How will the commission compensation changes affect the US mobility industry?

I am not worried about the savvy relocation-oriented brokers, relocation departments, and agents. They are working double time to strategize and train. Brokers are creating materials for the consumer and developing buyer’s representation agreements and presentations. They are a resilient lot, and the professionals will come through this just fine.

I am worried about relocation management companies (RMC) and corporate employers. Making policy changes can take a long time, and the depth of these changes effectively jeopardizes the industry's current revenue model. Policies and pricing will be forever changed in the new world.

Just to be clear, I don’t handle referrals, so none of this affects me directly. But it will affect every one of my clients and those I care so much about in our global mobility industry. I am not tethered to any company, so my opinions are my own, and that allows me to speak the things that some are unable or unwilling to say out loud.

Now is the time to focus on the needed changes.

RMCs should be working overtime to train and educate their people and corporate clients on the changes. Many RMC consultants are inexperienced and do not understand the real estate compensation structure, particularly the epic changes happening now on the buy side. RMCs should also engage with their real estate supplier partners and their corporate clients together to have an open dialogue about the path forward. The Relocation Directors Council is a great resource for guidance. This is no time to keep the brokers at arm’s length from the corporate clients. The budgeting and cost of relocating talent and the process have to be completely reimagined.

We have to protect the transferee experience.

The harsh reality is that if a buyer referral comes through with no commission compensation, then no referral fee can be paid to the RMC. 40% of 0 is 0. Everyone wants the best agents to help their transferees. If the employers don’t accept that the agents who assist their buyers need some compensation guarantee, then they may end up with unhappy transferees and subpar agents.

Imagine the experience of the transferee who has no knowledge of the new location, who has to call listing agents to schedule their own showing and then has no representation or anyone to guide through the inspection issues, the timelines laid out in the contract, or to explain the closing documents in advance of closing. This will be especially challenging for a first-time homebuyer. Will the RMC take on that responsibility, or will it be the corporation?  What about transferees who lose their home of choice because they don’t know the next steps, and someone steps in and buys ‘their’ home from under them?

I heard a story the other day about a transferee on a house-hunting trip who found a house they loved. But the property seller was not offering the buyer’s agent compensation. The relocation policy wouldn’t cover the transferee’s commission, and the corporation wouldn’t make an exception to the policy. The transferee wasn’t going to come out of pocket for a corporate move they were making on behalf of their employer. Now, they must have a second house-hunting trip, costing time and money, and I suspect quite a bit of aggravation. 

It’s no fun to talk about money. But we have to.

This is not the time to hope that your buying transferee will happen to select a home that has a commission paid to the buyer’s agent by the seller. We do not know how many sellers will continue covering the entire commission amount, and if they do, then the corporation or RMC will lose nothing because the seller will pay it. If payment is not established up front, this could mean that commissions are negotiated during the escrow period and could actually blow up the transaction. To sit back and do nothing only creates frustration and exceptions to the policy at the last minute.

The first question every Relocation Coordinator facilitating incoming corporate referrals must ask the RMC is, “What is the compensation for our agent/company?”. While no one wants to focus so heavily on how everyone gets paid, we owe it to everyone involved to know what we are dealing with upfront. Striking the amount of compensation from the buyer agreements does not work because agents are not inclined to risk working for zero income. The terms need to be transparently established upfront.

If an agent does not get a compensation guarantee of some sort from the buying transferee or their employer, or they are unsuccessful in negotiating a commission from the seller, or compensation is not offered on the property the transferee is interested in, then no one gets paid. Plans must be in place so the transferee and agent know what to expect, the RMC can collect their referral fee and the corporation knows how to budget moves.

Currently, when we receive a corporate listing referral, the commission to be offered is clearly outlined in the referral information because the corporation is paying for it; no negotiation is needed. It should not be up to the assigned real estate agent or the relocation division counselor to attempt to get clarity on the buyer commission situation. It should be clearly outlined in the referral paperwork. Either ‘yes’ the benefits package covers the buyer commission or ‘no’ it does not. If it is not, how does the RMC expect to collect their referral fee, and how does the broker pay the agent? Or, how does the broker even get an agent to accept a referral with no established compensation?

Some possible unintended consequences:

• Even though the ruling's changes don’t go into effect until July, many sellers are jumping to ‘save’ themselves some money. I suspect we will see the length of time to sell corporate listings go up as buyers pass over them because they cannot afford to cover the commission for their agent if the listing side does not offer it. And if the lump sum folks choose to list it themselves, that presents a different challenge. According to NAR, only 7% of homes sold ‘For Sale by Owner’ in 2023 due to the complexity of the transaction and the need for widespread marketing necessary to promote the property to the largest pool of buyers. Now is not the time for sellers to wing it.

• If transferring buyers don’t have commission covered in their benefits package, expect some good candidates to pass on a move.

• Expect policy exception requests to cover commissions to go through the roof, challenging global mobility budgets.

• If transferring buyers get their buying commission covered through a reimbursement, expect them to be unhappy about the tax implication they must bear unless it is grossed up.

• Corporations and their RMCs need to lean heavily on their mortgage partners to effect the changes necessary to restructure the buyer's ability to finance their commission if the corporation is not covering it. First-time and low-income buyers who can often barely scrape enough together for a down payment will suffer the most if programs aren’t changed.

• Expect relocating veterans to suffer if the VA continues not to allow those getting a VA loan to pay their own commission.

• You can count on good agents who work with buyers to leave the business or move to the listing team due to the unknown of how they will get paid.

• RMCs will be unable to budget based on expected broker referral fees. If buyers are left to pay their own commission, they may take the cut-rate approach and go with low-cost, flat-fee brokers. The less commission paid, the less the referral fee to the RMC. And raising the referral fees to the broker is not the answer. Brokers are already restricted from offering ancillary services to transferees that help fund the brokerage.

• Expect lost productivity from the buying transferee if they must represent themselves or if they use the listing agent of the property they are interested in to facilitate the transaction. That agent will basically be a transaction coordinator and not fully represent the buyer in states where dual agency is not allowed. There should also be liability concerns.

• We will likely see more dissatisfaction across the board if transferees have to compare brokers' services and determine how to assign a dollar value to those services.  

• RMCs must not pressure brokers to violate the terms of this ruling. I have heard of some RMCSs telling brokers to scratch out the requirements for buyer representation agreements. Starting in July, brokers must sign buyer representation agreements before showing a house…no exceptions.  Some states have already adopted the recommended practices.

• While navigating the US real estate market for inpatriates is already challenging, it will be more important than ever to be guided by trusted and experienced professionals who understand the market dynamics.

• Hopefully, this will end the ‘requested agent’ situation we often face. We have indulged transferees by letting them choose to work with inexperienced and untrained agents in the relocation process. Now is not the time to use agents who are not highly trained in the nuances of ensuring the transferee gets their transaction done and everyone gets paid fairly for their contributions.

• This will likely cause consolidation, sale, or dissolution of some real estate companies and also relocation management companies. Commission compression and the financial burden of the lawsuits will affect every stakeholder serving this business.

I am sure I have missed some scenarios. Trends may take a year or more to emerge, varying area by area. But we don’t need to wait for the trends to emerge. We need to establish our own industry trends for mobility. I am not trying to be alarmist; I am a realist. We are all vested in creating a path forward that transparently protects and guides every stakeholder.

It all comes down to each corporation examining the makeup of its transferee population and budgeting accordingly. How important are the relocating buyers to the overall health of its program? I will guess that the buyers are as valuable as the sellers (and are often the same people), so why would it not offer similar benefit packages to ensure they get the services they deserve throughout their move?  Let me know how I can help sort through the noise.

Read this link for a detailed FAQ about the NAR commission compensation settlement.  nar-settlement-faq-2024-04-04.pdf