Boots on the Ground

On the eve of some fairly dramatic changes for the real estate industry, I thought it would be fun to add a little more historical perspective to the conversation. To best understand the lead up and subsequent rule changes being implemented, we’ll need to take a little trip through time.

We’ll start our journey in the early 1900’s when brokers first started offering open houses to help their clients sell a home. The open house could last for a few days or even weeks with the home held open for 12 hours a day until a buyer was found. 

This practice was commonplace until the late 1930’s when brokers started hiring sales agents – giving them the ability to take multiple listings at once and market these at open houses if they might be a better fit for the buyer. Everybody wins!

In the late 1940’s, just after WWII, my grandpa Lee - who’d returned from his tour in Europe serving as a ball turret gunner in B-17s – graduated from DU and opened his brokerage, Wedgwood Realty.

The industry was booming, and brokers were constantly innovating new ways to find buyers for their listings. When newspaper and radio ads didn’t get the job done, buyer incentives would be offered. The first record of this comes from a brokerage in Dallas who offered free Cokes to any visitors and a Cadillac to any buyers in a new subdivision they had listed.

By the 1960’s multiple listing services (MLS’s) started emerging state to state, which consolidated listings into a single area database. My grandpa was actually one of the founders of the first MLS in Colorado, starting what they called "Pictorial Property Listing Exchange" along with some other brokers. They would print 5 by 8 inch brochures with a picture of the property and listing details and hang them on pegboards in their lobbies - where the sales agents from each broker could go and pick up brochures for homes that might interest their buyers.

The dawn of the MLS expanded the role of brokers and sales agents, allowing them to seek out listings held by brokerages across a wider range, subsequently giving buyers more options to better suit their needs. With more options, buyer incentives lost their luster, so Brokers began offering part of their fee as an incentive to sales agents who brought them a buyer. This ushered in the concept of cooperative compensation, which would become mainstream in the industry after it proved to be overwhelmingly effective.

Real estate found its panacea.

Offering people a Cadillac might sound like a smart incentive if you’ve never worked in sales – but let’s be real - people buy a home because it feels like…home. Buyers don’t need kitschy incentives, they need guidance from someone they can trust, who understands their specific needs and will work tirelessly to provide them with the best possible outcome. 

There was only one problem. Broker licenses were limited to the seller, and the co-op compensation model of this era meant that sales agents working with the buyer would have a fiduciary duty to the seller.   

By the 1970’s, when my dad started in the business, rumblings emerged from buyers who (rightfully) felt that sellers had an unfair advantage in the transaction since they had the benefit of representation. Buyers who could afford it might hire an attorney, but more often than not, this would prove cost prohibitive, and buyers would go unrepresented.

Fast forward a few decades – and thousands of lawsuits filed by aggrieved buyers – when buyer agency is born, keeping the well-established cooperative compensation model, but elevating the role of sales agents to pledge loyalty and fiduciary duty to buyers. This has been the model since the 1990's and, over time, the industry got a little lazy and the failed to properly communicate the value behind this model.

With the new changes, buyer agency and co-operative compensation are unchanged in practice, we’re just limited in how we can advertise any offers of compensation from sellers, and working with buyers will require a level of transparency that had been lost over the years.   

My take? Quality representation has become more important than ever for both buyers and sellers. We’ll see plenty of “innovations” that are simply mistakes from the past being painfully re-learned. Should any true innovations emerge – and prove effective - I'll be the first to bring them to my clients if it will provide a better outcome. 

As always, I’m available as a resource to answer questions and provide an in-depth consult of best practices going forward!  Click below to schedule some time to chat!

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Market Insights - July Recap

 

With active listings growing and closed listings shrinking, it appears buyers are taking the wait and see approach. Not shown on my table though, was a fairly sharp decline in new listings by 11% compared to June.

We’ll see how that affects the data for August, but I suspect inventory to tighten a bit. That, plus mortgage rates coming down could help spur an end of summer boost to prices.

At the very least, savvy buyers will see an opportunity to get in now while they have more options, less competition and the possible bonus to refi into a lower rate relatively quickly.

Peaks and Valleys

30 Year Mortgage Rates

 

August kicked off with mortgages tickling some of the lowest rates we’ve seen in over a year, dropping briefly into the 6.3% range before taking a bounce back to around 6.5%.

These rates may not seem super exciting to most – we had 6.5% mortgages last year, big whoop – only this time is a little different. You see, last year the mortgage “spread” (difference between mortgage rates and the 10-year treasury yield) was over 3% - the highest levels since 2009.

Currently, the spread is around 2.5% and has been consistently falling all year. If the spread were still over 3%, mortgage rates would be around 7% now and would’ve been over 8% last month. If the spread were at the historical average – between 1.5% and 2% - mortgage rates would currently be around 5.5%.

Just one of the many, many factors that help determine mortgage rates, but the narrowing spread has been the most impactful this year by far.

For more info on this, Lance Lamber on X is a great follow.