The Current State of Broker Commissions

In the aftermath of the recent multimillion dollar NAR settlement, thought leaders Gary Malin and Neil Garfinkel join Jamie for a wide ranging discussion on the disconnect between perception and reality with regards to broker compensation and consumer interest.

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Jamie: Hi everyone, it's Jamie Heiberger Harrison, here today on REal Talk with Jamie. And I have my special guests and good friends, Neil Garfinkel from Abrams Garfinkel, also known as Revenue Council, and Gary Malin, COO of Cocoran Real Estate, who is always a wealth of information and knowledge and everything that's going on in New York brokerage. So nice to see you guys.

Gary: Nice to see you.

Neil: Thanks for having us, Jamie.

Jamie: Sure, of course. So there's been a lot and not a lot going on. We have a lot going on because Good Cause Eviction is one thing for sure that we're all contending with and getting a lot of questions on that. I've been speaking a lot about that. And then there's also the property disclosure and buyer's agents. So what do we start with first? What do you think, Neil?

Neil: Certainly in my world, the idea of this NAR Settlement, and the way that brokers are going to be sharing compensation and the need for buyer broker agreements, that certainly is a main topic for everyone. It is for Gary as well. And the problem that I'm having right now is that what is being portrayed in the press is not really what's happening, right?

So the press is making this about commissions, meaning the amount of commissions and somehow the amount of commissions is going to be reduced and the 6% commission is going away. And the truth of the matter is this has really nothing to do with the amount of the commission. It does have to do with how broker share compensation, but ultimately, again, it's being portrayed in a way that I don't think is appropriate, nor is it really fair to the consumer because I don't think at the end of the day what they're trying to accomplish is going to be what they're going to accomplish.

So as we see in many instances, the unintended consequences of what our legislators are trying to accomplish, present themselves in ways that they never anticipated.

Jamie: Neil, let me ask you a question. Was there ever a time that anybody had to pay a certain fee? Has that ever been the rule?

Neil: No. Commissions are completely negotiable. They've always been negotiable. New York State doesn't require a set commission, REBNY doesn't require a set commission. So again, the issue with respect to NAR was that NAR did require a seller's broker to share their compensation with a buyer's broker. That's something, by the way, that REBNY did not require, never required, but that is one of the key points. But with respect to the amount of commissions, and even then commissions are freely negotiable. So again, there's a lot of misinformation out in the press making this seem to be something that it's not.

Jamie: Couldn't agree more. Gary? It's not true that all brokers do is list and open doors and that's it?

Gary: Unfortunately, there's this anti-real estate sentiment that exists not just here locally but across the country. What I always find interesting is everyone loves to blame the real estate broker for the high cost of housing. And when the day is done, markets set themselves. Brokers are intermediaries trying to effectuate the needs of their clients. They work extraordinarily hard, they put time in, they put effort in, they put their own money in. There's no guarantees that you're going to actually sell or rent any asset that you're representing. No agent bats a thousand.

And I just think this anti-real estate sentiment, especially with this NAR lawsuit, has just riled up a lot of emotions. I think that shows like Million Dollar Listing never did portray the industry accurately. And I think that people have this perception because of shows like that, which we all know are scripted television shows, are what reality is. I think agents are hardworking professionals that do an incredible job, and it's not simply: open a door, sign a contract, close the door, collect your money. And while Neil said what he said, and I agree, it's simply that people want to portray the real estate brokerage community in a negative light. And it's unfortunate because they provide a really valuable service.

Jamie: They really do. I think I've said this to you before. I find when I'm buying something and I'm going to invest in it, or if it's for a personal property, mostly I end up finding it myself. But I always bring a broker in because then when it gets down to do I want to make an offer, I truly believe this. It's not just because I get my business from brokers. It's such a valuable asset on so many levels. If you think that you can go out there alone and find what's available in New York, you're sadly mistaken. It's just not going to happen. The brokers just know. Because there might be a listing, but Gary, you know better than any of us: how many listings, if somebody goes on there right now today, if they look at 10 apartments, will those 10 apartments all be available today?

Gary: No, but it's even more than that. It's sort of like in the end, there's this whole concept that people are so focused on the commission, right? And what they're paying, but the conversation should be surrounded as a seller, what you're going to achieve with your sale. And if you're so focused on the two, two and a half, three percent that you have to offer another broker versus the bigger dollar that you might not get if you don't expose your asset properly. I just think that's why I think what Neil says is so accurate about the press. The press is portrayed things in such a negative light because it's clickbait and it gets readership and it gets advertising dollars. They don't want to necessarily shed light on the reality. The simple fact is, I keep on telling everyone, if you went to a casino today to play blackjack, would you want to hit 21 with 13 cards in the deck or 52?

I'd rather have 52 cards to increase my odds. Would you rather have 13 offers to sell your home or 52 offers to sell your home? You don't know what you're giving up unless you get access to the full wide range of what the market could bear. So I think the sellers should always realize: I'm in complete control of the transaction when day is done. I don't have to accept anything I don't want to accept, but doesn't it behoove me to bring in as many offers as humanly possible, level them up all against one another and figure out what's best. And buyers are not necessarily fully sophisticated in every aspect of negotiating, understanding value, timing, terms, conditions.

So people seem to, for some reason, diminish the value and professionalism of a real estate broker. And I think that's where there's a problem, because previously, especially on the buy side, since a buyer was not paying you for your service, they never truly understood your service. And I think that's why everyone makes it, "Oh, open a door, close the door, make your money." If it was that simple, then there'd be a lot of real estate agents making a lot more money than they make right now. It's like any other industry, the best of the best make the most money.

Jamie: And it's time. Most of the time you're not seeing one place. It could be over months, it could be over years, it could be over hundreds of buildings.

Neil: When I bought my house right before the pandemic, I didn't need a buyer's broker, but I absolutely engaged a buyer's broker and she was terrific. And again, none of the three of us would necessarily need a buyer's broker, yet we all would engage one, maybe Gary, a little bit differently, but I certainly did. And that's my concern: I believe that there's going to be a situation where buyers are not going to want to pay for the service.

They don't understand what they're getting, and I think they're going to be taken advantage of. I really do. I think that I'm very concerned about the way that all of these things are potentially going to play out, including as Gary was alluding to -- MLSs and the RLS -- they're efficient systems for listing properties and to get the most potential views on those properties. And the way that some of these settlements are playing themselves out, we're going to wind up where brokers are going to go back to the old days where they're going to be listing information and properties on their website, that's not going to list centrally specifically because of these settlements.

And whose benefit is that? That's not in the consumer's best interest. So there's a lot to these settlements that I don't think the intended consequence is going to turn out that the way that they think it will. And quite frankly, this is coming from people who have been representing this industry 29 years, so I think I know a thing or two about how it works.

Jamie: Gary, do you think that there's going to be maybe a short term effect on the buyers versus a year later as things kind of settle in?

Gary: I think perspective is always important on all aspects of what goes on in any industry, any business, any change. And I think that right now it's very much in the press. It's very much out there -- 24/7/365. So I think anything that's top of mind, there's always more shifts and more changes in attitude. I think I always tell people we need some time, once everybody's settlements are finalized, once everything is the same across the board with whatever small nuances there may be, it'll be interesting to see what happens at that point.

So I think we do need more time. I've been telling my agents, we're probably in the fourth or fifth inning of a baseball game. We still have a ways to go. And I don't know what that line's going to be, and I don't think anyone in this industry could say they know what that line's going to be. But when we get there, we're going to figure out a way to be effective and professional and represent our clients to the best of our ability like we've always done.

It might require different levels of people understanding their value, how to explain their value, how to explain their service, and really dig in deep. And I think that will impact certain agents in this industry who I don't necessarily call full-time agents -- they do it as a hobby versus a business. And I think those people will probably struggle a little more, not because they're not good people, not because they don't have ability, but when you're talking about a professional who's doing this all the time every day versus someone who dips in and dips out, those people are probably going to struggle a little bit more because it's going to be harder to convince someone, when you yourself aren't necessarily as well versed in your own proposition.

Jamie: Do you think that that's a good thing or a bad thing?

Gary: I definitely think that there's a lot of agents in this industry who don't necessarily act in accordance with all the rules, all the regulations. And I don't necessarily think to a large degree it's because they're intentionally not doing it. But if you're not actively involved in this business, you're not staying on top of all the rules and all the regulations and you're not fully fluent on things that go on, I do think, at times, unintentionally things happen that shouldn't have happened.

So there are certain instances where probably this isn't the right industry for them. And I think that will probably help the industry in the sense of thinning the herd a little, of people who are just not active agents that have other jobs, they have other interests. So yes, I think that there will be people that will probably exit the industry, and I don't think that's going to hurt them per se, because they weren't really focused on it to begin with anyway. And I think it'll only make it better for those that are professional to stand out.

Jamie: I agree. Neil, let me ask you, in terms of procedurally, because you've been with REBNY for so long, is there a way that these changes and the settlements that will happen, that we can improve upon the direction this is going? What would it take? Would it have to involve all of New York State? How can we get back to a better place where we're not dealing with it in this manner?

Neil: Well, so a couple of thoughts. Number one, REBNY is not a member of the National Association of Realtors. So whatever settlement they do, REBNY is not bound by. That being said, truth of the matter, REBNY made changes prior to the beginning of this year, including what's called decoupling the commission. Basically saying: "a seller can pay their selling broker, a seller can pay the buyer's broker, but the selling broker cannot share their commission with the buying broker." So we decoupled commissions before this settlement, and we never really had a requirement anyway, but we just wanted to be very clear. There are things happening. We are having a conversation on the state level about the form of buyer-broker agreement that is going to be required -- what's going to be part of that. And that's an ongoing conversation with legislators, with REBNY. I personally think it's a good idea.

I think that in too many instances prior to this, buyers were free agents and they could jump around, which is fine, but it didn't leave room for an understanding of what the relationship looked like between that buyer's broker and the buyer. That relationship does not need to be exclusive. It could be non- exclusive, but I think it's good for all the parties, both the broker and the buyer to have a clarity as to what the relationship looks like. So yes, so there are things that we're doing which I think will be good for the community as a whole. With respect to some of the requirements of the settlement, I think, as Gary said, we're in the fourth inning right now and we'll have to decide what is the best way to move forward for this industry, for our area in particular, and for our members.

Jamie: Gary, from what we all know right now, if a buyer were to contact your company and they're looking for a place, does the buyer have to work out their fee now with the agent? Is it direct or can it still be that they can show them places and then the buyer would deal direct with the seller?

Gary: Well, right now, under REBNY rules and guidelines that rolled out in January, buy-side agreements are not mandatory. And I think a very small percentage of the agents in this industry are using them. So right now, for the most part, since January and we'll call it four and a half months into the new year, it's relatively been business as usual. There's some nuances here and there, but REBNY's rules were never about mandatory use of a buy-side agreement. It was, if you want to use one, then here's the path forward. The main change really was in our listing agreements, decoupling the commissions, and the offer of compensation came direct from the seller versus to the broker who was co-broking. So right now, New York City has been operating relatively the same as it always has.

Jamie: That's good. And putting aside NAR, because it's separate, but with REBNY, are there going to be any further changes that on the buy side where there's going to have to be a buyer's broker?

Neil: Just to be clear, I think that requirement of buy-side agreements is going to be a state requirement, which I think is a good thing. All buyers' agents will be required to have that buyer broker agreement. So I think that's a good thing. That will be a state mandated requirement.

Jamie: I think that's going to be good for everybody.

Gary: Fact is, right now you could argue when one broker or one company does A and another company does B, and that's everyone's right to do so, but it certainly creates some level of confusion for a consumer. Whereas if it becomes a state mandate and everyone's requiring to do the same thing, at least it puts people on a level playing field versus one's doing this and one's doing that. So that would be a change if in fact that's coming down from New York State. But right now, as I said, the market is relatively what it has been. There's certainly people that are using buy-side agreements if they feel necessary, but I would think that that's in the minority, significantly.

Jamie: What do you think, Neil? How would you feel if they turned around and said that we had set legal fees?

Neil: There's so much going on. There's a New York City Council bill limiting that. I have a significant problem with that. I think that the anger is misplaced. And again, I have a very big problem when our government starts to insert itself into setting fees and things like that. What's most bothersome about it is that there is this viewpoint, oh, look at the rich real estate agents. Look how much money they make. And let's be honest, the bulk of those agents are just hardworking people. They're barely making a living. And then you have people who excel and so on, but they're characterizing this as somehow the real estate brokers created the affordability problem, and the housing crisis, and takes too much money out of the system, and so on. And that's just not the reality. So it is very frustrating when the perception does not meet the reality. And again, to me, a lot of it is press driven and as Gary said, it's clickbait. It's titles and it's appearances as opposed to substance.

Gary: I look at what's going on here with the New York City Council trying to basically state who can pay a residential rental broker a fee. He or she who hires you, pays you. And what I always find interesting is the market right now in New York City is transparent. It's effective, it's efficient. A consumer could go online and half of the market at least is a no fee market today. So that tells you that there's plenty of negotiability in the marketplace and that everyone's being represented. We have fee agreements that need to be signed. We have fair housing disclosures, agency disclosures. I mean, we've done everything that we possibly can do to give people the information that they need to make an informed decision. And I think it's like, I always use the example, if you want to go to TurboTax and do your taxes for free because you feel like doing them for free, you can.

But if you want to hire a professional for whatever your reasons are, you should be free to hire a professional. And it's the consumer's choice which direction he or she wants to go in. But when you now have a city council who is elected by a whopping 30,000 people who vote, to be quite honest in the city council elections, which means it's a rounding error of the populace in New York City. They should not be trying to legislate industries that they are not fully well-versed in. This is about votes versus effective legislation. And it's frustrating because once again, the real estate broker is being vilified for providing a really valuable service that is an optional service. No one's required to use the real estate broker if they don't want to. There's many ways for them to find assets on their own. So it's just a very frustrating circumstance when the real estate broker is constantly being put in this position of defending himself or herself when in fact they're hardworking professionals.

Jamie: Yeah, that's a good note to end on. I couldn't agree more with you, and it is an ongoing conversation, so we'll definitely get back and continue along these lines as updates come in. And Neil, any last words you want to add to Gary's point?

Neil: Well, we're very much aligned in governmental interference with our capitalistic system, so definitely very frustrating. As you alluded to, how would every industry start to feel when, if you're working hard and trying to make a living. And truthfully, the middle market like us, no one is taking care of us, quite frankly. And that is very frustrating. So the only other thing I would finish on with respect to the agents that are listening: control what you can control. You can't control most of what we talked about today. What you can control is being the very best real estate agent you could be. So don't get down, go out there, work really hard, do the things that you need to do to establish your value. And that's the real thing. That's what you should be doing: focusing on making sure that everyone understands what you bring to the transaction, how you bring that to the transaction, and what you're going to do for them. Establish your value. You do that, you will be successful.

Gary: I'm not sure when you plan on having this posted, Jamie, but on June 12th we're all going down to City Hall to fight this renter fee bill. And I think any and all agents that will be hearing this before that, you must show up. You must make your voice heard. The only thing that works is people showing up and explaining to the council members that this is not a piece of legislation that will affect them in the way they think it will. And it's going to have very negative unintended consequences. And we need our voices heard. So you can sign up through REBNY.com, on the top of the website, it tells you how to participate. I think it's absolutely critical we get a minimum of a thousand people down to City Hall like we did in 2019 because that resonates.

People can't be apathetic. You need to fight for your industry. You can't just expect that everyone else is going to do it for you. It's our collective future that we need to work on together. I'm going to be there. A lot of our agents are going to be there. The more people we can get down there, the better.

Jamie: All right. That sounds great, Gary. I'm going to actually put the details about it. Everywhere I post, I'll put the link on it so that people can get the information. And you know what, maybe we'll come back right before that to just make sure it's out there and people know and understand the importance of it. Well, thank you so much. Thank you Neil. Thank you Gary.

Important Links

• REBNY (June 12th Rally)