By David Soublet Sr., Broker/Owner-Humble Abode Realtors

Friends and family sometimes ask “How’s the real estate market?” I interpret the question, normally, as an inquiry as to whether that person can purchase something “well below market” or sell their property “well above market”. Everybody’s looking for a deal; understood.

While I normally respond that there are various segments of real estate markets. Currently a few widely acknowledged conditions affect real estate buying and selling. Inventories (properties available for sale) are still relatively low and decreasing annually. The cost of money (interest rates) rose significantly. It is now in the 7%-8% range today compared to 2%-4% only two years ago. The cost of both homeowner’s and flood insurance continues to rise. And building matrials cost about 25% more now than only 4 years ago.

Is Professional Help Necessary?

Since 1913, the custom is that residential sellers pay commissions to both their listing brokerage as well as to the selling brokerage that brings forth the qualified buyer. The total commission paid is split, frequently 50-50, between the two brokers involved. The rationale at the time was it took a lot of work by both brokers/agents involved to consummate a sale. While many things remain the same about the selling process, technology has made a wealth of information available via the internet about the real estate sales process, properties available for sale, as well as those already sold.

In 2023, several lawsuits were filed in the United States challenging the legality of commission splits.  Particularly, several sellers have alleged that they were forced or duped into agreeing to pay a cooperating commission to brokers/agents representing the buyer. Several  lower courts found the National Association of Realtors (NAR) and several real estate brokerages guilty of such allegations.

These lawsuits threaten to have a profound impact on the residential real estate market. In the first-time homebuyer market, buyers are typically pressed to save enough for the down payment and closing costs. Many lenders require these costs to provide loan approval. If the current commission splits offered in Multiple Listing Services (MLS) are no longer offered or advertised, it might adversely influence the behavior of buyer agents. For instance, assume that a buyer is interested in making an offer and has narrowed down her choice to two homes.  One seller listing offers to pay a cooperating commission of 2.5%, and the other home’s seller is offering no commission to the buyer’s agent.  At least subconsciously, the buyer’s agent might try to “steer” their client to the home offering 2.5% commission. Even if  that home is not be the buyer’s number one choice.

Is Professional Help Necessary?

Now examine things from the seller’s side. There is always the option of for sale by owner (FSBO) if a seller wants to avoid all commissions. This means no real estate professionals assist the seller or buyer. NAR’s most recent study for 2022 indicates that only 10% of homes sold in the U.S. were exchanged in this fashion.  Those sellers took on the sole responsibility of setting a realistic asking price. They  advertised the property. They learned which mandatory and other situational forms to use and arranged showings. And they also fully understood and evaluated  offers and terms. Additionally they sized up a buyer’s financial capabilities, handled deposits, negotiated and made counter offers. And they assisted with home inspections and bank appraisals and responded to buyers’ repair requests. They figured out  when and how to legally cancel a contract with low risk of being sued, and coordinated closings with title companies.

FSBO transactions typically take longer to close than sales involving professionals. For these reasons, and others, almost 90% of sellers request the assistance of licensed real estate brokers/agents.   

Related: Home Ownership While Black

As a broker, I support the current system of cooperating sales commissions.          In these transactions, buyers and sellers are provided with guidance throughout the sales process. There is a key thing that sellers should remember. The commission you agree to pay is negotiable. It can be a % of the sale price, a flat fee or some combination of both. Embarking on the path of FSBO might save some sophisticated sellers several thousand dollars. But for most it is fraught with a much smaller pool of potential buyers, ineffective advertising of the property, unnecessary delays, extended closing times, canceled deals and start overs, misunderstandings about contract terms, and a host of other hurdles that seasoned Realtors routinely navigate.  

Is Professional Help Necessary?

If you are buying or selling your home, you must be fully informed.