Big changes to how real estate has been bought and sold are scheduled for July. Why is this settlement the most groundbreaking change in real estate since the internet.  What is in the most recent settlement?  How will home buyers and sellers be impacted by the changes?  How will these changes drastically alter realtor compensation?  What will companies like Zillow and Redfin do as a result of the huge changes in broker compensation?


What is in the 418 million dollar Realtor settlement?

The $418 million agreement will make it easier for home buyers to negotiate fees with their own agents and could lead more buyers to forgo using agents altogether, which has the potential to drive down commission rates and force hundreds of thousands of agents out of the industry.

NAR agreed to abandon longstanding industry rules that have required most home-sale listings to include an upfront offer telling buyers’ agents how much they will get paid. Under a system in place for a generation, sellers have typically set buyers’ agents fees. Consumer advocates say the arrangement has prevented buyers from negotiating to save money and kept commissions in the U.S. higher than in most of the world.


What is changing for home buyers in the new settlement?

Starting in the summer, the new rules will require most home buyers to sign agreements detailing how much their agents will be paid for their services. If home sellers are unwilling to cover the cost of the buyer’s agent, these agreements would likely require the buyer to pay the agent directly.

Agents representing buyers will have wide latitude over how to charge their clients. Some might bill at hourly rates, while others might ask for flat fees for their services.

Buyers agents now will need to charge upfront to ensure they are compensated for their time.   I think many buyers will balk if they now have to pay 2-3% of a home price.  For example on a 500k home they are unlikely to pay an agent 15k, I assume most buyers will negotiate a flat fee/hourly rate for whatever services they need.


What is changing for home sellers from the settlement?

Most home sellers will no longer need to advertise upfront how much they will pay a home buyer’s agent. Sellers can still pay the buyer’s agent if they want to, but most sellers wouldn’t be allowed to include that offer in the listing.

Under the new rules, sellers might only pay their own agents, or they might pay a lower amount to a buyer’s agent. Either way, they could save thousands of dollars on a sale of a home.


Large number of agents will be out of business.

If fewer buyers use their own agents, that could push some agents out of the industry and lead to a decline in NAR’s membership. NAR has 1.5 million members, known as Realtors. Ryan Tomasello, a real-estate industry analyst with Keefe, Bruyette & Woods, has predicted that the lawsuits could eventually lead to a 30% reduction in the $100 billion that Americans pay annually in real-estate commissions and reduce Realtor head count by more than half.

My prediction is that around 30-40% of all real estate agents will no longer be able to make an ample living due to the elimination/reduction of fees paid by the seller.

Selling agents will also be at risk.

Most of the talk regarding the settlement focuses on the buying side, but I think there will likely be enormous changes on the sales side as well.  As buyers get more comfortable paying a la carte for services when purchasing property, a similar mindset will likely carry over to the selling side as well.  In the future I see many sellers negotiating set listing fees for their services, whether that is hourly or a flat rate that will be substantially less than the traditional 2-3%.

Huge disruptors will enter the business.

The first firm that comes to mind is Zillow.  With Zillow’s hold on the real estate market as the largest real estate site, they have a unique opportunity to radically alter real estate.  I see Zillow now offering a la carte services for buyers.  They already have the buyers looking at properties on their site, they can now take the sale through the process.  Zillow could create a contract template for offers and have employees in select markets whose only job is to show houses.  It will be very easy for someone like Zillow or redfin to quickly dominate the buyer’s side of the transaction.   This a la carte model will radically alter real estate commissions and eliminate the overwhelming majority of buyers agents especially on lower priced listings.

This settlement will lead to the biggest change in real estate since the Internet

It is not an understatement to say that this settlement is ground breaking for the real estate industry.  This settlement will single handily alter the industry this summer with the traditional model gone.  We will see huge technological disruption coming down the pipe over the next several years and a huge number of realtors forced to exit the business as a result.  Look for big companies like Zillow, Redfin, and others to radically alter how we have historically bought and sold real estate.

As we get closer to this summer, I’ll provide an update of what I am seeing in the market.


Additional Reading/Resources



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