One thing is known for sure about a proposed settlement of a massive antitrust case against Realtors: the home selling process is about to change, and with it, how buyers and sellers compensate their agents.
Otherwise, say members of Southern California’s real estate industry, it’s too soon to decipher the impact of the $418 million deal unveiled on Friday, March 15.
Also see: Brokerage stocks tumble after Realtors agree to commission-cutting deal
Will buyers now start paying their agents directly?
Will buyers now have to sign a contract before their agent will show them any homes?
Will lenders allow buyers to roll the cost of paying agent commissions into a slightly larger mortgage?
And ultimately, will the settlement lead to to smaller commissions and lower home prices?
Also see: Homebuying’s 6% commission is gone after Realtors settle lawsuit
“There’s just a lot of moving pieces that have to be settled,” said Art Carter, chief executive of the Chino Hills-based California Regional Multiple Listing Service, which covers much of Southern California. “And I’m not going to say I have my arms around every one of those moving pieces.”
In a statement announcing the settlement, the National Association of Realtors said it agreed to a new rule banning sellers from offering compensation to buyers’ agents through a Realtor-affiliated MLS, or home-listing database.
But it was unclear if that will end the decades-old practice of requiring sellers to pay buyers’ agents.
While “offers of broker compensation could not be communicated via the MLS,” the NAR statement said, “they could continue to be an option,” so long as they’re communicated outside the MLS.
“The only certainty I can give you is the process will change,” Carter said.
The Realtor announcement followed an Oct. 31 jury verdict in Kansas City awarding nearly $1.8 billion to Missouri home sellers, finding the current agent compensation system perpetuates the 5-6% commission rate.
More than 20 similar lawsuits proliferated across the nation in the wake of the verdict, including at least three in California, naming more than 200 other industry groups in 11 states as defendants.
Related: California Realtor groups hit with copycat commission rates lawsuit
Under the settlement announced Friday, NAR would pay $418 million over four years, instead of $1.8 billion. The settlement would cover more than a million NAR member agents, all state and local Realtor associations, Realtor-owned multiple listing services and NAR-affiliated brokerages generating less than $2 billion in sales. But large national real estate chains that were NAR’s co-defendants won’t be covered.
A law firm that took part in the settlement hailed the agreement as “groundbreaking,” saying it could save consumers billions of dollars in broker fees.
“This settlement changes (NAR) rules so that competition will occur at the commission level,” Steve Berman, a lead attorney in the case, said in a statement.
In Southern California, the announcement led to a combination of confusion, anxiety and relief.
Carter, the regional MLS CEO, tried to explain the settlement Friday to a meeting of brokers in Arcadia.
“I think there’s just a lot of confusion,” he said of the brokers’ reaction to the news. “They’re just curious to see what the new normal is going to look like.”
There was an element of relief at the Glendale Association of Realtors, one of 19 local Realtor associations named in a class-action lawsuit filed in January.
The settlement appears to be “a good start, a step in the right direction,” said David Kissinger, Glendale Realtors association chief executive.
“We are in defendant in one of the cases,” Kissinger said. “And as a defendant in a case, … that’s concerning. There is substantial risk to us. We were certain in the belief that the case did not have merit. But, you know, the court and the jury are going to do what they’re going to do.”
Carter echoed that sentiment.
“We support NAR for taking the steps” toward settling the cases. “If it would have been litigated further, it could have been quite detrimental to the the industry.”
The proposed effective date will be July 1 if the settlement gets court approval, although that — like everything else — is subject to change, Carter said.
If approved, the settlement could lead to the widespread use of buyer-broker agreements, he said. Currently only about a fifth of buyers sign representation agreements with their agents.
It’s possible sellers could list an amount for concessions in their MLS listings, instead of compensation offers, and buyers could use those concessions as they choose — perhaps paying for repairs, for closing costs or to compensate their agents, Carter said.
“The (agent’s) job is going to change significantly,” said Newport Beach broker Bill Cote, owner of Cote Realty Group. “I think you’re going to see a whole element of people come out and say that they are buyers brokers, and they’re only representing buyers. But the difficulty with that is getting the buyers to step to the plate to say that they’re going to pay the compensation to the buyer’s broker.”
Cote noted that in high-priced communities, from Newport and Laguna Beach to Silicon Valley, the buyer’s share of commissions “has always been very large.”
Ed Coulson, director of the Center for Real Estate at UC Irvine, predicted the settlement could have a major impact on agent earnings and commission rates.
People accepted 5-6% commission rates as if it were a rule, which it’s not, he said.
“One of the things that’s going to happen is people will recognize it’s not a rule, and that’s going to bring commission rates down,” he said. “I think the thing that is most important is we don’t know the impact on prices. There’s been a lot of speculation it would lower house prices, but that depends on the seller folding the commission into the house price. And I’m very uncertain that we know the extent to which that happens.”
Source: Orange County Register
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