By Mike Bodeen · 13 May 2024
Is Sitzer-Burnett a Consumer Victory?
Are you Buying or Selling?
For the past 5 weeks, we’ve been looking at how the now decided case of Sitzer-Burnett vs NAR, et al, will totally upend our country’s real estate practice as it especially relates to buyers and buyer’s agents. We have written, arguably, that sellers will benefit from this epic court case. On the surface, it looks like a seller’s slam dunk and a buyer’s flagrant foul.
Last week we looked at how this ruling will most certainly benefit sellers. Today, we’re going to begin to look at what this will look like for buyers. And once again, attempting to figure out how this decision ultimately plays out, is not known by anyone. But unless there is substantial change for buyer compensation, one thing appears certain. Many buyers will be the losers.
For the Buyer consumer, at least initially, this decision adds more bad news on top of a market that is already unaffordably high in price and borrowing costs, preventing hundreds of thousands of buyers from participating in the acquisition of the American dream.
According to the ruling, Sellers can no longer publish through the Multiple Listing Service (MLS) that they will pay a fee to a buyer’s agent. If a buyer’s agent is to receive compensation from a home sale, it will need to come from his buyer client. Just as a seller has a written listing agreement with their agent, a buyer must have a written Buyer’s Broker Agreement with their agent, before they see any homes, stipulating, among other things, the amount of compensation the buyer is to pay his agent.
In theory, I agree with this. It’s hard to fault a practice that says that a seller should pay for his representative and a buyer should pay for theirs. Rhetorically we ask, “Should one attorney’s client also pay for the attorney opposing him (excepting for the case of liquidated damages?)”
“This will be the positive impact of Sitzer-Burnett – the increased professionalization of an industry that desperately needs it.”
I’m reminded again of the quote by G.K. Chesterton, “Don’t ever take a fence down until you know the reason it was put up.” In the months ahead, our industry may well discover that the fence (Seller commission sharing) was not so bad after all and in fact really did serve a healthy (albeit imperfect) purpose.
The fact, at least in my view, is that the soon-to-be-former system did serve a healthy purpose for buyer and seller. A buyer, especially a first-time home buyer, or a buyer with low cash means, could be professionally represented without upfront cost to him. This enabled him to only figure out how to garner the down payment plus normal closing costs to buy his home. His worry was never how he was going to additionally pay for needed and important real estate professional representation.
And let’s be real: Prices will not be lowered because of a seller paying a lower fee to his client. That savings, if any, is headed for the seller’s pocket – as it should!
But consider this, though it does appear unfair for a seller to pay for the buyer’s agent, that seller would usually turn around and buy a replacement home for which that new seller would then pay for his now buyer’s agent’s fee. Sort of a pay it forward. It just seems to balance out.
Ahh, but this is part of the formerly built fence. As of August 17th, if a buyer can’t afford separate agent representation, they have few good choices – have the seller’s agent represent them along with their representation of the seller, which we call “dual agency.” Few agents like walking the dual agency tightrope. The other buyer option is to work with a seller’s agent as an “unrepresented” buyer. This will most likely be the inevitable result without buyer’s agent representation. And that is the great negative of Sitzer.
Next week, we’ll look at the career ending impact the decision will have on many agents. Many (or most) buyer’s agents will not have the know-how and experience to convince a would-be buyer of the value they can bring to the table. This will be the positive impact of Sitzer-Burnett – the increased professionalization of an industry that desperately needs it.
Stay tuned for the continued evolution of a once in a generation change.