Brokers Pivot to Sellers: Embracing Tech to Boost Earnings in a Shifting Market

AI heralds the Fourth Industrial Revolution, disrupting most industries, including real estate, except for trades requiring skilled human craftsmanship.

This evolution reminds us that nothing is static. Our world, and we ourselves, are ever-evolving. To assume that real estate practices should remain unchanged is both idealistic and unrealistic. Change is necessary—and it's coming to real estate.

As an unabashed fan of the TV series "Designated Survivor," I admired how Kiefer Sutherland’s character, the lowly director of Housing and Urban Development, became president after a catastrophic attack. While I don’t wish for such apocalyptic destruction of our government or any industry, part of me yearns for a complete overhaul of the real estate industry.

Change is indeed on the horizon.

In a few weeks, the management of real estate listings and broker compensation will undergo dramatic changes. Sellers will no longer be obligated to offer compensation to buyer's agents when they list homes for sale. If they choose to make such offers, it will not be public knowledge. Buyer’s agents will need to have their buyers sign contracts ensuring they will be paid if the sellers don’t cover the costs.

This will create a rocky environment for a while. Buyers, who generally haven't signed agency contracts, are already pushing back. They don’t want to be contractually bound to pay their agents. It’s offensive to assume that agents should work for weeks or months with no promise of compensation. Buyers have been spoiled, and their day of reckoning has come.

However, rewarding buyers' agents with proportional compensation, which increases when buyers pay higher prices, has always been counterintuitive. Yet, it’s crucial to remember the disadvantages buyers faced before buyer agency became common in the late 1980s.

Buyers' consumer protections have existed for fewer than 40 years.

Before that, sellers held all the cards. All agents, even those unaffiliated with the seller's listing agent, were legally sub-agents of the seller. Buyers had no legal representation and effectively no consumer protection.

Recent lawsuits against the industry suggest that many buyers, unaware of the recentness of their right to representation, will flock to listing agents to avoid paying their brokers out of pocket. They will be sorely disappointed if things go wrong, which I predict will happen frequently. This is not an improvement for anyone.

Do not be confused—brokers' fiduciary responsibility to clients is not changing. If a broker signs a listing contract with a seller, they are legally bound to act in the seller’s best interest, precluding them from acting as a fiduciary for the buyer.

It's impossible to prove that a dual agent, representing both sides in a sale, has vigorously represented both parties' best interests. It remains a legally indefensible position. Professional insurers may refuse to cover legal fees for brokers engaging in dual agency because diligent representation for opposing sides is unprovable.

Attorneys have always been "conflicted out" of representing parties where there is an obvious bias or pre-existing relationship. Real estate brokers are not. Not yet, anyway.

Come mid-August, the real estate game will change. Brokers are gearing up, with many being urged to shift focus to listings and abandon buyers. This is concerning because buyers require more protection than sellers.

In this climate of distrust, brokers must fight for their fees and, in many cases, reduce them. Technology, including AI, will be essential to enhance efficiencies, allowing us to serve more clients to maintain our earnings.

The only winners may be attorneys, who will handle lawsuits brought by buyers who realize too late they were not well represented. Not paying for dedicated agency representation may finally come home to roost.

Why the CFPB (Consumer Financial Protection Bureau) isn’t already addressing this inevitable issue is beyond me. The bureau was created after the last market crash to protect home buyers. Where are they now?

The silver lining is that more uneducated and incompetent real estate salespeople will likely leave the industry, benefiting everyone.

Let’s see what happens. Buckle up. It’s going to be a wild ride.