Real estate coach Skye Michiels on why sell-side commissions might rise and new models could emerge

In an interview with HousingWire Managing Editor James Kleimann, Michiels shared his thoughts on how buyer broker compensation will evolve, how lower-income buyers will be affected, the legal scenarios for agents, and what new business models may emerge in the coming years.

This interview has been edited for clarity and conciseness.

Kleimann: What are you advising seller’s agents and buyer’s agents about the changes?

Michiels: So obviously, some of this is market specific. In some markets, like in Texas, for example, I have agent clients who are in a little bit more of a buyer’s market. In those markets, listings are starting to sit and so there is some logic to the seller offering a buyer’s agent commission.

You want to make your listing more attractive to more buyers. In markets where inventory is tight, the way my agents are approaching it — and the way I’m advising them — is basically to use commission as a negotiation point in the sale. In other words, if the seller is willing to provide it, you a) have the option of not disclosing it upfront; and b) you can use that as a negotiation point during the sale.

I think agents need to be very, very aware of market conditions and the seller’s goals and desires. Do they want it to go fast? It’s similar to installing hardwood floors, right? If you want to move your property, you’re going to invest money in it to make it more marketable to a buyer.

Kleimann: How much of the market dynamics are now coming down to the fact that every buyer and seller knows that commissions are now on the table?

Michiels: So, at this stage, every real estate agent knows. But I would probably say that 60% of the public still has no real idea. If you’re searching for real estate, you probably do know about it. The vast majority of the public, in my opinion, really does not have any clue right now what this is, or what it even means. If you’re in the market, those numbers are probably a lot different.

Kleimann: This is purely a hypothetical, but let’s say a buyer agrees to compensate their agent 3% and they make an offer on a house. But the seller only agrees to pay 1%. Are such deals taking place with the agents you work with? What are we seeing in terms of negotiations in those situations?

So, we are just starting to see this unfold in markets. I do have agents that I’m coaching right now that are having some of these harder conversations. We are starting to see some of the zero compensation — or 2% or 1% [seller offers to buyer’s agents] — show up in the markets. … There are conversations in this transitional phase that are really hard at times because you’ll have buyers that have been looking, let’s say, for six months, and this is a new sort of concept and a new cost structure that they’re encountering.

Kleimann: How long do you expect this transition period will last?

Kleimann: And it’s not just the agent who is affected, right? Let’s talk about the brokerage aspect. Are they going to be out there suing people in their communities? What brokerage wants that publicity?

Michiels: Whatever your opinion was of the way real estate was done, there were a lot of positives to that old system. I think there’s going to be a lot fewer buyers who actually have good representation in the future. I think this is actually going to hurt consumers in many ways, especially in the early days as things are getting shaken out. But at the end of the day, this is the reality of the real estate world, and the occasion of right and wrong is sort of irrelevant at this stage now.

Kleimann: One theory I’ve heard is that we’re going to return to a version of subagency for some buyers, especially in the lower price brackets, where maybe the buyer got an FHA loan and had to get a down payment assistance package. There are pretty strong limitations to what they can do. And of course, what agent is going to work for $500, $1,000? One challenge here is that American consumers, no matter what they’re buying, still generally expect full service.

Michiels: The biggest question that we’re going to see is, essentially, what is the tolerance level for agents? What is that bottom ceiling that they’re willing to work for on the buy side? And where will that lead the consumer at the end of the day? It’s a big question. To your point, the lower-tier consumer is the one I think that’s going to, unfortunately, be hurt the most here as well.

It really goes back to training and coaching becoming a huge part of what most agents really should be leaning in on. And I’m not saying that selfishly — I’m saying that for any agent out there who’s not really improving their skill, their trade and their craft. I think they’re missing a big opportunity here as well.

Kleimann: Commissions historically being paid as a percentage of the home’s value means it’s tied to the price of the asset, not that the job has gotten harder or the quality of the service is necessarily better. But the cost of services has gone up because it’s pegged to the home’s value. Do you expect to see more flat-fee models?

Michiels: The offsetting factor to that is that as home prices go up, equity also goes up. And the reality is, most of the time the commission has been paid out of equity, not necessarily cash, so I personally don’t believe that the consumer is actually going to save a tremendous amount of money on commission.

Michiels: I do believe that this is going to force professionalism into the industry that is not really current there. So, I do think it’s going to up-level. I think it’s going to force people to be way more transparent and be really clear in the value they bring in.

And trust me, I have agents I coach who are excited about this. It’s probably not the majority of the population, but once they get through the initial phase, they see a huge upside to the whole situation. Most of the agents I coach are listing-heavy, but they also do buy-side. The biggest value they see on the buy side is they’re only going to be working.