Over the last few weeks, real estate agents have begun bracing for the end of a common practice in home sales.
It’s not the 6% commission, which agents argue is something of a misconception. It is the ability to signal that a homebuyer’s agent will be paid from the proceeds of a sale along with the selling agent, whether that share is 6% or some other portion of the total.
The end is slated to arrive in mid-July per the terms of a settlement reached last month between the National Association of Realtors and a group of homeowners who alleged the association’s commission practices were anti-competitive. The deal requires court approval.
While the impact remains unclear, local real estate experts offered some sense of the changes in store for the process of buying and selling a home.
“This is a ginormous paradigm shift of the way we’ve operated for a long time,” said Rod Messick, CEO of Berkshire Hathaway HomeServices Homesale Realty, a regional agency based in Manor Township, Lancaster County. “There’s going to be some chaos, but the pros will figure out a way through it.”
The sell side
Among the top challenges will be figuring out whether and how sellers should compensate agents who represent homebuyers.
As it stands now, an agent can see in a real estate listing whether the seller is offering compensation in return for bringing a buyer to the table. The settlement with NAR blocks that offer from appearing in a listing but does not bar sellers from making the offer in the first place.
The question is where. Real estate firms could post on their websites that their listing agents are willing to compensate the buyer’s agent out of the sale proceeds, for example. Or the buyer’s agent may have to ask up front what the deal structure will be on every home they show to a client.
Some sellers may want to remove the offer altogether and keep more of the sale proceeds for themselves. Messick said he would advise against it.
“If we offer compensation, we’re making it more likely that those buyers are interested in our home because we’re going to take care of that fee for them,” he said.
Effective buyer representation also makes for a smoother transaction, he added. “We do think there’s some dialogue around why there’s value to having good representation on both sides.”
The buy side
Agents who focus on buyers also have some thorny issues to work through. Chief among them is figuring out how they will be paid.
“There will definitely be more legwork on the buyer-broker end to determine if there is any offer of compensation from either the seller or the listing broker,” said Shanna Terroso, CEO for the Realtors Association of York and Adams Counties.
Buyer-brokers also might consider signing contracts with potential homebuyers to ensure compensation at some point, Messick said. “I think that will get tightened up quite a bit, and agents will start ensuring that they get upfront agreements earlier in the process.”
The agreement might not be on the table at the first showing, when a broker and a customer are still deciding whether they want to work together, Messick said. But it might be there after two or three showings.
Lenders, meanwhile, might find a way for homebuyers to finance “reasonable and fair” commissions along with their mortgages, Messick said.
The value proposition
On both sides of a home sale, realtors likely will have to work harder to explain the value they bring to a deal.
“The role of the real estate broker and agent in a transaction is sometimes a little opaque or misunderstood,” said Hank Lerner, chief legal officer for the Pennsylvania Association of Realtors.
A good agent can help sellers price their homes and then sift through competing offers, observers said. Buyers can benefit from an agent’s market knowledge when making an offer on a property. An agent might know, for example, that a particular house has been on the market a long time.
Agents also can help buyers and sellers navigate their options in complicated situations, such as when there needs to be a long wait between closing on a home and moving in or out.
“I think people value that, and we’ll figure out a way for the people who value that to continue to compensate people fairly,” Messick said.
