Real estate agents’ compensation will now be genuinely negotiable instead of essentially being a standard commission, thanks to a settlement reached last week between the influential National Association of Realtors and a lawsuit.
Why it matters: In a world where business models are still mainly based on tradition, the deal may allow real competition in a tightly controlled market.
- It might reduce broker fees in real estate, much like the internet did for stock trading.
The result: Since sellers filed the lawsuit as a class action, that should result in lower expenses. The effect on purchasers is more intricate.
Currently, sellers pay a commission of between 5% and 6% of the sale price of their house.
- A commission split is customary between the buyer’s and seller’s agents.
- It indicates a conflict of interest because the buyer’s agent represents the seller.
(Agents, of course, dispute this statement, claiming that upholding their reputations depends on serving buyers well.)
By NAR guidelines, sellers must disclose the buyer agent commission on the Multiple Listing Service, the online platform where real estate brokers list properties for sale.
- A particular box exists just for this number.
- Buyers’ agents see the number; the buyers do not.
Putting an agent’s interest in a higher fee ahead of the buyer’s interest in finding a suitable house creates a risk of agents steering clients toward higher-fee deals.
If the court approves this settlement, that box disappears. Sellers were no longer able to guarantee buyers’ agents a commission.
- A box may seem like a little bureaucratic detail, but the ramifications could be enormous.
Crucial query: How will buyer agents be compensated? A few possibilities:
- The buyer’s one-time payment.
- The buyer agrees to pay the broker an hourly rate or a portion of the sale price. Perhaps they choose not to use a broker at all.
- The real estate sector highlights the chance that a seller could still pay the buyer agent’s commission. However, that would need to come up as a concession later in the deal-making process. Seller may provide a cash credit to cover maintenance or other costs during a transaction.
- Monitor the funds: Here, future home sellers stand to gain significantly. When they sell a house, they ought to get a portion of the sale price.
- TD Cowen mentions online and discount brokerages that offer lower commission rates as another potential winner.
- Real estate attorney Marty Green, based in Dallas, predicts that there will likely be a cottage industry of raw Realtors.
- Yes, yet: Things are unclear for first-time purchasers and those on a limited budget.
- They may have to pay for the real estate agent out of pocket, stealing money from their down payment and other expenses. They will no longer receive a real estate agent for free. And no one is certain if they can roll an agent’s fee into a mortgage. It might necessitate modifying regulations.
- Did buyers ever receive a free agent, though?
In summary, a significant number of agents anticipate a decline in commissions. According to Steve Brobeck, a senior officer of the Consumer Federation of America, it might be as low as 1% -1.5% per agent on each side.
What comes next: Although the significant changes will not happen, the settlement may take effect as early as July. “A truly competitive marketplace will take a long time to emerge,” states Brobeck, who has spent decades advocating for similar reforms.” “The industry will resist this.”