Lake Geneva Commissions

Well, that just about does it. The National Association of Realtors settled the BOMBSHELL commission lawsuit last Friday and now everything has changed. Six Percent Commissions Are Toast, some of the headlines boasted. The Way You Buy And Sell Real Estate Has Changed, claimed another. I’m here, in Lake Geneva, reading the articles and listening to the podcasts and watching the videos and I’ve decided that things are indeed going to be difficult moving forward. Difficult, that is, if you’re a big lumbering national firm who has pinned its success on 6% commission rates.

When I was courted by a New Jersey based “luxury” real estate brokerage (SPOILER: many, many brokerages are owned by the same New Jersey based company), they were super proud of their outsized commission stability. Their commissions, they told me in a small conference room that felt as unimpressive as their New Jersey address, were averaging over 6% company wide. They told me this so I’d sell my soul to them, but because I have taken a pledge to never sell my soul to the state of New Jersey, I declined their offer. Compass, the corporate broker expanding across the US via acquisition posted a net loss of $320M in 2023, BEFORE commissions became more negotiable than ever.

But what does all of this really mean? What’s happening with commissions? The answers, I would suggest, aren’t yet fully known. But what is known is that commissions are indeed being pressured and are likely to fall over time. If you’ve read this blog for a while or have previously done business with me, you know that my commissions have been historically lower than what might be described as typical. I don’t believe I’ve ever once charged a seller a 6% commission. At the price point where I tend to operate, 5% commissions are also incredibly rare. Most of my direct deals sport commissions that total between 2.5% and 3.5%, which is something that the real estate industry doesn’t like. Or specifically, something that the bloated corporate behemoths and their local corporate agents don’t really like. But after decades of selling real estate and viewing commissions as being some sacred cow that cannot and should not be discussed publicly, it seems that the time is now to openly discuss rates. As someone who values market share more than I value individual commission rates, I welcome the downward pressure on rates. That’s the first part of this.

The second part is what’s likely to actually happen next. I do not believe that buyer’s agents will adopt an hourly compensation model. If you want to pay me hourly, I would gladly agree to such an arrangement. But be fully aware that if my compensation switches to an attorney fee model then I’ll need to bill in similar 15 minute increments. So those 14 text messages we just exchanged about the color you should stain those shingles on the house we just looked at will have to be billed to you. The visit I made to the house to sit with the inspector for four hours will be billed. None of this is to say that this job is uniquely difficult, because it isn’t. Being a coal miner is harder, and also worse. But it is to say that you’re going to see an invoice for $2840.75 for a few weeks of house hunting and you’re not going to pay it. The hourly model will not work in real estate, and as we move through this transition period I’d be shocked if hourly wages for buyer’s agents is the outcome.

What’s more likely to happen is that the decoupling of commissions results in a very awkward process wherein commissions remain mostly the same, even if marginally lower on average, but the way those commissions are offered and requested will change. The DOJ doesn’t like the seller’s agent making an offer of compensation to the buyer’s agent. They claim this is keeping gross commissions higher than they need to be, which is partially true. Their claim doesn’t seem to recognize that compensation offered to buyer’s agents is already flexible. A look at the Lake Geneva lakefront listings on the MLS this morning shows a buyer’s agent commission offering that ranges from 1.5% to 2.2%. This is a massive spread (percentage wise), and shows that the market has already been negotiating commissions. 6% hasn’t been the standard for quite a long while up here. But what would happen next is that the compensation to buyer’s agents would be removed from the MLS. So how does the buyer’s agent find compensation then? Do they charge their buyer 2%, payable at closing? No I don’t believe they will. Will they charge their buyer an hourly rate? No, I really don’t think so. What will happen instead is the buyer’s agent will write an offer for a buyer and include their compensation, to be paid by the seller at closing, in the offer. Which means the end result of this will be the seller paying both the listing and buyer’s agents but instead of the process being pre-arranged it’ll be structured inside of the offer itself. This is a lot of legal work and attorneys fees to arrive at a similar place to where we started this whole kerfuffle.

This new outcome of course is nothing new, as I’ve experienced offers written by agents who are requesting their compensation inside of the offer. In one case the buyer’s agent asked for a 3% commission, which was considerably higher than the 2% compensation offer that was made to them via the MLS on this particular property. We (the seller side) countered their request for compensation down to the 2% that was already being offered, and after some serious complaining and a dash of whining and a little sprinkle of pouting, they agreed and the deal was struck. In the future, I would suppose that the buyer’s agent offering might be countered by the seller, but we’re also approaching all of this commission discussion from the position of a seller’s market. At the moment, sellers get to puff up their chests and tell the buyer’s agents to get lost, or lower their fee. In a buyer’s market, sellers will be begging buyer’s agents to write offers, in which case their offer of compensation (whether in the MLS or in broker to broker direct communication) will be increased. If you can’t sell your ugly house in DumbTown, USA, will you really want to tell the agents who have the buyers that you desperately need that they should be grateful for any scrap you offer them? Or will you incentivize those agents to bring you the buyer you really need? You’ll do the latter. Two weeks ago I received an email from an agent in Beverly Hills offering me a $500k bonus if I sold some silly modern house hanging off of a cliff that was listed at $9M. Incentivizing buyer’s agents is nothing new, and I’d argue that once the broad market pauses more fully this practice will become even more prevalent. Also, the likely outcome of this push is the bankruptcy of various MLS’s across the country, a development that I’d wholeheartedly endorse. The local MLS has long since outlived its utility, especially if the portal is no longer used to share offers of buyer broker compensation.

For now, the NAR settlement still has to be approved by the court, and the original lawsuit judgement is still being appealed. This might all be sorted out this year, and it might drag on for many years to come. Don’t forget this original Kansas lawsuit that was ruled on last summer was originally filed several years ago. Whatever happens next you should know that I’ll be here in Lake Geneva, moving fluidly and easily with whatever changes are either demanded by law or implemented simply by market adoption. My New Jersey and New York based competitors, however, are likely seeing the continued erosion of their modeled commission rates and a rather painful escalation of their losses. 2024 is a great time to be a boutique independent broker in Lake Geneva serving one very specific market, and a rather terrible time to be in that poorly decorated conference room above the highway in New Jersey.