The changes come following a $418 million settlement that could change the way homes are bought and sold, and even end up leading to lower home prices, according to local Realtors.
A quick note
According to NAR, a Realtor is a trademarked term that describes a dues-paying member of the association and must abide by the association’s code of ethics. While all Realtors are real estate agents, not all real estate agents are Realtors.
Breaking it down
Real estate agents are paid based off of commissions for helping people both buy and sell homes. April Womack, who has been an Austin-area Realtor for 18 years, said the settlement will bring new rules to how buyer agent and seller agent commissions work. Commissions have typically been built into the price of the home listing on the MLS—6% is considered industry standard, although NAR maintains this number has always been negotiable. Commissions are split between the buyer and seller agents and paid for by the seller.
The changes outlined by NAR include:
- Listing agents or sellers will no longer be able to post compensation offers to buyer brokers on the MLS.
- MLS participants cannot filter out or restrict MLS listings to clients based on the level of compensation offered to the broker.
- Compensation disclosure to sellers or prospective sellers or buyers will be required.
- MLS participants will be required to enter into a written agreement with a buyer prior to touring a home.
According to May 7 data pulled from the MLS by Ross, in the last 90 days, over 2,700 residential properties closed in the city of Austin. Of those, over 2,500 of them offered a buyer’s broker commission of 3% or more. In comparison, 171 properties offered a buyer broker's commission under 3%. The average commission offered was 2.958%.
Ross clarified that actual paid commissions are not specifically recorded on the MLS, and commissions paid at closing are usually private.
In their own words
In a March 21 news release, Austin Board of Realtors CEO Emily Chenevert said reports stating the settlement eliminates the use of standard commissions are inaccurate, and she reiterated that the litigation only centers around prohibiting the inclusion of broker compensation offers on the MLS.
“NAR and the Austin Board of Realtors do not set commissions for real estate brokers or their agents,” Chenevert said. “Commissions related to both the buying and selling of real estate are negotiable."
NAR officials also stated in a release that commission offers can still be negotiated outside the MLS, and that doing so helps increase fair housing opportunities and the potential buyer pool for sellers.
Major takeaways
Ross and Womack both said the changes will ultimately be hardest on the buyer side, specifically first-time homebuyers.
“No one’s going to want to work for free," Womack said. "We're going to have to find out where we go to figure out what percent, if any, that the seller is offering, and if the seller isn’t offering it, ... the buyer would then have to come out of pocket for that [commission], and they're barely scraping enough money for their down payment. So, how are they going to come out of pocket for another 1[%] or 2%?”
Still, Ross said with market shifts and new technology, it’s a “good thing that there is change coming.” While sale prices likely won’t be affected much in the beginning, Ross expects that by the end of next summer Realtors will have a better grasp on the settlement’s long-term effects on the real estate industry.
“I think that as this progresses, and as the changes take effect and as our customers ... begin to adapt to the changes that the sale prices will come down, especially if buyer agents just say, ‘Well, someone's going to pay me 3%, and if the seller isn't going to do it, then it's going to be the buyer,’” Ross said. “Adding 3% to a buyer, in a lot of cases, is going to be a big deal for them, and there's no way they're going to be able to afford the home if the sales price doesn't go down by 3%, too.”
The other side
Despite the changes, Womack said buyer agents are still important.
“What if [buyers] overpay for a home—there's no one there to protect them and tell them that they're overpaying for it,” Womack said. “If you don't have someone making sure that you're buying right, you're never going to be able to sell right because you don't buy right. You need that protection, and there's so much more that goes into it like property taxes and helping them get their loan and their inspections and the appraisal. It’s a huge web of things that happen.”
Offering input
When it comes to negotiating commissions, Womack recommended that buyers go for an agent who has experience and knowledge of the area, and who can “think out of the box” when it comes to packaging the commission and other buyer fees they’ll have to pay.
