Local Realtors React to Changes in Real Estate Business

Last month, the National Association of Realtors (NAR) settled a lawsuit over the way brokers charge commission. The settlement could lead to some changes in the real estate business.

A group of home sellers filed the lawsuit alleging that NAR unfairly propped-up agent commissions through rules governing the NAR’s multiple listing service (MLS). The MLS rules required brokers advertising property for sale on MLS to specify upfront the compensation offered to buyers’ agents. Under the settlement announced on March 15, compensation for buyers’ agents will now have to be negotiated independently of the MLS platform. The rule changes are expected to go into effect in mid-July, pending approval by the judge overseeing the case.

Currently, agents representing the buyer and seller typically split a commission of five to six percent to be paid by the seller. This has become a standard practice within the industry. While commission rates have always been negotiable, many observers expect the settlement will result in lower commissions and savings for buyers and sellers.

“We think that these changes enacted in the settlement, if it goes through, are going to stand to reshape the housing market in the greatest fashion we’ve seen in over 50 years,” said analyst Ryan Tomasello in an interview on Yahoo Finance Live. “Historically, consumers have lacked a lot of transparency around the process of how commissions are set and paid, particularly home-buyers. And we think that these changes ultimately bring a lot more knowledge to home buyers in their ability to negotiate and sign off on those commissions. And then at the end of the day, hopefully, that reduces commissions in aggregate by as much as 30% or more, we’ve estimated.”

How will it affect the local real estate market? This week the Record posed that question to several local Realtors. Their responses were a mixed bag. All of them said it’s probably too soon to tell.

“One thing the media has really messed up with this story is that commissions have always been negotiable,” said Chip Bubela of Bubela Real Estate.

“I’ve been doing this 30 years, and it (commission) has always been a negotiable fee,” said Gary Helmcamp of Tri-County Realty. “I think that has been misrepresented.”

“The biggest change is how compensation will be offered to a buyer’s broker,” Bubela said. “You can’t offer compensation on MLS anymore. The way it’s always been, you knew the seller was going to pay the commission. Now, if for some reason the seller doesn’t want to pay the buyer’s broker commission, it will now be the buyer’s responsibility to pay for the fee. Or it will have to be rolled into the price somehow. Those things will have to be figured out.”

Bubela speculated that some buyer agents may change the way they charge for services. Instead of a commission, he said, buyer agents may charge buyers an hourly rate for their services.

“I think you’re going to see some flat fees,” Helmcamp said. “I think you’re going to see buyers paying a little bit to the buyer’s agent. That’s not unheard of, whatsoever. There are listings out there currently that say the buyer’s agent must collect from the buyer. The law didn’t say you have to pay a buyer’s agent.”

“It may get us back to basics where everything truly is negotiable,” said Michael Corker of Hart Land Real Estate in La Grange.

Also as part of the settlement, NAR agreed to enact a new rule requiring MLS participants working with buyers to enter into written agreements with their buyers. NAR said it “continues to encourage its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much.”

Terms of those agreements often tie the buyer to the agent for a specified period of time, and they often state that the buyer will pay commission to the agent if the seller refuses to do so. Corker said those types of agreements are common in urban real estate markets. But in rural markets, including Fayette County, Corker said buyers have been reluctant to sign those agreements.

“Here in the country, things are a little bit slower to come around,” Corker said.

If buyers have to compensate their agents out-of-pocket, some of them might attempt the process without an agent. But that comes with risk.

“There’s a lot of first-time homebuyers who have no idea about things like getting prequalified, or what the closing costs might be,” Helmcamp said. “A buyer’s agent can educate them and put them in a good position to purchase.”

Bubela said buyers and sellers need to consider the value of mineral rights, water rights, solar and wind value, and a host of other factors that continue to expand with technology and the changing uses of land. He said real estate professionals provide value to their clients by staying up to date with market trends.

The agents we spoke with all expected the settlement to lead to lower commission rates. How much lower is anyone’s guess right now.

“There have always been peaks and valleys in real estate,” Corker said. “People get into the business and say, ‘Oh, it’s really easy. All you do is stick a sign in a yard and you make all this money.’ Those people have cycled out when times get tough. And it’ll get tough again.”

“I think this is going to get rid of some of the agents who sell one or two properties a year,” Bubela said. “There are so many people who have their license now, and I think you’re going to see some people leave the market.”