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Exploring the Impending Changes in Commission Structure
Part 1: The Future of Real Estate Commission in a Consumer-Centric Model
California Regional MLS General Counsel Ed Zorn recently met with Inman to discuss the impending changes in the real estate commission structure. In the current two-part interview, Zorn touched on the new rules, new challenges, and new opportunities that agencies will face in the coming months. Before delving into the specifics, though, let’s set the stage…
Background
In July of 2024, the National Association of Realtors (NAR) proposed a settlement resolving antitrust lawsuits brought on by homeseller plaintiffs. As per the settlement, several changes are likely to occur in the real estate commission structure, impacting agents and consumers alike. While these changes may seem daunting for some, Zorn is optimistic they will ultimately benefit the industry overall.
The Shift to Consumer-Centric Model
According to Ed Zorn, the real estate industry should adopt a consumer-centric model. Such a model prioritizes transparency between the parties involved, allowing them to choose how they want to engage.
In this model, the burden falls on the buyer’s agent or brokerage to communicate the services performed and fees charged. Zorn argued that embracing this approach will allow sellers and buyers to have a more personal conversation about the services provided, while the fee structure becomes more flexible.
"We’re not talking about price steering or commission sharing," Zorn explained. "We’re talking about individuals choosing how they want to be supported, and what fee range they’re willing to pay for [services]."
What Agent Work Will Change? How Listing Agents Will Adjust their Pitches
In this transformed commission structure, listing agents will modify their listing presentations to adapt to changes in the market. According to Ed Zorn, agents should instead focus on the services they offer the seller, rather than trying to charge them for specific commissions, percentages, or fees.
When outlining a listing presentation, Zorn explains:
"I would explain the differences in the market, how they understand their home’s value, based on the comparable properties… Our market is going to change quickly… We have to adjust listing presentations to reflect this change!"
He also suggests agents incorporate concession fields, where buyers agents or brokers can specify fee requirements, to make negotiations a bit more transparent.
MLS Role and Changes
The MLS market has also undergone significant changes, introducing two main fields: compensation fields in listing agreements and concessions in Price. In the first, sellers enter a specific amount for commission shared among brokers. In the second (CIP), they commit to contributing a certain percentage to buyer incentives, such as loan points reduction, escrow fees etc. Zorn shares specific examples of how this CIP works:
"For example… when someone hires an FHA agent, they get a new appraiser. So they offer like 2% as a concession because for an FHA, it’s very [influenced] by its buyer’s loan process.’
Ed Zorn emphasized sellers have the freedom to adjust to any market condition by negotiating new listing prices based on concessions being made.
Challenges Lies Ahead
In conclusion…
- What will be affected?
- Listing Presentations
- Buyer Contracts Signing before showing homes
- Sellers’ fees being asked about
- Transparency for Consumer Education
What does the future hold?
Author: www.inman.com
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