Property management and the major (and immediate) changes to the real estate industry

[Originally published 8-14-2024]

​Greetings folks and happy Wednesday! As I mentioned last time, the property management division of Enjoy Realty is cruising along and our portfolio continues to grow. We currently have one available unit, a 2 bed, 2 bath townhome in SE Fort Collins. Rent is $2100/month. For more information on this place or any of our services in general please visit our property management page or reach out to Matt Christensen directly at [email protected]. 

Now for the big news. Tonight at midnight the switch will flip on a bevy of new and/or updated contracts, coupled with the removal of commission fields from Multiple Listing Services and public real estate sites. If you’ve been able to avoid this news in your feeds, consider yourself lucky. I’ve had conversations with colleagues and clients almost every day about the subject for the last several months so I will therefore break down the myths and the facts:

Myth #1: Commissions are going away. 
Fact: Perhaps only in preferred terminology, since there appears to be a push to rename it compensation. While I don’t mind the minor change, I don’t think calling it commission is problematic if brokers are being paid a % of the sale price. It’s worth noting the settlements want to call it commission “decoupling”, meaning sellers pay their agents and buyers pay theirs. Furthermore....

Myth #2: Sellers don’t have to pay out compensation to buyers’ agents. 
Fact: This is in fact true, but it always has been. Unfortunately, due to click-baity headlines, the myth some people believe is that tonight’s midnight chime will usher in an era where buyers are paying their agents, or not using agents at all. Which also means…..

Myth #3: Buyers will simply have to suck it up if they want representation:
Fact: Yeah, no. If you’re the type of seller that flat out refuses to pay a cooperating broker, you’ll likely be doing a FSBO or getting offers that have the buyer’s agent’s compensation baked into it. Whether you choose to accept it is up to you, the seller, as it always has been.

Myth #4: This is great for consumers because it will make things more affordable.
Fact: Maybe for some with higher end listings and clients with deeper pockets, but not for average-price homebuyers. In fact, the buyers that will likely suffer the most will be first-time homebuyers or those searching in the below-average price ranges.

Let’s say a buyer is all excited to jump into the home ownership game and saves up a bunch of money for a downpayment. They meet with an agent and are told it would be best to scrounge even more money to also cover their closing costs - around $7000 or so - because asking for closing costs in a contract is typically grounds for quickly dismissing an offer. During this conversation, the agent alerts the buyer to Part Two of the big changes happening tonight: They cannot show them property unless they have a signed agreement stating very clearly how they’re getting paid and by whom, and due to some changes in the [Colorado and likely elsewhere] forms, there is no option for the seller to pay the buyer’s agent whereby the buyer is NOT obligated to pay. The agent then points to a number and says “By the way, this is what I need to make.”

The buyer now spirals into depression because on top of their downpayment they’ll need to pay their loan costs, closing costs and their agent, which in some cases could be more than their down payment. 

Something has to give, right? Fortunately some of the changes to the contracts make it easier to negotiate compensation. This has always been the case TO AN EXTENT, but it is now an actual line item in the contract. Three line items, in fact. So, much like we tried to establish earlier this year with an “up to X%” model on the listing side (which was shot down by CAR legal), compensation will likely be part of the offer negotiation moving forward in the majority of transactions. Obviously the new system looks to be far, FAR from perfect. So…..

Predictions:

1. You will see fewer represented first time buyers, leaving them to negotiate and submit offers directly through the listing agents;
2. Commissions WILL drop, but it’s more of a continuation of a trend already occurring due to rising home prices;
3. More investors and investor agents will buy up stale inventory that doesn’t offer a co-op;
4. None of this will affect home prices. At least not as much as inflation and rates have affected them already;
5. A bunch of lawyers will contemplate what cigarette boat they should get while those who opt into the settlements get ~$38 over the next four years.

It may be good for the industry in some ways but worse in others. Agents that don’t know how to function in a world where they have to negotiate their pay (or illustrate their value) simply won’t make it. However, not all of the agents that leave the field will be the bad ones. 

There’s a lot more to it but I welcome more of a one-on-one discussion with those who’d like to know more. For now, this is a sample of what I actually know going into the changes. How things actually come to pass remains to be seen after we’ve lived with our new practices for a few months. 

Have a good night and as always thanks for your business, kind words and referrals. Crip