Real estate agents across the country have been thrown into confusion by the National Association of Realtors’ settlement of a series of lawsuits over commissions.
While plaintiffs and consumer advocates hailed Friday’s settlement as a big win that could lower the costs of buying a home, agents are expressing fear and frustration. They’re worried about their futures and warn that home buyers could wind up getting hurt, deprived of valuable advice.
“The knee-jerk reaction is concern,” says Dana Bull, a Boston-area real estate agent. “For real estate agents, their livelihood feels threatened.”
Home sellers traditionally pay broker commissions to their listing agent as well as the buyer’s agent, which then get split 50-50 by both agencies. Commissions are negotiable and can start as low as 2% or 3%, but they often range between 5% and 6%.
The lawsuits claimed that these practices helped inflate commissions. While the NAR denied wrongdoing, it instituted several changes for its over one million members. Sellers can no longer advertise the amount they’re willing to pay a broker’s agent through NARs’ regional databases; and buyers now need to sign agreements with their agents directly, and negotiate that fee upfront.
Many advocates have said the changes may lower broker commissions. Anthony Lamacchia, a Massachusetts-based Realtor who has spoken publicly in defense of NAR, doesn’t think they will. Having to negotiate commissions may push many agents out of the business, particularly part-time agents or those that fail to keep up with the skills required by a more competitive ecosystem — and the stronger agents are likely to keep their fees about the same, he adds.
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But that could be a silver lining, some agents say, for both consumers and agents. By negotiating commissions directly with buyers, agents and firms will have to become better at differentiating themselves from others to succeed in the business, says Michael Downer, a Realtor with Coldwell Banker Realty based in Naples, Florida.
“This is the best thing that’s ever happened to professional real estate agents,” Downer added.
The settlement comes as real estate brokers are facing a challenging market after the 2020 boom. In 2023, there were fewer than three homes sold per NAR member, the lowest per capita since at least 1981.
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Some agents fret that the changes from the settlement could have unintended negative consequences on buyers, especially those that are more cash-strapped. Those buyers may opt for low-service discount brokers, or forgo representation altogether if they are forced to pay their broker fee out of pocket.
“It’s really scary, and I think it’s hurtful because I feel like I provide a valuable service to clients,” says Chandra Ashford, a Portland, Oregon, real estate broker.
Ashford works primarily on the buyer side of the equation. Most of her clients are first-time home buyers who she’s helped guide through the process of closing on a house. Her firm, the Portland House Hunters, recently started brokering direct agreements with buyers, to varying degrees of success. Many potential clients have said they don’t want to be on the hook for the fee, she added.
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Without representation of their own, buyers may be forced to rely on the seller’s broker alone, which could end up hurting both buyers and sellers, says Valerie Falkner, a Phoenix, Arizona, based Realtor.
“The seller is getting less representation, the buyer is getting some representation, but now we’re sort of working for both sides,” Faulkner says. That makes it hard for either side to drive a fair negotiation, she added.
Perhaps the overwhelming sensation for agents in the wake of the decision is a sense of uncertainty as many questions remain unanswered. These include macro-level questions, such as whether this decision will actually help lower home prices, as well as industry-specific queries, such as whether it will fuel the rise of new real estate models.
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“I think it’s going to get sloppy,” Bull, the Boston-based agent, says. “It is going to create confusion, at least for the next couple of market cycles as people figure it out.”
Corrections & Amplifications
Anthony Lamacchia doesn’t believe the changes will drive commissions lower. A previous version of this article incorrectly stated he did.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
