On August 17th, new rules rolled out that overhaul the way Realtors get paid to help people buy and sell their homes.
The changes are part of a $418 million settlement announced in March by the National Association of Realtors.
The changes end the ‘informal’ rules of a typical agent commission payout.
Now real estate agents across the country must sign upfront with prospective homebuyers what they’re willing to pay.
Historically the ‘sellers’ paid commission fees for both their own agent and the home ‘buyer’s’ agent. The typical commission has been 5 to 6 percent split between the two brokers.
That structure was pretty much enforced by The National Association of Realtors which has roughly 1.5 million members who pay dues. If a seller didn’t agree to those terms their listing wasn’t shown ion the multiple listing services that drive most home sales.
This latest decision basically makes commission sharing optional so that sellers’ agents who don’t want to pay buyers’ fees can still list on databases.
Real Estate agents across the country have been attending trainings and learning the details of new contracts they must sign with prospective homebuyers.
Gideon Fountain is one of those agents and he’s also one of the owners of WGCH Radio in Greenwich, CT where I broadcast my weekday radio show. He grew up in Greenwich and has been selling real estate in the Greenwich CT area since 1986. He’s now an agent for Houlihan Lawrence.
I asked Gideon Fountain to join me in the studio to give me his take on the new real estate broker commission laws that just went into effect. He said;
“With these new rules if you’re a Real Estate Broker or Agent you have to tell your homebuyers ‘up front’ that that they have to decide on the amount they’re going to pay in commission whether you bring on somebody else to help you or not.”
“There are two places on this new contract, and it says, here’s our service fee. And we might say our service fee is 2.5%. Let’s just say we write that. Two and a half percent. Then we also have another paragraph that says, you authorize us to accept compensation from the seller.”
“If a buyer wants to look at a property and the seller is offering nothing, and that would be a very foolish move by the seller, I would say, then yes, you would say to the buyer, look, I’m happy to help you with this transaction, but I got to make money. I’m not, this is not charity. So here’s my contract.”
“Pay me two and a half percent. For some buyers, that’s entirely possible. They might think, well, what do I need you for? You know, I don’t, but they have no idea.”
“But the buyer agent, it’s amazing. You should hear the conversations between the soliciting agent and the buyer agent when the listing agent says my client won’t go down one more penny. Can you make your guys go up a little bit and the buyer broker says? All right, I’ll try whatever we’re at a million five. What’s it? What’s your guy want? He wants a million 550 not a penny less So then the buyer broker goes back to the buyer says come on you guys are gonna lose this I mean we have there’s very few choices right now You really believe you’ve lost out on six bidding words. You really want to hold out for $50,000, and the buyer says yes. So, then you go back to the listing agent. Sorry, they’re not budging either. And then, you know, everybody sits still for a while. But this is the kind of give and take that exists and should not be interfered with by government action.”
“It’s negotiation. “
Gideon believes real estate agents have remained viable because they accumulate an array of local market knowledge that is hard to duplicate.
“Going out each day and seeing properties noting their eventual selling prices and hearing customer reactions to those properties is an invaluable experience that a Zillow search will never match.”
For Home Buyers and Home Sellers there’s good recap of these new rules and what it means for them through the link below to Bankrate.com in an article called…
“Realtors commissions changes are here: What they mean for homebuyers and sellers.”
Meanwhile enjoy this podcast of the rest of my live conversation with long time realtor Gideon Fountain on The Debbie Nigro Show. If you’d rather read than listen the audio transcript is below.
The Debbie Nigro Show airs weekdays 11-12 noon EST on WGCH Radio. Listen LIVE from anywhere at WGCH.com
AUDIO TRANSCRIPT:
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And now, back to the Debbie Nigro Show.
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I didn’t ask for a free ride. I only asked you to show me a real good time. I never asked for the rainfall. At least I showed up, you showed me nothing.
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And the rain is coming down on me. Water like misery is coming down first in a hundred years in the real estate industry. Hi, everybody. I’m Debbie Nigro. Good to have you guys with me today. We’re going to talk in just a moment with somebody who’s been in the business forever,
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who is going to be affected by the changes that are happening, believe it or not, on August 17th, which is the new rules rolling out that overhaul the way realtors get paid to help people buy and sell their homes. I know everybody is up in arms about this, or at least their ears are open loud and trying to figure it out. Anyway, this show is brought to you by somebody who makes houses extra beautiful by creating
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He’s a part owner of this radio station and he has his own show
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Every week talking about what’s going on in the real estate market say hello to the lovely Gideon fountain
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Hey Gideon fountain and lovely I go with handsome, but I’ll go with lovelies not bad. Well. You’re always elegant. Yeah, there’s a better word You know you’re out there. No Devin air. You’re nice. That’s a good one. I’ll throw that word out there
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That’s Debonair Gideon. Yes, you never sat and really did the show with me. No. I know how about that We’ve got a second here. I wanted to have you come in because, you know, collaboration is a big word in this
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day and age. Yes. And I wanted to collaborate. Yes. And since you’re brilliant at this stuff, how long have you been in the real estate business?
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Thirty-eight years or so. Okay, a long time. I started way too young. I looked like a high school kid when I started, so no one was giving me their listings, that’s for sure. Some of my clients have become agents and they typically hit the ground running and had their act together in a year or two.
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Me it took about a decade.
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Okay, well you arrived. It’s okay. Yeah, finally. You just took the back roads.
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Finally was able to move out of mom and dad’s house. That was a big move.
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It’s a very big move because you know those parents who have to sell the house with the kid on the couch, it’s such a hard sell.
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Geez, no kidding.
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It’s such a hard sell.
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I did my best to stop that sale
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You and a lot of other guys I know and mostly guys girls can’t wait to get out and have their freedom Nobody’s breathing on their neck guys like I’m staying here getting my clothes washing food cook. I ain’t going no well
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I wasn’t I was working I was working, but I know I did I held the record for a little while for staying with mommy and daddy Something yeah, it’s pretty sad, but okay by the way the per se at meteor shower another drawback you guys didn’t mention this per se at meteor shower Big fraud if you ask me is that you finally finally figure out a way to get up at 2 in the morning And you step out in the backyard or on your little porch there, and you look up and there’s cloud cover
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Yeah, it’s not good. So somebody should do something about that. I know we who do you sue you can sue some yeah You can’t do anything gotta be a lot I can’t I keep forgetting to get up like I go definitely getting up and seeing it this time. They’re like, OK, next one in 100 years. But this is for the back here.
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Can’t we go to a NASA website or something and watch it?
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Is somebody doing that?
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Yeah, but we’ve got to see it live.
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There’s always pictures.
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Come on, Bob Smalls.
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Life’s about the experience, you know?
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Bob says, don’t go to the Grand Canyon. Just look at these photos on the internet. Look at that, see?
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Well, if it were a baseball game.
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Well, that’s true.
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You know?
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Who needs to sit around a baseball game? Although, yeah, hot dogs and beer.
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So let’s go back to the topic that I invited you here for. Obviously, you can talk about anything, but the reason I asked you to weigh in is because you’ve been doing this for so long and you are a real estate broker, you’re working with big organizations that are going to be affected by this. We have Houlihan Lawrence for me. Many people underneath their umbrellas.
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So this National Association of Realtors made the announcement.
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Founded in 1908, by the way.
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Oh, good. I didn’t know that. Going to change the payment structure. How commissions are paid or whatever is happening with the commissions. Is everybody in your industry anxious about this? No.
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What’s your opinion?
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I think that…
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What’s happening here? It started in the early 90s. The government took a look at the situation of the real estate agents and how they work with people. And they said, hey, wait a minute now. The broker, the buyer is not being represented here. You’re both, both of you brokers are ganging up on the buyer, right?
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Because the brokers, the two agents, let’s call them agents, were being paid by the seller, which is still happening today. And they said, that’s not fair. So now you have to have a separate agreement with your buyers and it reminds them that you will keep their information confidential. You have a fiduciary duty to the buyer if you are a buyer agent. And by the way
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all of us agents go back and forth. This week we’re a listing agent. Next week we have buyer agents. Sometimes it’s the same at the same time. You have some buyers that you’re working with and you have your listings that you’re working with. So you wear both hats. So we had to create
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this separate contract that we have our buyers sign. This is back in the 90s and it said we if I’m your buyer agent I’m not representing the seller so then 20 something five years later the government comes back again and says hey wait a minute you guys are why is a seller having to pay for the buyer broker who’s not even
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representing them and on the face of it, that sounded accurate, but it really isn’t true. What you have is two agents working to make a deal. Correct. And that is why, as Bob pointed out, I heard you, I was listening to your show, of course, and Bob pointed out-
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I’m well taught by somebody, the one who’s speaking right now. When a house is sold, that creates a, I’ll call it a pot of money, or a settlement amount. Often in this town it’s millions of dollars. It was ever since 1908 and even before that, somebody who had something to sell would talk to a salesman. Forget even calling them a realtor.
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They would say, hey, you seem to be able to sell stuff. Can you find me a buyer for my property? I’ll pay you back then 10% and the person, the agent, the salesman would go looking around for buyers and maybe after a few years they’d get it sold. Or often the would-be selling agent would say,
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hey, Mr. Seller, none of my customers want to buy it, but there’s these other people who have buyers. Is it OK if I share the commission? In fact, they wouldn’t even have to ask permission. They would just share the commission. So what is the seller care? You’re getting a house sold, he’s already agreed to pay you 10% back then. That’s been whittled down substantially since then, of
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course.
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Is it more 3% or 6% these days?
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In Greenwich, it’s been typically 5% for years and years, and sometimes you’ll see 4%. I I will point out though that when Ray Dalio and I think his other partners who owned Bridgewater, yeah, no, but they owned this huge 50.6 acre property at the end of Indian Field Road called Copper Beach Farm they offered 3% to the buyer broker and eventually Sotheby’s put it up
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and the broker from Douglas Elliman provided the buyer and she was paid about 3.2 million for that sale of for a hundred and thirty eight million dollar property so it’s interesting that Dalio and company thought it was so worthwhile to have an aggressive aggressive selling agent a buyer broker that they were offering three percent
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just for her it turns out a woman from Douglas Elliman had it and she had the buyer I think it’s a Chinese guy named Li L-I I think hasn’t been confirmed. Pharmaceutical fortune. And I think it’s very telling that somebody of that sophistication, financial sophistication of Ray Dalio would be smart enough to offer that kind of extra incentive to the buyer-broker. And likewise, when we brokers are selling something, when I’m selling my own
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properties, what do I do? I put it on the multiple listing service. I want help of the other buyer-brokers. So when I have, this is where I don’t think there’s going to be too much of a change. We will now have to have an even more elaborate agreement with our buyers.
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Okay, let’s stop there. Because I’m a lay person but listening. I always thought I should get my real estate license because I’d be a great referral agent.
Yep, yep, I think what I’m hearing you say is you have to tell the buyers up front that you have to decide on the amount they’re going to pay in commission up front whether or not you bring on somebody else to help you or not.
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But that’s always been the case. But now you have to put it in writing?
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Well, there’s two places on this new contract, and it says, here’s our service fee. And we might say our service fee is 2.5%. Let’s just say we write that. Two and a half percent. Then we also have another paragraph that says, you authorize us to accept compensation from the seller.
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Okay, so they have to sign off that you can get another two and a half percent from the other side or whatever.
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That would be either or.
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Oh, there’s no both?
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You’re not going to get both. No, it’s either. If the seller, if a buyer wants to look at a property and the seller is offering nothing, and that would be a very foolish move by the seller, I would say, then yes, you would say to the buyer, look, I’m happy to help you with this transaction, but I got to make money. I’m not, this is not charity. So here’s my contract.
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Pay me two and a half percent. For some buyers, that’s entirely possible. They might think, well, what do I need you for? You know, I don’t, but they have no idea. But the buyer agent, it’s amazing. You should hear the conversations between the soliciting agent and the buyer agent when the listing agent says my client won’t go down
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One more penny. Can you make your guys go up a little bit and the buyer broker says? All right, I’ll try whatever we’re at a million five. What’s it? What’s your guy want? He wants a million 550 not a penny less So then the buyer broker goes back to the buyer says come on you guys are gonna lose this I mean we have there’s very few choices right now You really believe you’ve lost out on six bidding words. You really want to hold out for $50,000,
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and the buyer says yes. So then you go back to the listing agent. Sorry, they’re not budging either. And then, you know, everybody sits still for a while. But this is the kind of give and take that exists and should not be interfered with by government action.
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It’s negotiation. Yes, exactly.
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But what are you saying is different?
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Oh, the difference is it’s entirely possible that a seller is going to, I think, misguidedly say I’m not paying the buyer broker. So some buyer broker is learning of that and we will be allowed to learn it, although it won’t be written on the MLS anymore. You can’t post it.
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So what happens then? Does the buyer broker say to you, I’m half your 2.5% if we’re going to make this deal go down?
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If the buyer broker, the buyer might also say, no, I don’t want to pay that. So, in which case, at that point you withdraw. You say, look, I’m not going to work on this property because there’s no compensation. You’re certainly within your rights as an agent to say that.
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Is this more tedious?
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Yes, it’s so silly. It’s all interfering. It’s fixing something that wasn’t broken.
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OK.
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But I’ll tell you what I’m already telling my listing customers. I say to them, I want you to let me share this commission with the buyer-broker, because that’s how important I feel the role of the buyer broker is. They’ve got buyers for heaven’s sake. I want them to use their powers of persuasion to help me sell my listing. Why would that even
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be a question? I know I don’t get it. They fix something that isn’t broken.
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Well geez. And there’s your music. And there’s my music. I think we’ve covered that. I think. All right so you’ll keep me posted. I will. I want you to become an agent, so let me know. Ah, here we go. See, I can tell you.
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That’s what I want, one more competitor.
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Yeah.
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Okay, well, thank you very much. Gideon Fountain, how can people find you in case they want to talk to you?
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GideonFountainAtMe.com is a good email address. Gideon Fountain At Me, or else, you know, Houlihan, Lawrence, Greenwich, Connecticut. I’m there, my office is there.
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Awesome. Thanks for the free plug. All about the new real estate commission changes that are coming here from the National Association of Realtors for the first time in a hundred years so pay attention and hopefully we Realtors for the first time in a hundred years so pay attention and hopefully we cleared some of that up for you. More to come here on the Debbie Nigro Show now.
