Are home prices about to fall?
That’s the question many of us are asking after the National Association of Realtors, the trade group representing the industry, agreed to cough up $418 million as part of an antitrust lawsuit alleging that the group had artificially inflated realtor commissions that home sellers pay — which, in turn, helped inflate home prices.
Until now, home sellers paid about 6 percent of the sale price toward a fee that would be split between their own agent and the buyer’s agent. Experts are divided on exactly how much impact this will have on home buyers, who will now likely have to start paying their agents themselves. The median sale price of homes as of late 2023 was about $417,700 — 6 percent of that amounts to a little over $25,000.
As Business Insider’s James Rodriguez noted, lower fees don’t automatically mean homes will be cheaper. In certain cases, it’s possible that sellers might list their home for the same price they would have before the settlement, and pocket more of the sale. But lower commission fees can also encourage more homeowners to list their property on the market, which could lower house prices overall.
The fact is, this real estate settlement is still too new for anyone to know for sure what the ripple effects will be. But one potential winner is tech companies in the real estate space, such as Zillow and Redfin, which have made it more feasible for people to start the home-buying process on their own instead of with a real estate agent. Vox spoke to Sonia Gilbukh, a real estate professor at City University of New York, Baruch College, to explore some of the possible outcomes.
The following conversation has been edited for length and clarity.
What was the problem with the old way realtor commissions worked? And how does this settlement change that?
It used to be that when a seller hired their agent to list a property for sale, they were paying the full commission for the transaction, which was approximately 6 percent — sometimes 5 and a half. The selling agent would then offer about half of that commission to the buyer’s side. Then the buyer’s agent will bring their clients to show all the properties, and if they end up buying the house, [the buyer’s agent] would be entitled to that commission that the seller agent was advertising for the property.
There were several rules that were part of the NAR settlement. Can you explain the new rule that sellers can’t advertise buyer agents’ commissions on the multiple listing service, or MLS, the portal that many realtors subscribe to in order to share and receive information about for-sale homes?
Yes, so the settlement is that they can no longer say, “I’m going to offer the buyer agent 3 percent,” for example, or 2.5 percent. So now, what happens is that the buyer’s agent basically would have no way to know whether they’re going to be paid for the work that they do. So something will have to change. Most likely, the buyer agents will have to directly negotiate with the buyer on the commission that they’re going to receive on a transaction.
Is it still possible that the seller’s agent would pay the buyer agent’s fee?
I think if they really wanted to, they could still post it on their website — there are ways to communicate that. But I think it would be harder to sell that as an industry standard, to the seller. Because the way it worked before is that the selling agent would say, “If you want to sell your house, we have to offer the buyer agent 3 percent, the industry standard. If we don’t, then the buyer agents are not going to show your house to their clients and you’re not going to be able to sell.” Now I feel like it would be harder to make that argument.
I’m guessing that new ways of compensating buyer agents will emerge — maybe some flat fee services, or they’ll negotiate to get paid a percentage of the deal but out of the buyer’s pocket. I don’t think they’re going to be able to keep the status quo.
I’ve been seeing in various reports that the old system, of the seller paying both agents, incentivized a practice called “steering.” Can you explain what that is, and is it really common?
Steering is a practice where the buying agent will not show, or discourage their buyers from properties that offer lower commissions.
Maisy Wong, Panle Jia Barwick, and Parag Pathak have a paper called Conflicts of Interest and Steering in Residential Brokerage, and they show that when buyer agents are offered less than the industry standard, the homes have more trouble selling. That’s basically their conclusion, that the buyer agents are steering their clients away from homes that offer lower commissions to them. I think there’s some potentially alternative explanations — if you offer less commission than the standard, maybe you’re particularly hard to deal with, difficult to negotiate with. But we certainly do see that in the data, that if you’re offering less than the standard, you were potentially jeopardizing your sale outcomes.
The plaintiffs for this lawsuit were home sellers. Beyond lower fees, what does this mean for sellers? Are there other benefits for them?
Well, we don’t know what’s going to happen, but let’s say that they’re no longer responsible for the buyer commission, then the sellers are going to be paying a 3 percent transaction cost. Now, of course, most people who sell their house also then buy a different house — so they’re still going to be paying the buyer commission on the new house that they buy.
I think what’s going to come out of this decoupling of the commission — that the buyer is going to pay for their agent, the seller’s going to pay for their agent — is that the commissions are going to become more negotiable.
And what will happen for buyers? Will some of them forgo hiring a realtor at all? Will the process of searching for a home look different?
I was talking to my mother-in-law, who is a real estate agent, and she actually owned a brokerage before. She was telling me that she views buyers to be in one of two categories: Either you’re a first-time buyer, or you’re somebody who’s selling their house and also buying something else. Those who are selling and then buying, they probably have a relationship with their agents, they probably want their agents to help them buy. So it could be a similar scenario of the status quo for them, with the possibility of maybe shaving a little bit more off the commission.
For new buyers, I think the option of paying a flat fee is going to be more attractive, because it’s going to be cheaper for them to pay a flat fee of, say, $2,000 for you to help me navigate the paperwork or something like that.
Will this mean that home prices fall?
I think eventually, if the transaction costs are going to fall, because the commissions are going to become cheaper and more negotiable. That will put a downward pressure on houses — I also think that will bring more people to sell their homes, because the transaction fee falls, people are going to be more likely to move.
I see. But you said “eventually,” so it’s not necessarily something we might see right away.
Yeah, I think it’s hard to know what’s going to happen — how buyer agents are going to be compensated, and [if] we still have buyer agents at all. We’re in this period of murky transition. For now, it’s pretty easy to sell because there’s just not a lot of inventory. But there’s not a lot of transactions actually happening.
I’m curious why we used this structure in the first place. Why have sellers typically paid both selling and buying agents?
It became the industry standard [in a period when] we had no information out there. We didn’t have Zillow. So buyer agents had a monopoly on information; if I’m not compensated as a buyer agent, or if my compensation is uncertain, then I’m going to only show [clients] the listings where I’m also the seller agent. When the commission structure changed, it improved the cooperation between agents, so they ended up showing their clients listings from other agencies. So that was actually really good.
But of course, now we have Zillow. And the potential for [buyer agents] to steer their clients only to their listings is very limited right now. There’s sort of no need for this system anymore.
Since commissions have historically been paid as a percentage of the sale, did that incentivize agents to show more expensive listings?
For the selling side, they have the incentive to sell at the highest price, essentially. But when you talk to agents, their main objective is to have the transaction happen in the first place. If they put the price too high, they risk the transaction not happening at all, then it’s not really a good trade-off. There’s also this thinking that the big houses sort of subsidize the salaries of the agents, who then also work with cheaper homes.
Some experts seem to think that this settlement will mean some real estate agents exit the industry. Do you think that’s likely? And if there are fewer realtors, is that good or bad for home buyers?
I think that’s very likely. I think most new people who come into the profession start out as buying agents, so if their compensation is going to fall, it’s not going to be worth it for them to enter anymore.
I do think it’s a good thing overall. I actually have a paper, with my co-author Paul Goldsmith-Pinkham, about the experience of real estate agents, and we find that over a quarter of all agents in the market have no experience at all. I think those are the people most likely to exit. As a result, we’re going to have more experienced real estate intermediaries, and more competitive pricing. So I do think it’s overall a good thing for consumers.
What’s the housing market like right now? Is it a seller’s market or a buyer’s market?
I think it’s still a seller’s market, but it’s sort of artificial, because we still have pretty low inventory. So yes, houses are selling quickly, but mostly because there aren’t a lot of homes for sale. Once we’re past this lock-in period — right now, most of the homes have been sold on really low mortgage rates, so it’s hard for sellers to sell and buy something new, because mortgage rates are so much higher. But eventually people will start moving, and eventually they’ll be paying off their loans. So maybe eventually the [mortgage] rates will also drop.
What else is possible in terms of reform and change in the real estate industry?
They could just straight-up outlaw sellers paying buyer commissions — but the current settlement essentially all but does that.
Are there reasons other than the long-term possibility of lower home prices for sellers and buyers to get excited about this settlement? Just how important is it?
I think it’s important. I think there’s going to be more experienced agents out there to represent buyers and sellers. I think the prices are going to drop — a little or a lot, we don’t know yet — but I think they’ll have to adjust. I think there’s going to be more people willing to move homes because the transaction cost of doing that is going to be lower.
The point you make about more homes just being on the market — that seems huge, because as you said before, one of the biggest roadblocks we’re facing is low inventory.
Yes, yeah.
I do want to say that, even though I’ve done extensive research on inexperienced agents, I do think that experienced professionals are really valuable. People should seek help, because [buying a property] is the most important transaction in their lives, probably.
