Pondering the future...........................

 ............of the commission-based real estate market.

Ben Carlson asks some good questions.  We've been pondering this idea for a while.  The current system has been in place my entire career, so please forgive any bias you find here.

We have long believed that real estate agents bring value to the marketplace.  Going forward we will find out if the marketplace agrees.  

Long overlooked in this discussion is the amount of "free work" real estate agents provide.  If you know a real estate agent, ask them how many properties they have shown and offers they have written that don't materialize into a sale.  You may be surprised by how often that happens.  The current system allows for - accounts for - all of the "free work."  Will it be missed if it goes away?   Do you believe prospective real estate buyers will be willing to incur costs even if they are unsuccessful in buying?   

An enlightened way to look at this commission business is to say that the transaction pays the fee.  Not the seller and not the buyer, the Transaction.  No meeting of the minds between buyer and seller - no deal and no commission.  No successful completion of the buyer's due diligence inspections - no deal and no commission.  No successful arrangement of financing - no deal and no commission.  The transaction costs typically have been funded on the seller' side of the settlement statement, primarily because it eases the transaction's completion.  Reasonable people can disagree on what "fair and reasonable" transaction costs should be.  Fees have always been negotiable (you can look through my past files and see the truth in that), but, generally in the marketplace with individual seller and buyers, incentives matter.  Just remember - the transaction is paying the fees.

It strikes us that, for all the noise about commissions and who is going to benefit, the true seismic change coming out of the court action and settlement agreements will be the impact on the National Association of Realtors (NAR) itself.   As a trade association with over a million and a half members scattered all over the country, NAR has had some success in the political arena over the years.  The Realtors Political Action Committee (RPAC) raises significant dollars every year from the Realtor membership.  Those dollars go to support politicians and positions considered to be beneficial to NAR's perceived interests.  While not monolithic (I stopped giving RPAC money years ago because of their "fight to the death" attitude on mortgage interest deductions), NAR does speak for an awful lot of folks.   One outcome from the lawsuits and settlement may be to fracture the association membership, weaken RPAC, and break the back of NAR's perceived political influence.  If I was a more cynical person, I might believe that was the end game with this whole thing.

Anyway, this post started out by saying Ben Carlson asks some good questions. It will take some time for the real estate marketplace and industry to find the answers to those questions.