Experts weigh in on how recent settlement could impact real estate industry

It's the news that has home buyers and sellers wondering, what's next?

A landmark settlement in the world of real estate could impact the housing market nationwide or leave many in the industry in some uncertainty. Only time will tell, experts say, as home prices remain high in North Texas and competition heats up for the spring buying market.

This all stems from a huge settlement that was made last Friday.

The National Association of Realtors – which dominates the industry through its multiple listings services – agreed to pay $418 million to settle several class-action lawsuits.

Those suits alleged homeowners were being forced to pay artificially inflated agent commissions when selling their homes – something the trade group denies but has agreed to make some policy changes in addition to the settlement.

Under the proposed NAR settlement, a broker who represents a seller would no longer be allowed to include a blanket offer of cooperative compensation to a prospective buyer’s agent when they advertise the property on NAR-affiliated Multiple Listings Services, where a majority of U.S. homes are listed for sale. This is meant to remove any incentive from a buyer’s agent to steer their client away from home listings that don’t include a cooperative compensation offer.

The trade group also agreed to require agents or others working with a homebuyer to enter into a written agreement with them. That is meant to ensure homebuyers know going in what their agent will charge them for their services.

Some housing experts say it's like hitting the reset button on the housing market. But it's still too soon to know exactly how this will impact buyers, sellers, and the agents they work with.

Since the news dropped about the settlement and policy changes, there's been a buzz and some misunderstandings about the settlement, including a detail that NAR would be doing away with a commission fee standard usually set around six percent. It caused some worry about realtors losing out on income.

However, local real estate experts said these commissions always have been negotiable and were never set by NAR.

"It's always been negotiable. That's what has caused a lot of this kind of frustration and misunderstanding, is that this has always been negotiable,” said Ashley Massey, a real estate advisor in DFW and author of Fast Track Agent. “It's always been a negotiated industry. So now we're trying to essentially reinstate some information regarding this, making sure that both sides know it's always been negotiable from day one.”

The trade group even issued a statement this week, “following recent inaccuracies in media coverage, including the false representation or suggestion that the National Association of Realtors requires a standard 6% commission." The group clarified that they don't set commission rates.

“NAR does not set commissions – they are negotiable. The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount, including zero. And other rules throughout the MLS Handbook and NAR policy expressly prohibit MLSs, associations, and brokers from setting or suggesting any such amount that should be included in that field,” NAR said in a statement.

Massey does not expect the North Texas housing market to be impacted by these changes any time soon.

"Real estate is an ever-changing industry and there's always going to be something new coming down the line and there's always going to be something that we need to adapt to as professionals in any business, in any industry. This is just going to be one of those times,” she said. "How brokerages handle that and how states handle that is going to be very different. And so we're just going to have to see how that plays out as we go through the summer because every state is going to look at the situation in a different way.”

The new rules are not set to take effect until July and before that can happen, the settlement still must be approved by a federal court.

According to the Associated Press, several real estate brokerage operators, including Anywhere Real Estate and Keller Williams, have reached separate settlement agreements that include provisions for more transparency about agent commissions for homebuyers and sellers.

Experts said spring buyers will not be affected but those looking to make moves in the summer or fall will need to speak with a real estate professional for insight on how the policy changes play out.

"In the United States, it's always optional to be represented. Whether you're buying or selling a house, you don't have to use a real estate agent to do that. But a lot of people find that they're bringing on professionals to help navigate. It's a huge transaction. There's a lot of legal implications with buying and selling homes. So bringing someone on that understands the contracts and understands both sides of it is really helping all of the parties involved," said Massey. "Again, everything has always been negotiable for buyers and sellers. Brokerages negotiate what fees they charge and then based on those fees, agents get paid commissions. Part of that is going to the buyer's side to bring on as many eyes as possible. As a seller's agent, my job is to sell your house as quickly as possible. Part of my way to do that is to entice buyers to come and see it, and we do that through those fees."

However, some experts believe these changes could stir things up in hot markets like North Texas and make homes even less affordable.

John Baen, a professor with UNT's real estate program in the College of Business, says the buyer's agent is usually included and embedded in the price that the seller receives.

"The problem with that is, who is going to get that extra 2% or 3% if it's not embedded in there? And I can tell you right now that the seller is going to want it, and they're going to want that extra money. In the environment that we have right now with less affordable houses available, they are so scarce right now that this is going to impede the buyer,” he said.

According to the AP, the proposed rule change leaves it open for individual home sellers to negotiate such an arrangement with a buyer’s agent outside of the MLS platforms, essentially creating a loophole for agents to keep things as they are now.

Homebuyers could also ask the home seller for a concession that includes money to help cover the buyer’s agent compensation.

But if a seller doesn’t want to offer to pay the buyer’s agent commission, homebuyers would be on the hook to shop around for an agent they can afford. The policy change also requires that clients sign a contract with an agent before they enlist their services, spelling out how much the agent’s compensation will be.

Baen has concerns that some homebuyers might opt out of representation to save money in an already expensive and often-complicated home-buying process.

"I'm not buying anything without some help. I want an outside person looking over my shoulder,” he advises. "The listing agent's job is usually to get the highest price for the seller, and the buyer's rep is to get the lowest price and all the goodies for the buyer. So who is going to pay the buyer's representative if it's not embedded in the price in the listing agreement? I believe that the buyer is going to have to pay it, and it's an additional down payment.”

Baen said everyone will need to wait and see how the NAR settlement will impact tough housing markets like North Texas over the next year.

"A standard or traditional commission has been instigated into the marketplace. If I'm a seller and I say, I'm not going to pay a 6% commission, I'm only going to pay a 4% commission. Okay, well, then all the other 10,000 agents in Dallas-Fort Worth are not going to show my house for half of 4% versus 6%. I'm not going to get all of the buyers,” he explained. "So in a tough market, I pay more commission. And in an easy market, I might pay less commission. But the reason NAR did this was because they had a lawsuit against them – they're settling the lawsuit and going to let the market police itself. And I think the market has always been anyway because unless they offer the full asking price, the full commission percentage is not payable. It's negotiable one way or the other."