The recent settlement reached by the National Association of Realtors (NAR) has sent shockwaves through the real estate industry, prompting over a million professionals across America to reassess their careers. This legal resolution addressed claims of collusion within the industry to maintain artificially high commissions, potentially reshaping the compensation landscape for agents involved in home sales. From suburban areas in Maryland to urban centers like Minneapolis, realtors are grappling with the abrupt upheaval of a model that has governed home buying and selling for the past three decades. Uncertainty looms as they endeavor to understand the full impact of the ruling on their livelihoods.
Among real estate professionals, three main responses have emerged in the wake of the settlement: some deny that the business will undergo significant changes, others are embracing new payment structures in hopes of maintaining profitability, while a third group is contemplating a transition to entirely different career paths. Franklyn Salas, a part-time real estate agent in Washington, D.C., who earned $50,000 in commissions last year, mainly from buyers, is considering alternative avenues to supplement his income. Faced with the prospect of reduced commissions and increased challenges in representing home buyers, Salas is contemplating shifting his focus to renovations, development, and house flipping.
The impending changes set forth by the NAR agreement, slated to take effect this summer, are anticipated to impact agents representing home buyers disproportionately. This group may experience reductions in commissions and a potential decline in demand for their services. Stephen Brobeck, Senior Fellow at the Consumer Federation of America, suggests that new payment models could emerge, such as flat-fee structures where buyers’ agents charge based on hours worked or specific services rendered.
Anthony Lamacchia, who oversees a network of over 500 real estate agents across the Northeast and South Florida, is actively guiding his team through the evolving landscape. He recently convened a discussion with agents to navigate the changes, emphasizing the importance of negotiating commission splits between listing agents and buyers’ agents in light of the settlement.
“They were definitely spooked from all of this,” he said.
Finding Workarounds
There are nearly 1.5 million members of the National of Realtors, up from fewer than one million in 2012 in the aftermath of the financial crisis. Many of these agents piled into the market during the pandemic as home sales heated up while other industries shed workers.
Most found the market to be tough, with more Realtors than homes for sale in the U.S. by early 2021. Then interest rates started to rise and put a chill on home sales, which made earning a living even harder.
Broker Gigi Luu is currently writing a memo to her 21 agents who work in Virginia, Maryland, and Washington, D.C.: “When clients ask you about the changes let them know there are lots of unknowns,” the draft memo reads. “Only agents that can show their true value will prevail in our industry.”
For decades, buyers didn’t typically pay agents out of their own pockets. The buyer’s agent commission has been paid by the seller and is baked into the house price.
Going forward, buyers might have to foot the bill up front if they want an agent to represent them. Dan Metcalf, an associate broker in Takoma Park, Md., said some sellers’ agents might find workarounds to continue to pay buyers’ agents as they did before. For instance, the commission splits could be advertised on an agency’s own website or Facebook page instead of the multiple listing service, a database used by Realtors, which is prohibited by the settlement.
Another potential outcome, he said, is that buyers’ agents might provide a fee-for-service model: “It costs this much to write an offer, this much for a home inspection.”
Pressure on Home Sellers
Despite the potential fallout, some Realtors don’t expect all that much to change.
Pauline Donnelly, owner of real-estate firm Donnelly + Co. in Boston and Martha’s Vineyard, said she thinks most sellers will opt to continue paying the commission for the buyer’s agent. That’s because sellers recognize that agents for buyers can help with their home sale, and dealing with buyers that aren’t represented can be difficult when they aren’t experienced in real-estate transactions, she added.
“It’s unlikely that we are going to go to our buyers and ask them to pay our fees,” said Donnelly, who manages 35 agents in Boston and Martha’s Vineyard. “Many of them won’t be able to afford to.”
In a competitive sale, some buyers might opt to cover their agent’s commission to get ahead of other prospective buyers, Donnelly said, adding, “It’s going to be a rare buyer that does that.”
David Schlichter, who leads a team of four agents in Denver for real-estate firm Compass, expects sellers to keep paying the commission for buyers agents, at least short term. That’s because home sellers realize that working with buyers agents will increase the pool of potential buyers and offers.
“Not offering the commission can actually work against them,” Schlichter said.
Courtney James, the owner of Urban Durham Realty in North Carolina with 27 agents, said she is still trying to figure out what the settlement will mean for her firm.
It is unclear if sales prices for homes will decrease if sellers refuse to pay the commission for buyers agents, she said. And if buyers have to pay a commission for their agents, they might need to pay cash, boxing a lot of people out of the market, she added.
“Agents can’t work for free,” she said.