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Last week, the National Association of Realtors, one of the country\u2019s largest industry associations, reached a groundbreaking $418 million settlement<\/a> over an alleged conspiracy<\/a> to inflate realtors\u2019 commissions. Some have said the settlement signals an end to real-estate agents as we know them. But an award-winning finance professor, specialized in housing economics, says the demise of this particular profession has been coming for a while.\u00a0<\/p>\n Indeed, Andrew C. Spieler<\/a>, a distinguished professor in business and finance at Hofstra University<\/a>, likens real estate agents to travel agents. Like travel agents, realtors were once the \u201cgatekeepers\u201d of information. They had access to MLS listings that consumers couldn\u2019t find on their own, so buyers had to be much more \u201cdependent\u201d on their agents to even start house hunting, Spieler tells Fortune.\u00a0<\/em><\/p>\n \u201cYou just don\u2019t need them,\u201d he says in regard to both travel agents and real estate agents. \u201cI mean, there\u2019s still a few out there, but it\u2019s going to compress the industry.\u201d Spieler<\/a> is an award-winning academic who has won several industry awards for his real-estate research.\u00a0<\/p>\n It\u2019s not rocket science, he says. It\u2019s the internet. Online, homebuyers have access to nearly all the information they\u2019d need to purchase a home. On websites like Zillow<\/a> and Realtor.com, consumers get almost all of the details they\u2019d want to know, plus photos of the property.\u00a0<\/p>\n Questioning the use of real estate agents was \u201cinevitable even without the settlement,\u201d Spieler says. \u201cIf you think about what an agent does for you, I think it\u2019s very different than what they used to do for you because so much more information is available on the internet.\u201d<\/p>\n Before the advent of the internet (and online real estate marketplaces, more specifically), homebuyers had to be much more \u201cdependent\u201d on their real estate agents to even show them inventory, he says. In fact, it was hard to even start house hunting \u201cunless you happened to be driving by and someone had a for-sale sign.\u201d Back in the day, real estate agents would just print out the MLS listings (that only they had access to), or \u201cif you\u2019re lucky, [they\u2019d] email it to you,\u201d Spieler says.\u00a0<\/p>\n \u201cNow, that part of the process is completely removed,\u201d he says. \u201cThe buyers are so much more informed. And to me it comes down to, \u2018What am I paying for as the buyer?\u2019\u201d<\/p>\n Really, the main purpose a real-estate agent serves now is getting the transaction done with the \u201cleast amount of stress,\u201d Spieler says. They still can be useful in situations where buyers or sellers need to make a quick move to avoid a \u201cmisstep\u201d in the transaction.<\/p>\n Getting back to the NAR settlement itself, another main concern buyers and sellers have with using real estate agents today is commission rates. NAR agreed to pay the $418 million in damages across several antitrust lawsuits, including the $1.8 billion verdict<\/a> that landed on Halloween last year. These found NAR and other brokerages conspired to inflate realtor commissions. While NAR still denies any wrongdoing in these cases, the organization said it would prevent broker compensation offers on MLS and require users to complete written representation contracts<\/a> with buyers.<\/p>\n Commission rates can be particularly sour for buyers and sellers of expensive properties. Take a $2 million home, for example. At a standard 4% commission rate, the realtors on the transaction would take home $80,000 (although that figure is distributed among the buyers\u2019 agent, the sellers\u2019 agent, and a broker). Typically, a commission rate falls between 4% and 6% of the transaction price.<\/p>\n \u201cThat\u2019s a lot to pay for,\u201d Spieler says. \u201cAnd for what? Sometimes you sell the house pretty quick. You find the person, and you\u2019re shuffling some papers. It\u2019s a lot of money when you think about it.\u201d<\/p>\n In total, analysts suggest Americans pay about $100 billion in real estate commissions<\/a> each year, but the result of the NAR settlement could cut that by 30%. With such a steep drop in commissions earnings, some experts argue this could mean the demise in real estate agents\u2014or as Spieler puts it, a major \u201ccompression,\u201d or downsizing of the profession. Currently, there are about 1.5 million realtors<\/a> in the U.S.<\/p>\n Other real estate experts, however, argue the NAR settlement won\u2019t really change that much in the long run.\u00a0<\/p>\n \u201cI do think we\u2019re in for a little shake-up, but in the end, we\u2019ll find a workaround all the way back around to where we\u2019re doing business very similar as we are today,\u201d Ken Johnson, a former broker and current associate dean in the Florida Atlantic University<\/a>\u2019s college of business, told Fortune<\/em><\/a>\u2019s Alena Botros<\/a>.\u00a0<\/p>\n But what the NAR settlement does indicate, however, is realtors could start making less on commissions. While realtors may hope for more transactions, they\u2019re not a \u201ccommodity\u201d like stocks, Spieler says. And with historically low inventory levels, there\u2019s just less business to go around.\u00a0<\/p>\n \u201cYou\u2019re going to squeeze some people out\u201d of the real estate profession that way, Spieler says, which means \u201cless profits in the industry. I\u2019d expect you to definitely see a compression in agents.\u201d<\/p>\n<\/div>\n\nLet\u2019s talk commissions<\/h2>\n
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