The National Association of Realtors recently agreed to settle a big lawsuit that questions how real estate agents are paid — and who foots the bill.
Between the lines: The proposed settlement could shake up the traditional 6% commission structure, which is usually split 50-50 between buyer and seller agents, Crain's reports .
The big picture: If approved, come summer, agents won't be able to make offers of compensation in the Multiple Listing Service, the database where real estate agents post homes for sale.
Why it matters: The seemingly small change, which a court preliminarily approved last week, is causing major confusion.
How it works: Currently, sellers and their broker negotiate a fee for representation, and that broker decides how much profit they want to share with the buyers' agent for helping close the deal.
- That number is advertised in the MLS listing, and the seller pays both agents from the home sale earnings.
- Many are concerned this causes buyers' agents to steer clients toward homes that offer them higher commission.
If the settlement is approved , offers of compensation will not be listed in the MLS. Buyers and their broker will negotiate how much the broker should earn — and how they'll get paid, antitrust lawyer Brian Schneider says.
- Increased transparency around agent profits could lead to more competition as buyers become more savvy about negotiating brokers' fees.
What they're saying: Agents who can't communicate their value won't prosper.
- Detroit realtor Matt O'Laughlin tells Axios that brokers who mostly represent buyers will have to work harder to convince potential clients that their services are worth paying for.
- "I think you'll see a lot of the buyer brokers go away, is my assumption," he says.
Yes, but: Many are worried about cash-strapped first-time buyers. Most can't pay their agent out of pocket, but they'll be "financially slaughtered" without representation, former Zillow executive and Tomo co-founder Greg Schwartz says.
- For that reason, sellers aren't entirely off the hook.
Buyers' agents aren't going to work for free.
- Sellers will likely offer concessions to cover buyer agent costs, Faron King, a vice president with NAR, tells Axios.
What's next: "[Real estate] is in the greatest state of disruption I've seen in the last decade-plus," Schwartz says.
- Schwartz and other observers see opportunities for new business models to emerge, from paying an agent hourly to ChatGPT-like agent bots .
- He expects minimal innovation short term but radical change over the next five to seven years.
Data:
BLS ; Note: Annual wages have been calculated by multiplying the corresponding hourly wage by 2,080 hours; Chart: Tory Lysik/Axios Visuals
The median wage for Michigan real estate sales agents was $55,940 in 2023.
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