If you’ve spent any time in business or economics news over the past week, you’ve likely heard of a “groundbreaking,” “world-shaking,” or “Earth shattering” settlement between the National Association of Realtors and consumer plaintiffs last Friday (March 15) regarding the industry’s 6% commission-split standard. According to some outlets, the settlement is going to upend the industry, which could shrink by as much as a third or even half, and may even pull prices down a few percent with it. But is that really correct? What really happened? What can soon-to-be home buyers expect?

As a transaction that millions of Americans take part in every year, the impacts of this settlement will be very far-reaching. Thankfully, already scheduled to speak for us today was our member Realtor and residential real estate expert Travis Otto of Cornerstone Real Estate.

With another presentation in mind, Travis decided to pivot to give our group an early insider’s insight on the change and what he sees coming down the pipeline. We should note here that all of Travis’s insight was his own, and doesn’t reflect positions held by his broker, Cornerstone Real Estate.

So what is Travis’s take on the change?

In short, many of the anxious and/or excitedly hyperventilating assessments hitting the press have some truth to them, but are far from certain and greatly overstated—and much is still simply unknown.

For a quick refresh of what happened, in 2019 a home seller sued the NAR for market manipulation after not wanting to pay out agent commissions on their home sale. The suit questioned the validity of the 6% commission standard, and more accurately that a buyers agent must be paid for a house to be listed on MLS. With the NAR staring down a losing ruling, they decided to settle for over $400MM paid out over 10 years while denying any wrongdoing. This would cover all brokers doing under $2 Billion in volume, preclude any copycat lawsuits, and basically eliminate the current commission standard.

There is now a lot of open question about how buyers’ agents will be paid for their work, and when or how that can be communicated in the contracting-showing-transaction process. In the past, it was through the sale of the house (and realistically often from mortgage funds) that both agents were paid, technically by the money-receiving seller. Buyers are already out-of-pocket 5+ figures by closing, with first-timers currently not typically having that extra few thousand to contribute to an agent up front. Is this fee something that could be accounted for in the loan, if now lined-out separate from the house cost? Another open question.

Despite the open questions and worry within the industry, it’s not all doom and gloom. First, there is the real possibility that fees would decrease and that prices could relax slightly. Travis also expects that the potential for higher friction regarding inconsistent fee structures between brokers could lessen the number of showings, and therefore reduce bidding war likelihood too.

It also might create new and innovative business models, such as fee-for-service work or increased use of retainers. Many agents are expected to fall out of the industry with the change, which should leave the highest-quality talent, who, as Travis put it, “will have to be able to sit down and sell the value of their services to their clients,” and “if they can’t even do that, how are they supposed to advocate and negotiate on a client’s behalf?”

One thing is for certain—we are in for change. Or are we? As a final note, Travis shared an anecdote of a Realtor he knows of in Washington state. Washington made this change over a year ago, seeing the writing on the wall, and not much has shaken up yet there. As it goes—time will tell.

If you’re interested in joining a group of knowledgeable and highly-connected business professionals like Travis, check out our business networking group at border2border.biz/join!

We always welcome visitors and new members, and look forward to connecting with you.