The recent settlement reached in the National Association of Realtors (NAR) antitrust lawsuit is set to change how real estate agents are compensated. Scottsdale and Phoenix Metro real estate professionals, Karen & Kari Picarello with RE/MAX Fine Properties, shared their insights on the recent NAR settlement and how it will impact the real estate market.
Kari pointed out that you have probably seen a lot of headlines about changes to real estate commissions and prices. While there’s a lot of noise, there are three main things to know:
1. Real Estate Compensation is (and has always been) negotiable.
2. Buyer agent agreements: If you want an agent to show you a house, you’ll need to sign a contract with them, even if it’s just for one property or one day, with the exception of open houses and seeing the house from the listing agent directly.
3. Agent compensation: The way buyer agents are paid is changing. The traditional method of listing agent compensation on the MLS is going away. While sellers may still make offers of compensation to agents bringing in a buyer, they may not do so through the MLS.
The End of Buyer Agent Compensation?
Perhaps the most significant change is the way buyer agents are compensated: by the seller, or buyer. Previously, listing agents were required to offer a commission split to buyer agents who brought a successful offer. Karen points out, “The way we handle compensation is changing, which is a big deal.”
Traditionally the seller would pay out of the proceeds of the sale for both agents’ professional fees, and the listing agent would make the offering to all buyer agents through the MLS. Now, buyers and sellers will have a clearer picture of exactly how everyone is compensated.
With the new rules, sellers will have more control over whether they advertise any compensation to buyer agents. This could lead to several potential outcomes:
• Possible Reduced Seller Costs: Sellers may choose to offer lower commissions or no commission at all to buyer agents, potentially saving on overall transaction costs. The flip side to that is it would create higher closing costs for the buyer, who will still have to compensate the buyer’s agent. For example, a seller may get an offer from a buyer’s agent who requests credit from the seller to cover the buyer agent’s costs. Then the buyer agent’s fee may be negotiated.
• Increased Buyer Agent Fees: Some buyer agents may opt to charge buyers directly for their services, similar to other professional service providers. This may happen more with cash buyers. Buyer agent fees were always payable by the buyer, offset by any credit from the seller. Now a buyer may be submitting an offer not knowing what that credit is, or even if there is one. More often, however, we suspect sellers will want to remain competitive and have the expectation of providing concessions to cover most, if not all, of the fees.
• Possible Increased Seller Costs: If a buyer decides to purchase the house with no agent representation, which we never recommend, then the listing agent may have a negotiated additional fee to facilitate the sale with the unrepresented buyer.
• Hybrid Models: A combination of seller-paid and buyer-paid commissions could emerge, offering flexibility for both parties.
Ms. Picarello anticipates, “The new rules put a spotlight on the importance of good representation. Agents will need to be even more proactive in explaining the different compensation options and making sure clients understand their choices. Sellers, too, will have to be more aware of how those fees work for buyer agents. It’s about being extra clear and transparent so everyone’s on the same page.” Sellers in certain markets might want to be reminded that many buyers do not have a lot of cash on hand, as opposed to the seller who pays compensation out of the proceeds of the house when it sells.
Impact on Market Dynamics
The shift in compensation models is likely to influence market dynamics in several ways:
• Increased Competition: Buyer agents may face increased competition as sellers have more options for compensation. This is great for both buyers and sellers.
• Negotiation Skills Premium: Agents with strong negotiation and client relationship skills will be in high demand as they help clients navigate the new compensation landscape.
How will this affect the market? Ms. Picarello believes the focus will shift more to direct marketing. “I expect we’ll see more emphasis on direct marketing to reach buyers,” she said. “Think targeted online ads, maybe even some direct mailers.”
Impact on the value of homes
While some speculate that home prices might decrease due to reduced seller costs, Ms. Picarello offers a more nuanced perspective. “The value is determined by what a buyer is willing to pay. The basics of supply and demand, the location, condition, and the overall market can help predict that value. This settlement doesn’t change those fundamentals. I wouldn’t expect a big drop in value because of the lawsuit. Sellers aren’t going to just automatically lower their prices just because of how agents are compensated. Real estate is all about those market forces.”
Industry Adaptation
Real estate agents and brokerages are adapting to the new environment. “Now all real estate professionals will need written agreements with buyers before we show them a property,” Kari says. “It’s all about having a clear understanding from the get-go.”
Buyers, too, will have more decisions to make. “Some buyers might decide to represent themselves,” Ms. Picarello notes, “yet it’s often more beneficial to have an experienced agent on your side to get you through the turbulence that comes with the journey of home buying.”
The industry is also exploring new compensation models. “Some sellers might be more inclined to offer concessions directly to buyers,” Ms. Picarello suggests. “That could be a good thing for all parties.”
Key Takeaways
The full impact of the NAR settlement will unfold over time. While it presents challenges, it also offers opportunities for more transparency, more conversation around how buyer broker employment works as well as innovation and improved consumer choice.
As Ms. Picarello concludes, “This settlement is bringing change, and we’re all navigating it. We’re all working to make sure things are clear and that our clients understand their options. The core of our business remains the same: helping buyers and sellers achieve their real estate dreams. And I’m confident that we’ll continue to do that successfully.”
