Last week brought a watershed moment for the residential real estate industry, signaling a shift in the way the American public will buy and sell houses.
Specifically, a $418 million settlement was reached "between the National Association of Realtors and groups of home sellers which ended the standard 6% commission for Realtors." While the writing has been on the wall since the original federal court verdict against the powerful trade group was reached late last year, this settlement indicates the start of numerous changes to an industry that many parties have long desired.
Spoiler Alert: This is fantastic news!
In this blog post we'll break down what this news means for you, explain why it's so great, then show you how you can use it to your advantage right now!
What You Need to Know
The first piece of news you need to know actually isn't new at all. The standard 6% commission on a home sale is over; but it never was truly a rule, just an industry practice. Home sellers were always free to negotiate broker compensation. It was NAR, the largest real estate trade group, that pressured its members to list a uniform 3% commission for a buyer's agent when posting a listing on the MLS (multiple listing service). This fee was always paid in addition to the traditional 3% going to the seller's agent. Well, that practice is history now.
The second major implication of this settlement is the way buyers' agents are compensated may radically shift. Instead of a seller footing the bill from the top of the sale price, home buyers themselves may be on the hook to pay their own agent commissions, in some way shape or form. Of course, with real estate agents now prohibited from advertising a fixed commission for a buyer's agent, the market should become much more competitive.
With increased competition comes more upside for buyers and sellers. Experts predict that home prices will become much more affordable and residential transaction volume could warm up. So buyers that currently have been priced out, on the sidelines, will reenter the market. Sellers who have been put off by the prospect of surrendering a whopping 6% of their largest asset (plus closing costs) should now be able to find better deals when they hire a real estate agent.
Why It's Great for the Housing Market
If the (now unlawful) practices of the real estate agents affiliated with NAR (and local realtor associations under their umbrella) were tactics to keep broker commissions inflated, then their abolishment spells out fantastic opportunities for the American public when it comes to real estate. Here's why.
More Transparency, More Accountability
Now that real estate agents know they have to work harder to earn homeowners' listings, they must offer the best terms possible to get that exclusive listing agreement signed. And once they do, they will be expected to deliver by the terms agreed upon, or else the seller will find another listing agent who can.
Increased Flexibility Allows a More Customized Real Estate Experience
Both sellers and buyers now can control their own destinies when it comes to hiring agents for home sales. Compensation rates are now openly negotiable, as are their structures. If a client wants to pay a flat fee, or a finders bonus, or whatever they can imagine, they'll find a willing market. The "one size fits all" approach to real estate is over. Buyers, sellers, lessors, and everyone else can now modify the way they engage agents and customize their whole real estate experience.
“It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.” - Nykia Wright, the interim chief executive of the National Association of Realtors
The Cream Rises to the Top
Perhaps the best outcome from this landmark deal is that many agents will simply leave the business. Prior to this settlement, a low barrier of entry and the prospect of bloated agent commissions enticed many speculators to try their hand at real estate. The industry became saturated by amateur, inexperienced agents that deliver poor service to their clients and make rookie mistakes in costly transactions. When these agents realize they don't have the grit (or professional competence) to thrive in a more competitive market, they'll quit the industry entirely. The agents that will remain are the ones that will provide the best experience and outcomes to sellers and buyers.
How to Take Advantage of These Changes Today
While this forecast for the industry inspires long-term optimism, most folks are likely wondering how they can capitalize on these changes today.
While most traditional brokerages and sites like Zillow are reeling, we built our entire platform at TrueParity to allow you to take control of your real estate agent experience right now. At TrueParity -- a free platform for home sellers, buyers, and lessors -- the best agents in your neighborhood compete to earn your business. We make every agents' experience and performance data visible so you can identify the top producers for your specific needs. Then agents submit customized proposals and terms so you can compare your options in a single place. It's where flexibility, transparency, and robust competition all align.
Find the best agents in your area and make them earn your business at TrueParity.
