Everywhere you turn there are headlines about the Realtor commission lawsuit settlement. Just about every news story gets it wrong or does not understand the facts.
I know you’re never going to read the details of the settlement, so let me explain what changes, what doesn’t change, who wins and loses by this settlement and some predictions. If you’re still reading to the end, I’ll cover more details for those interested.
What Changes
Buyers will have to sign a buyer’s broker agreement before looking at property. The exception might be open houses. It is unclear if buyer agents will have to sign an agreement to see one home through the listing agent. We suspect they will when the new rules come out.
Sellers can still offer buyer agents compensation, and most probably will. However, agents will no longer be able to communicate this offer through the MLS. All fields that show how much seller is offering buyer agent compensation will be stripped away. Agents and MLS’s cannot set up 3rd party sites to do this either. The exception is agents can post this information on their own websites, signs, newsletters, advertisements, etc. For a lawsuit that said it wanted to add transparency, it sure took away transparency and made it harder for buyers.
What Doesn’t Change
Realtor commissions were never set by the National Association of Realtors. This Realtor commission lawsuit settlement does nothing to change that. Commission rates were always determined by the value brought to the table by the agent, along with supply and demand. Supply and demand are the culmination of the number of transactions available in the market divided into the number of agents licensed and available to do the work.
Sellers can still offer buyer agent compensation. The only thing that changes is it cannot be listed publicly in the MLS. The settlement says the offer can still be made many other ways, and it is not prohibited.
Who Wins
Large agent teams and experienced agents. The Realtor commission lawsuit settlement mandates that buyers sign a buyer brokerage agreement before an agent can show them property. This agreement spells out how much the buyer will compensate the buyer agent on the transaction. Many agents use a buyer broker agreement, but it was never mandatory nationwide. Sellers do not have to offer buyer agent compensation. Some buyers may try to save some money and go directly to listing agents. Agents that do not carry listings, or who are not great at spelling out their value proposition will have a hard time converting buyers to work with them.
When less experienced agents get out of the business, more experienced agents will pick up market share.
Who Loses
Buyers, less experienced agents, single agents, the portals, and sellers who hire the least expensive agent they can find.
If compensation is written into the contract, the seller can still pay it. If a seller is not paying buyer agent compensation, a buyer can request the seller to pay some of buyer’s closing costs, and the commission is a closing cost to the buyer. However, with some loans there are limits to how much a seller can contribute, and if the buyer also needs other closing costs built in, it may go over the loan’s limits. Lastly, FHA and VA currently prohibit buyers from paying commission, so seller would have to pay it outright and not in the form of buyer closing costs, or the buyer cannot purchase the home.
Buyers will be blind when looking at listings online as to whether the seller is offering their buyer agent compensation. The Realtor commission lawsuit settlement will create extra work, delays, and added anxiety for buyers. Some buyers may not buy altogether.
Some Sellers Will Lose Too
Sellers may lose because they might try to save a buyer agent commission by not offering one. The seller may receive fewer showings because buyers may say I’m not even interested because they cannot afford to pay the down payment, bank closing costs, title fees, and buyer agent commission, so they move on to sellers who will. Sellers may see increased time on the market and a decrease in showings. Later they may decide to offer buyer agent compensation, but they will have wasted valuable time on the market.
Single agents will lose. Many agents pay real estate portals like Zillow and Realtor.com for buyer leads. These portals were kind of sneaky because they would place a contact agent on the listing display, but it wasn’t the listing agent. Buyers thought they were contacting the listing agent. In reality they were contacting agents who advertised on the portal. Buyers who are reluctant to pay a separate buyer agent will not want to deal with a buyer agent advertising on the portal. Those buyers will want to go directly to the listing agent, or with their own buyer agent they’ve hired.
Smaller agents will have to find another way to attract business. Additionally, less experienced agents tend to have a harder time explaining their value proposition, perhaps because they don’t really have one. Forcing the buyers to sign buyer brokerage agreements before they see property may not go so well for less experienced agents. This is why many are predicting many agents will get out of the business quickly.
7 Predictions
- Short Term– Many agents will leave the business or try to extend their career until the end of the year because their board and MLS fees are paid up. They may offer services they cannot perform because they don’t have the money, or offer reduced fees just to scrape by. By reducing their fee, they will be forced to offer less, and risk their client being dissatisfied with their service. They may extend their career by 6 months, but in the end not much will change and there will be a ton of buyer and seller listings expiring at the end of the year.
- Listing Agents may get busier as more buyers contact them directly. Agents will have to build in a fee to cover this extra load, because they may end up doing both sides of the deal which takes time. People do not realize how much time buyer agents spend with buyers, but listing agents do and they’re going to charge for this. For example, let’s say a listing agent has 20 listings. If each listing receives 20 showings before it goes under contract, that is 400 showings. A listing agent cannot be at 400 places at once, negotiate contracts, go on listing appointments, create the advertising, and all the things that go into selling a home. Listing agents will have to hire buyer agents or showing assistants to do this. These agents will need to be compensated, or they won’t do it, so the buyer compensation side never really goes away. The older system really was more transparent and efficient than the new system, nonetheless here we are.
- Buyers Hurt The Most-Buyers will be hurt the worst and may be forced to go directly to the listing agents because they cannot afford a fee. They will not save on the house, and they may have to wait to see the home if the single agent has no help. Meanwhile, the home could sell while they are waiting for a showing.
- Sellers– will require agents to spend more advertising their home. The portals won’t attract buyers like they used to, so sellers will seek out agents who advertise. Listing agents will be forced to spend more money, because if they don’t, sellers will be unhappy and fire them when their listing expires. Sellers will ask more questions about qualifications and experience and want to see how their home will be marketed. Simply listing it on Zillow and realtor.com won’t cut it anymore.Some sellers will try it the hard way. They’ll try to hire a listing agent for as inexpensive as they can without knowing what all these changes are going to bring. Many will fail miserably and not get the results they were trying to save. These sellers will go back to step one and interview agents asking the questions mentioned above, this time through the lens of personal experience.
- Agents-Some will leave. Others will join a team who can afford to advertise and create leads. The buyer side of the business isn’t going away, but who the buyer calls might change. Agents will have some choices to make soon.
- Portals-The portals will change business models, or go out of business, or both. Zillow lost $158 million in 2023. If they cannot make money before the settlement, how are they going to do so afterwards when many agents leave the business and stop advertising, unless they change their model? There will be less real estate agents in the business to advertise with the portals. Secondly, why would agents pay Zillow, Realtor.com, and others to advertise for buyers when they struggle to convert them to actual closings? Remember, buyers are going to be hurt the worst by this agreement. The agents who advertise for buyers on the portals tend to be agents looking for buyer business they can convert. This blows up the whole portal model that basically just got between agents and consumers in the first place. Portals took agent listing data, displayed it on Internet, and charged other agents for privilege of advertising to get business off those listings.Look for real estate portals to pivot to attract sellers and sell those leads to listing agents for referral fees, monthly spend, or both
- Commissions-Rates were never set before the Realtor commission lawsuit settlement, and they won’t be now. This agreement does nothing to bring rates down. In fact, commission rates could increase when there are less agents in the business. Remember, rates are determined by agent count and the number of available transactions to work on. If you decrease agent count, there is more work and less competition. Buyers and sellers will be better off working with better agents, but the rates may not change much. The market will determine commission rates.
Media Headlines
We’ve seen headlines that say home prices will come down, or gone are the days of the 6% commission. First off, there never was a standard commission. We’ve seen rates go up and down based upon market conditions, agent count, locations, etc. Why do you think builders raise and lower agent commission when they are selling builder product? They do so to move product, and it’s based upon market conditions. The resale market is no different, and that’s not because someone up top is setting commission rates. The market dictates that.
As to home prices, if the seller saved some commission by not paying a buyer agent commission, what’s the chance they would pass that along to the buyer? If the seller can get it, they will keep it. The media makes all kinds of sensational headlines because they are there to sell stories. The media doesn’t care whether the headline comes true or not, they just need stories that sell. Most reporters don’t understand the market dynamics, so how could they offer a credible prediction?
Conclusion
I think the previous system worked efficiently. The new system takes away transparency and hurts buyers. It will also hurt some sellers who do not understand the changes and what the implications mean. Some agents will do better, and some will do worse.
Who you hire matters more today than ever! We can foresee sellers and buyers listing with an agent and wondering why they’re not hearing from them, only to find out the agent they hired is no longer in the business, or they’re hanging on but overloaded, underfunded, and have no idea what to do next.
If you have questions about selling your property, talk to the Real Estate Experts, Brett and Sande Ellis 239-310-6500. We advertise more than other agents, and we’ve run a team for over 30 years, so we know what it takes to get your home sold in this new environment. Don’t risk your home sale to an inexperienced agent who doesn’t understand the Realtor commission lawsuit settlement or doesn’t have the resources to market and show your home.
Introducing our newsest tool, the Equity Analysis You’ll be able to check your home value and track your loan balance. This tool will also offer some insights on what you can do with that equity, and when might be a good time to refinance in the future.
Good luck, and Happy Selling!
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