Overpaid door openers; Craigslist posting managers; scum of the earth: I have made all these statements and believed them sincerely about the real estate profession, even when I started out as a broker.
Well, I wasn’t quite a broker at first, I started as the lowest-rung real estate professional: “Associate.” I didn’t even deserve that title. In 2014 I was a resentful, first-year, salaried commercial real estate associate who’d spent most of his adult life in retail grocery and working odd-jobs in Amman, Jordan.
When I was offered a job in commercial real estate in Los Angeles, I was in the running to be a derring-do, spooky spy. So anything else seemed completely beneath me. I had no perspective on, or any appreciation for, the opportunity I was given. If you knew me then, you would’ve found me with my childhood friends at a bar in LA, talking derisively about how I was “real estate guy.” “Business! Business, business,” I’d chortle in mocking tones, laughing at how I had to wear a suit to work, like some sellout.
I viewed real estate as a lizard-filled, soul-corrupting venture that could only possibly attract true assholes—I had no sense of irony about the reality of my other chosen career path.
Ten years on, it turns out I was I was wrong about real estate as a profession—not completely, to be sure—but wrong enough to make a defense of the state of brokerage today. And of all things, I’m defending what I previously thought was the most indefensible part of the business: how much and when brokers get paid.
Why is a Buyer’s broker compensated, and thus incentivized, by the Seller? Are their interests not misaligned? Why wouldn’t a Buyer’s broker push their Buyer to pay more money? Why doesn’t a Buyer’s broker offer infinity money so they can get infinity commission payouts? These questions were the fundamental underpinning of a recent anti-trust case against the National Association of REALTORS (NAR). And they’re questions I had when I first entered the business.
It’s my intent to address the implications of the recent decision by NAR to capitulate $418M in settlement fees in an anti-trust case that focused on Buyer broker commissions. In addition to the money, the settlement will prohibit Seller’s brokers from advertising on the MLS any compensation being offered to a Buyer’s broker upon closing of sale of that property.
This essay is not going to address shady or illegal behaviors perpetrated by unethical brokers. I believe unethical behavior should result in serious financial and reputational consequences, and multiple offenses should probably carry serious legal implications. The stakes are that high. Unethical brokers ruin an already tenuously tolerated industry in our economy. Most homeowners make one, maybe two, purchases in their entire lives. If their broker is unethical, that broker accounts for 100% of their client’s experience with real estate professionals; hence the moniker, scum of the earth or overpaid door opener. Your mileage may vary.
The focus of this essay is on honest, competent full-time brokers who represent their clients’ interests by synthesizing market knowledge, relationships in their trade areas, and negotiation skills. In turn, those brokers are usually compensated a negotiated percentage of the final purchase price (or total lease consideration). For the sake of consistency in this essay, I’m going to call all agents, brokers, REALTORS, advisors, and licensed salespeople, “brokers.” And I’m going to focus primarily on residential real estate sales.
At a high level, the lawsuit and settlement proposal by NAR validate the most cynically held beliefs many people have about real estate brokers. The implication of the settlement also has people thrilled with the prospect that housing prices will finally fall from the sky.
Surely it was brokerage fees that forced the real estate market to spin out of control. Home Sellers are naturally noble and altruistic; Buyers are reasonable and fair-minded about value, of course. No one had any agency but the agents themselves—and if it weren’t for those greedy barnacles and their stupid “just listed” signs, no one would ever overpay for a home again. Now with this lawsuit, we’ll finally be rid of absurd fees and people will go back to harmoniously negotiating deals, just like they did before the introduction of regulated ethical practices and standards for the real estate industry…Oh, shit.
I offer you Schrödinger’s value proposition: No one cries for the broker when they don’t get paid, but when they do get paid—did they really do anything to deserve it? The answer to this question, cutting through the main line of this essay, is yes, they do. Because ninety-nine times out of a hundred, if they didn’t have to earn it, they wouldn’t do it, and the clients wouldn’t pay it, and the market wouldn’t bear it.
Let’s rustle some jimmies.
Representation
Ten years ago, one of my first responsibilities in real estate was to assist Geoff, a broker in my office, in advising two clients who owned some property on the Hollywood Sunset Strip. Geoff and I were engaged by the clients as hourly advisors. The clients had already hired a residential real estate broker to list and market the property, even though it was a commercial deal. The clients suddenly got nervous about the prospect of a sale (this was a very, very valuable piece of real estate). Since they didn’t know what they were doing, somehow I was supposed to fix that.
After Geoff and I had our initial meeting with the clients, we started poring over the listing agreement they had signed with the residential real estate broker.
“He’s going to make half a million bucks on this deal—holy shit.” Geoff said.
“For putting the property on fucking Craigslist?” I said.
Silence from Geoff.
“That’s not fair,” I said, reflecting on my knee-jerk comment.
“It’s not fair. But still, that’s a lot of money.”
Fast forward six months.
Geoff and I billed approximately $35,000 for our time on the project. The months of meetings, negotiations, consultations, travel time, and “let’s do lunch” it took, before the clients decided not to sell, was worth $35,000 to my firm. And that was with me grossly underreporting my hours invested because I didn’t think I could reasonably charge $150/hr for my service. Even though I was being paid an annual salary of $55,000, plus benefits, which was more money than I’d ever made in my life. Where does money come from, anyway? Clients? Services rendered? Yes.
The deal never happened—the Buyers we were negotiating with walked, there was no flowing champagne at the closing table. Mr. Craigslist Broker went uncompensated for his efforts. Boo-fuckin’-hoo, I thought. He’ll be fine, his time is expendable. My consistent paycheck arrived the following Friday, regardless of the outcome, as it always did. Just as I deserve.
What do Brokers Even Do?
Let’s start with what brokerage is in the simplest of senses, because many people actually don’t know what brokers do. I certainly didn’t, not until I started doing it. Then it took a lot longer for me to actually become competent.
First, brokers don’t create the market, they reflect it. When I’m engaged by a Seller to sell their home, they don’t say “get me the most adequate deal possible, I’d like to give my house away.” Their expectation is that I will maximize the value of their home and/or the terms of the sale. The value of the home is set by the supply and demand curve. When supply is low and demand is high, prices go up. When supply is high and demand is low, prices go down.
For example, think about when you and your extended family go to the Golden Corral on Mother’s Day for all-you-can-eat sirloin. At 2:00pm the supply is high and the demand is moderate. The floors are still relatively clean and there’s napkins in all the holders. But at 7:00pm the supply dwindles and demand is very high—you’ve been there for five hours, grazing like a pig—and when the sirloin runs out, the fists come out. Chaos ensues, there’s slop on the floor, and everyone has a bad time.
When the federal government put tens of thousands of extra dollars into everyone’s pocket during Covid, and interest rates were 2%-3%, Americans swarmed the housing market and scrambled over one another to get into a home—it was 7:00pm at the Golden Corral and the person ahead of you in line just scooped the last sirloin into their Rascal Scooter’s feeding basket. Meanwhile, the housing market’s deep fryer was broken by supply chain issues as construction costs skyrocketed.
Desperate people did desperate things across all industries and prices have only continued to surge. Surely importing ten million “New Americans” over the last few years won’t have any meaningful impact on the all-you-can-eat sirloin that is the U.S. housing supply.
Good brokers did what they could to bring order to that chaos, but like everything else, the solutions were imperfect and sometimes sloppy.
In early 2021 I was working with several well qualified Buyers. One night, I stood in line with a married couple for an hour behind 5 groups of Buyers and their brokers. While we waited, 15 more groups lined-up behind us to look at a house in Missoula that had been listed about four hours prior to our arrival. The house was built in 1970, had an exposed sub-floor, an unbelievable amount of deferred maintenance, obvious mold issues from water infiltration, and was listed for $120,000 more than it would’ve sold for a year prior. My Buyers didn’t write an offer, but many people did—and the house sold for an additional $60,000 over list. What should a broker whose clients wanted to buy that shithole have done or said? How should that broker have advised them?
In 2021 I was writing offers on behalf of those same clients that were $20K-$50K over list price. We never got a property under contract, while going to the top of my clients’ budget every time. The brokers who said “this is just like 2008, it’s just a bubble and prices will drop in 2022” are now hoping that Golden Corral is hiring, because they ain’t closing real estate deals.
Who’s decision is it to “over pay”? No one cried for the agents who got fired by their clients because they didn’t get their dream home, just as, sadly, no one cries for the qualified buyers of 2021 who never bought a house, and may be priced-out of homeownership for another real estate cycle (or forever). Don’t get me started on the birthright concept of homeownership—I was supposed to be able to buy a home in Pasadena, California after graduating high school and working in the meat department at Von’s grocery store. I literally moved to bumfuck Egypt just so I would later be able to afford a home in small town Montana. Now that ship is sailing for millions of people across the country, in previously quasi-affordable markets.
Good brokers, and I emphasize good brokers, do a lot for their clients, including keeping them out of trouble. Managing clients to the closing table is one of the hardest things to do at times. What happens when your Seller gets cold feet and the contract favors the Buyer’s performance? Did you know the court can force a sale? What happens when your Seller gets served with an temporary restraining order on the sale by the legal counsel of their ex-spouse—a week before closing? How do you prevent them from getting sued? You problem solve and negotiate. I closed all those deals, and my clients were absolutely grateful in the end. You take the calls, day and night, and do what it takes to get done what your clients ask you to do. That’s the value of brokerage.
If you can’t do it, you’re not worth your fee. And you deserve to be swept out with the tide.
The Money
Let’s talk about the money. The elephant in the room, that so few people in the industry are comfortable discussing, is the large sums of money seemingly doled out on a whim to us door openers.
I have no compunction about discussing compensation. The reason for this is because money is one aspect of real estate I so vehemently objected to about the industry for so long, only because I couldn’t justify it. That is until I recognized the actual value I created for my clients. So to the conversation shirkers and compensation obfuscators you better get good at negotiating for yourself and learning how to create value, because if you won’t advocate for you and your family, how could your clients trust that you’ll advocate for them and their families?
When I get hired to list a house I charge 6.00%, and I split that with my counter-part on the deal. Doesn’t matter if it’s a $100K mobile home or a $1M mansion. That’s my fee. Sometimes the Seller asks if I’ll cut my commission. “No, thank you,” I say. “My fee is 3.00%, however, I’ll let you decide the Buyer’s Agent’s split if you want. I don’t recommend it, but it is your decision.”
“But I’ve heard of a guy who will do it for 4.00%” the Seller says.
“Great, here’s his phone number,” and I’ll share that broker’s contact information. “He’s a great guy and I encourage you to interview him.” I don’t golf, and I don’t take nights and weekends off. I answer the phone when you call. That’s what the money’s for. If it made sense for me to do this work for less, I would. If it seemed reasonable for me to ask 10%, I would.
My clients don’t care about my expenses, or my MLS dues, or brokerage fees and desk fees or signage and marketing costs, or photography costs; so I don’t bore them with explaining it. Those are my costs of doing business. I simply negotiate a fee that makes sense for me to keep doing this full-time instead of doing something else, like writing on Substack (shout-out to my five paid subscribers, including my Mom). Or I’d go back to the Middle East and help people “self-determine.” Or I’d go back to retail; maybe I’d open a fusion restaurant after training at the Culinary Institute of America.
If, as brokers, we’re being honest and truly self-reflective, we all know that sometimes, it really is as simple as: open the door, write the offer, close the deal. Jeepers. If it were always this easy, everyone would do it, and we’d all be millionaires. I once acted as dual-agent on a property that closed in three weeks with almost no contingencies. I was paid a handsome sum, something approximating $24,000. I paid 33% of the gross commission to my assistant (the Buyers were a referral from her) and 25% to my supervising broker. My gross proceeds were approximately $10,000; a further 25% of that went to Ukraine, Israel, Blackrock and General Dynamics (and golly, I’m grateful for all they’ve done for America). So when it’s all said and done, it’s still a lot of money, but it ain’t make-it-rain at the club money. And how often does it actually work out, where you manage the expectations of both Buyer and Seller, to agree on terms and behave in a straightforward fashion? Deals are rarely so clean and linear.
My value is not in opening doors or posting photos to the MLS. I am a professional negotiator, project manager and problem solver. Emphasis on “problem solver”. I get paid on performance. If I don’t solve your problem, I don’t get paid. Lawyers earn 33%-40% when hired on contingency to win a case. My fee is 1/10th of that, and I’m not cutting it. I would not, could not do it for less. I didn’t say “will not”. I said “would not”. The amount of time, effort, demand and risk associated with being a truly productive independent broker necessitates the high compensation. It would not make sense for me to stay in this business to make less than six figures; the hours in vs money in (and out) per deal sometimes averages minimum wage—sometimes it averages a neurosurgeon’s wage. I could not do it consistently if the margins were razor thin after endless hours of managing deals, brokers’ egos and my clients’ expectations.
I like to think of every deal as a mystery box of chocolates, where 90% of them are chocolate covered crickets. You never know how bad it’s going to be until you get in there. Every once in a while you find a See’s candy with the Bordeaux filling: rich and satisfying. But most time it’s chocolate covered crickets that will hospitalize you with rhabdomyolysis, literally in my case, metaphorically in the real estate business.
When it comes to money, it’s not that I think people in other industries don’t work hard, or that some industries have it rough, or that nurses and teachers aren’t the real heroes, or whatever. All of that can be true; I just know that the value I bring to my clients is worth my compensation. There are discount brokers in every market. You can get a 4% listing; hell, you can find a 2% listing agent (who will pay themselves 0.5% and pay a Buyer’s broker 1.5%). You can hire some jabroni to post your home on the MLS for $300 while you negotiate the deal yourself. When your deal inevitably falls apart because they (or you) are terrible at problem solving and negotiating, you’ll call me or one of my colleagues for help—or you won’t and you’ll get taken advantage of by someone who did.
I’m not flattering myself—it takes a lot of experience, time, effort and knowledge to get to this point in my career. I have been a bumbling idiot most of my life, but I’m actually good at representing clients in selling real estate.
This industry has no substitute for experience. I know that now, because I have it. I’ve been a real estate professional for about 7 years in aggregate. That’s in addition to the decade of customer service and personnel management under my belt. And only in the last couple years have I become unapologetically confident in my value proposition. Early in my real estate career I was ready to cut commissions like I was cutting ice cream cake on my 10th birthday. Sure, I’ll cut it in half. Then the client makes 20% more than they’d ever hoped to without my help. No one pities the Seller for creating no additional value and making exorbitant profits, no one pities the Buyer who makes “too much” money selling advertising or your personal data while working from home on some digital platform. We all make make decisions and live with them.
The reason Seller’s brokers pay Buyer’s brokers is because Buyers, in general, just don’t have an extra 2%-3% lying around to pay their brokers. Buyers (and their lenders, I suppose) are bearing the costs of the sale at the end of the day, not the Sellers, so it makes sense that the commissions be paid out of the proceeds of the sale. Listing brokers negotiate for the deal with the Sellers up front because of that. It’s a cost of doing business; most times the money gets amortized and rolled into a loan. When the Buyer goes on to sell that house someday, they’ll probably make-out just fine.
I’d be remiss not to make this point: literally everything is negotiable. The fact that most people have in their minds that prices are fixed tells you what shitty negotiators they are. This is why you need representation.
Buyer broker compensation is a choice made by Sellers and their brokers to incentivize a professional to prequalify a motivated, interested buyer and guide them through performance on a contract. If the Buyer broker has to negotiate their fee into the offer, fine, I’ve done that before too while representing Buyers. It’s still going to materially impact the offer, one way or another. It is a cost of doing business. If you don’t like it, hire a one of the discount jabronis—they’re very, very desperate for your business.
And when it comes to justifying the money, I’m not talking about the guy or gal who just got their license and literally knows nothing more than how to open doors. To be sure, that’s a major problem I have with the business.
The barrier to entry is so low, that too many people get licensed, are assigned a desk and a monthly desk fee of a few hundred dollars, told to “go make money and don’t get sued,” and they’re off to the races. Here’s where I agree with the critics and some of the spirit of the lawsuit. Some brokers are paid too much for knowing too little and creating too little value. A lot of that has to do with apprenticeship, training and knowledge transfer.
In some respects I think the lawsuit is a good thing. It will separate the wheat from the chaff; the people who saw an Instagram reel about how to make real estate a “side hustle” are going back to the MLM game. Thank God. The professional brokers will scoop the slop in their wake and try to put the industry back together. Hopefully.
Post Settlement Future
This settlement functionally means for brokers who pay into the MLS (which Zillow, Trulia, Realtor.com, etc. get all their data from), is that Seller’s brokers can no longer advertise a Buyer’s brokers compensation.
Right now, I can see how much a listing broker is paying if I represent a Buyer on the sale. That money comes out of the total commission paid by the Seller to the listing broker. The listing broker advertises what split of that whole is going to be offered to the Buyer broker. Sometimes it’s half, sometimes it’s less than half; the settlement will make it impossible for Buyer brokers to know their compensation prior to showing a property. Starting in July, we won’t be able to show the Buyer’s broker commission.
If you think this isn’t a problem for everyone involved, you’re wrong. And ultimately it’s going to hurt Buyers more than anyone else. It puts all the power into the hands of Sellers and their brokers.
Here’s the scenario that’s going to happen when this settlement is finalized, if it doesn’t worsen in its current proposed condition.
At a listing appointment, a Seller says to me, “the Buyer’s brokers have to negotiate their own compensation, I’m only paying your fee of 3.00%, I won’t pay extra if you work as a dual agent.” Let’s assume I don’t push back at all on this.
The weekend after listing, a first-time home Buyer walks into my open house and says “I love this house, I’d like to write an offer.”
“Great, do you have a broker who can write the offer for you?”
“No, can you represent me? And, by the way, I can’t afford representation, the price of the home is all I have.” Shucks, I can’t believe the Seller didn’t want to drop the price as a result of not paying a Buyer’s broker.
“No, sorry. I can’t take the additional risk and work of being a dual agent for no additional money. I’m here only to represent the Seller.” I’ll say.
“Understood, I would like to make a full-price offer.” The Buyer says.
“Great, do you have a contract form? No? [obviously] I’ll write the contract.” I’ll say, then I write a contract that heavily favors my client and their interests: Non-refundable earnest money, tight contract deadlines, punitive clauses for non-performance. I’ll say, “this is all very typical these days.” and the Buyer won’t know if that’s true or not. If the Buyer fails to meet a deadline, my client keeps their earnest money and we move on to the next Buyer. This scenario depends on the market and conditions—but why wouldn’t this happen?
Notice I didn’t say “should.” It has nothing to do with what should happen. What should happen in every real estate transaction is this: a Seller posts a sign in front of their house, a qualified Buyer walks up and says “I’d like to buy this,” the Seller says “I’d like to sell this;” within moments they agree on a price, the money transfers and everyone lives happily ever after. No brokers involved.
If people did what they should do, lawyers, doctors, tax professionals, police, EMS, brokers, and garbage collectors, plus, like, a lot of other industries, would all be unnecessary. Fortunately we’ll always have Internet forum moderators, those invaluable patriots.
Most Buyers need representation, even if they think they don’t. It’s the difference between playing poker in your buddy’s garage and playing poker at a high-stakes table in Vegas. Some people do this all day every day for a living, you might do it from time to time. When you come up against a pro, you have no idea what you don’t know; and instead the pro being incentivized to explain everything to you, they’re just going to let it all fly right over your head while they rake in your money using their experience and advantage.
Generally speaking, people are not good problem solvers, particularly in an emotional deal like residential real estate. I sincerely would hire a broker to sell my house—I mean that. It’s too stressful, too emotionally involved, too personal. I love seeing brokers list their own homes and do everything wrong. It’s like watching an amateur for-sale-by-owner: they over price, skimp on listing photos, set unrealistic expectations. In some respects we’re all the cobbler whose children have no shoes.
There are skills we should all try to develop—YouTube helped me replace the water pump on my 24 year old truck. But if that thing needs an engine rebuild, you can bet I’m going to pay someone a few grand to fix it, even if it “only takes a few hours.”
Recently a lawyer friend of mine brought up a scenario where he wrote a demand letter to an insurance company, on behalf of a client, that went ignored. Then the client signed up for a contingency contract, meaning my lawyer friend would get 33% of the settlement, if one ever materialized. Magically the insurance agency paid up when threatened with a lawsuit. My lawyer friend agonized about this. “Did I deserve this?” he said. A week ago, my friend was prepared to accept less than $500 for his time; once engaged on contingency and the insurance company offered to settle pre-trial, my friend was about to 10x his compensation. The reality is, without my friend’s intervention, his client would still be on the phone, listening to elevator music and being given the run-around with the insurance company. I’ve done the same thing with For Sale By Owners, at least a dozen times in the last few years. If you create value, you ought to be compensated for it, especially when all terms are agreed upon before hand.
That’s not to say on the backend he doesn’t cut the fee, or offer some kind of credit; I don’t know a single broker who hasn’t made some kind of concession on their commission at some point in a deal, either before or after closing.
So to the listing brokers—respect the value of the Buyer’s brokers in your market. We need each other to keep the spirit of our deals in good faith. If you’re not a good negotiator or a damn-good problem solver and think you should just open doors for people or let Buyer’s brokers negotiate their own compensation, then the public sentiment is correct and you ought to be swept out with the tide.
To the Sellers; you bought the house in 1983 while pumping gas part-time, now you can live the rest of your life on a cruise ship after paying commissions and closing costs. Pay a commission to adequately compensate a Buyer’s broker, please.
To the lawyers who will actually benefit from the lawsuit, congrats on the payday—hope that money helps you continue to serve the public good.
To the Buyers who have no idea what’s going on, but think they’re going to do this completely on their own, best of luck. On behalf of my Sellers, I look forward to opening the door for you at my next open house.
It will be interesting to see if a new market standard buy-side fee other than 50/50 splits emerges