t have the extra $5,000 to pay a broker?
Michels: I think we’re going to start to see very different real estate service models emerge. It’s almost like, if you were to imagine a menu or a fee-for-service model: “I’ll pay X% to complete the paperwork.” “I’ll pay X% to show the property.” It’s almost like breaking down the process and Pay the same based on the service you receive.
As we move into the future, I can see similar models emerging. Innovation is always born in times like this. So I think it’s going to be really interesting to see what kind of models emerge and how agents can adapt and help people, guide people.
This actually goes back to training and coaching becoming an important component that most agents should really rely on. I don’t say this selfishly – I say it to agents who are not truly improving their skills, trade and craft. I think they missed a huge opportunity here as well.
Kleiman: Historically, commissions have been paid as a percentage of the home’s value, meaning it’s tied to the price of the property, rather than the fact that the job is more difficult or the quality of service is necessarily better. But the cost of servicing has gone up because it is tied to the value of the home. Would you like to see more of a flat fee model?
Michels: Offsetting this is that as home prices rise, so do stocks. The reality is that most of the time commissions are paid in equity, not necessarily cash, so I personally don’t think consumers will actually save a ton of money on commissions.
I think you’ll see listing side commissions even go up, which will offset the decline in buyer commissions. This is because I think you will see more experienced and skilled agents taking market share and thus commanding higher commissions. Because commissions are primarily paid out of the equity in the home, I think that’s actually where I don’t see the flat fee model popping up a lot, especially at the high end.
Kleiman: If I am a legitimate day-to-day agent with a good business record, should I be excited about these changes?
Michels: I do believe that this will force majors into the industry, which currently doesn’t really exist. So, I do think it will go up. I think this will force people to be more transparent and really clear about the value they bring.
Trust me, the agents I mentor are excited about it. This may not be most people, but once they get past the initial stages, they will see the huge benefits of the whole situation. Most of the agents I coach are listing focused, but they also do buy-side. The biggest value they see on the buyer side is that they just work.
For example, one of my agents lost two buyers because he required them to sign contracts. Once again, he showed them some properties without it, and now that he needed it, they went the other way. He actually agreed with that because, actually, he was like, ‘You know what? I’ve probably been showing them properties for years and nothing.
