The recent $418 million settlement reached by the National Association of Realtors over alleged commission inflation has sparked discussions about the future of real estate agents. Andrew C. Spieler, a distinguished professor specializing in housing economics at Hofstra University, suggests that the decline of this profession has been in the making for some time.
Drawing parallels between real estate agents and travel agents, Spieler highlights how both professions were once considered “gatekeepers” of information. Realtors, like their counterparts in the travel industry, provided access to MLS listings that were otherwise unavailable to consumers. However, Spieler argues that technological advancements, particularly the internet, have reshaped this dynamic.
With the proliferation of online platforms such as Zillow and Realtor.com, homebuyers now have access to comprehensive property information and photographs at their fingertips. This accessibility has diminished the need for traditional real estate agents, as consumers can conduct much of their house hunting independently.
Spieler emphasizes that even before the recent settlement, questioning the necessity of real estate agents was inevitable. The internet has fundamentally altered the homebuying process, reducing buyers’ reliance on agents to facilitate property viewings and provide listing information.
In the pre-internet era, real estate agents played a vital role in connecting buyers with available inventory, often through MLS listings that only they had access to. However, technological advancements have rendered this intermediary role obsolete, empowering buyers with unprecedented access to property information.
As buyers become increasingly informed through online resources, Spieler raises important questions about the value proposition of traditional real estate agents. With much of the house hunting process now conducted independently by consumers, the role and relevance of real estate agents in the digital age are being called into question.
Let’s talk commissions
The recent National Association of Realtors (NAR) settlement, which involves a substantial sum of $418 million in damages across various antitrust lawsuits, has brought to the forefront concerns regarding real estate agent commissions. These lawsuits, including a significant $1.8 billion verdict from last year, alleged that NAR and other brokerages engaged in a conspiracy to inflate realtor commissions. Despite NAR’s denial of any wrongdoing, the settlement includes measures such as preventing broker compensation offers on MLS and mandating written representation contracts with buyers.
The issue of commission rates can be particularly contentious for buyers and sellers, especially in transactions involving high-priced properties. For instance, in a $2 million home sale, where the standard commission rate is around 4%, realtors involved in the transaction could collectively earn $80,000. While this amount is typically divided among the buyers’ agent, the sellers’ agent, and a broker, Spieler emphasizes that it represents a significant expense for what may sometimes amount to relatively minimal services.
Analysts estimate that Americans pay approximately $100 billion in real estate commissions annually, and the outcome of the NAR settlement could potentially reduce this figure by as much as 30%. Such a substantial decline in commission earnings has led some experts to speculate about the future of the real estate profession, with Spieler suggesting a significant “compression” or downsizing of the industry, which currently boasts about 1.5 million realtors in the U.S.
However, opinions vary among real estate experts regarding the long-term impact of the NAR settlement. Some, like Ken Johnson, believe that while there may be a temporary shake-up, the industry will likely find ways to adapt and continue operating much as it does today. Nevertheless, the settlement signals a potential shift towards lower commission earnings for real estate agents. With historically low inventory levels constraining business opportunities, Spieler predicts that some individuals may be squeezed out of the profession, leading to reduced profits and a subsequent compression in the number of agents in the industry.