\n
![](\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2024\/03\/GettyImages-84831126-e1711299283936.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
Consumers expecting big savings from a\u00a0National Association of Realtors<\/a>\u2019 class-action settlement over agent commissions may instead be in for a letdown.<\/p>\n The agreement drew cheers from President\u00a0Joe Biden, who said it \u201ccould save homebuyers and home sellers as much as $10,000\u201d in one example, and former Treasury Secretary\u00a0Larry Summers, who said that breaking the \u201cRealtor cartel\u201d could save US households $100 billion over time. But the true benefits remain unclear, especially for first-time buyers who need help the most.<\/p>\n It comes at a\u00a0precarious<\/a>\u00a0time for the housing market, with higher mortgage rates pushing sales last year to the lowest level in nearly three decades. It\u2019s especially tough for first-time buyers looking to jump into one of the most unaffordable markets in history. In theory, the settlement could translate into lower home prices by pushing commissions down. But experts say that\u2019s not a given, especially in the short run.<\/p>\n \u201cNo seller I\u2019ve encountered will lower the price just because their transaction cost went down,\u201d said Steve Murray, senior adviser to data provider and consultant Real Trends. \u201cThat will not happen.\u201d<\/p>\n The NAR said in a statement responding to Biden\u2019s remarks that commissions were already negotiable before the settlement agreement and will continue to be.<\/p>\n \u201cReal estate agent commissions are driven by the market and are not the cause of the affordability crisis,\u201d the NAR said.<\/p>\n How the changes ripple out and impact the market is a subject of heated debate, in part because nobody really knows.<\/p>\n The decades-old system for how US agents are compensated has long been controversial. Sellers typically pay a commission to their agent of 5% or 6%. The listing agent then splits the money with the buyer\u2019s representative. Critics argue that the structure inflates costs and creates bad incentives.<\/p>\n In October, a Missouri jury\u00a0handed down<\/a>\u00a0a $1.8 billion verdict that found the NAR and others liable of colluding to keep prices high. To settle that case and others, the NAR\u00a0agreed<\/a>\u00a0earlier this month to pay sellers roughly $418 million and said it would change some of its rules. In the most important shift, the trade group would bar sellers from including compensation details on the multiple-listing service, which has long been the most important tool for marketing homes.<\/p>\n That change, to take effect this summer subject to a court\u2019s approval, could encourage sellers to negotiate lower commissions. But the industry is rife with speculation that agents will find ways to discuss commission splits through other methods, for example, on brokerage websites.<\/p>\n \u201cI expect commissions to get bid down to 4% to 5% over time with variation by home price and geography,\u201d Moody\u2019s Analytics Chief Economist\u00a0Mark Zandi\u00a0said. \u201cIt\u2019s a significant change but will likely be gradual. I expect most of the gain to be captured by the seller, so the impact on home prices will be small.\u201d<\/p>\n The settlement was a hot topic at the American Real Estate Society\u2019s annual gathering of academics in Orlando this week. Ken H. Johnson, a real estate professor at Florida Atlantic University and a former broker, was in attendance, gaming out the possible outcomes with colleagues.<\/p>\n Even the question of who is getting the benefit from lower commissions \u2014 buyer or seller \u2014 doesn\u2019t have a simple answer, he said. In theory, the seller should pass on some savings to the buyer, but maybe not as much in a seller\u2019s market.<\/p>\n And it may encourage more first-time homebuyers, who sometimes lack the cash to pay brokers upfront, to go it alone, according to Johnson. More buyers are likely to go directly to listing agents to avoid having to shell out for commission costs. But that might result in more agents with potential conflicts of interest, representing buyers and also the sellers who pay them.<\/p>\n \u201cNow some buyers are going to have to pay out of pocket, or maybe buy less expensive homes,\u201d Johnson said.<\/p>\n Another huge question looms over the industry. The Department of Justice has\u00a0taken aim<\/a>\u00a0at commission sharing, arguing for a full decoupling of compensation for sellers\u2019 and buyers\u2019 representatives. It remains to be seen if the NAR settlement satisfies regulators.<\/p>\n Agents are already adapting to the new rules under the proposed settlement. In New York, broker Keith Burkhardt is working on a new flat-rate service to provide help valuing properties, negotiating deals, and navigating the city\u2019s co-op and condo boards. He figures pricing will be critical and estimates charging buyers between $5,000 and $7,500.<\/p>\n Meanwhile, buyers\u2019 agents will also have to work harder to explain how they\u2019ll add value to any deal, according to Iain Phillips, a real estate agent in California.<\/p>\n The settlement is a start, said Larry Summers, a paid contributor to Bloomberg Television, on\u00a0Wall Street Week<\/em>\u00a0with David Westin. But most observers don\u2019t expect huge changes to happen overnight.<\/p>\n \u201cRight now, everyone is turning this ruling into what they want it to be,\u201d said Mike DelPrete, who teaches courses on real estate technology at the University of Colorado Boulder. \u201cSome people are saying not much is going to change. Others want the story to be that it\u2019s a seismic shift for the industry. The whole thing is being driven by fear and uncertainty.\u201d<\/p>\n \u2014 With assistance from Jennifer Epstein, Paulina Cachero, and Chris Anstey<\/em><\/p>\n\nPossible Outcomes<\/h3>\n
New Rules<\/h3>\n
Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n