Local Realtors brace for commission shake-up
Say goodbye to the traditional 5%-6% commissions paid to real estate agents
The following article appeared in the March 18, 2024, edition of The Charlotte Ledger, an e-newsletter with smart and original local news for Charlotte. We offer free and paid subscription plans. More info here.
National legal settlement could lower housing prices but also create new challenges for buyers
by Kerry Singe
A national legal settlement is expected to shake up the way real estate agents get paid for buying and selling homes — a shift that could lead to lower housing prices but could also make it harder for some buyers.
The move also has the potential to reduce the number of real estate agents and cut their income.
The National Association of Realtors on Friday announced it would change policies dictating how commissions are paid to real estate agents. Historically, sellers’ and buyers’ agents split between 5%-6% percent of the home sale price, with the home sellers paying the commissions on each side out of the sale proceeds.
Should the proposed changes be approved by a federal court, it is expected to become more common for buyers to be responsible for paying their agents’ fees, which could lead to newer payment arrangements such as flat fees or hourly rates. Agents’ commissions also would no longer be included on multiple listing services, the centralized portals with available properties.
Local real estate agents told The Ledger that they have been watching the issue closely. Some said they were nervous about a potential drop in income. Most declined to speak on the record, saying it was too early to speculate how commissions would change. A spokeswoman for Canopy Realtor Association, the professional trade association group of real estate agents in the three-county area including Mecklenburg, told The Ledger that the organization did not have enough information at this time to comment.
Experts say that starting this summer, changes could lower fees for buyers and sellers and reduce home prices. A potential drawback for homebuyers, however, is they may have to have more cash on hand because there is currently no means for buyers to finance their agents’ commissions.
Jill Miller, who has worked in residential real estate for 20 years, said buyers’ agents should clearly communicate the value they bring to their clients. She says she has already been having conversations about the potential changes with home buyers who have been following the news.
“We need to be upfront when we talk with our buyers and be able to define our worth as buyers’ agents,” said Miller, with the Miller Baskerville Team of Helen Adams Realty. “I think ultimately it’s going to be good for buyers because they’ll truly understand our value proposition and the representation they are paying for.”
“It’s important to have good representation when you are spending this much money,” she said. “Negotiating price and terms, evaluating inspections and how they affect the home’s livability and value, and protecting our buyers’ interests is where an expert can make the difference between buying a dream home and ending up with a lemon. It’s your home. It’s where you make pancakes on a Saturday morning.”
The proposed changes stem from class-action lawsuits filed against the Realtors’ association and other large residential brokerages by home sellers in Missouri and Illinois. In October, a Missouri jury found that the brokerages conspired to keep commissions artificially high and awarded home sellers $1.8B in damages. The Illinois case was moving toward a trial. The settlement would end the lawsuits. The Realtors’ association also said it would pay $418M to settle several cases. The association denies wrongdoing.
More competition ahead: Critics have argued for years that policies set by the Realtors’ association and other brokerage groups reduced competition, boosted commissions and kept home prices artificially high, because they incentivized agents on both sides to favor higher-priced properties.
Yongqiang Chu, a professor of real estate, urban economics and finance at UNC Charlotte, says the changes will create needed competition.
Homebuyers, particularly first-time homebuyers, may struggle to find the money to pay commission fees along with down payments, but the impact could be dampened by falling home prices, he says.
The biggest change Chu would like to see is buyers’ agents pursuing new incentives when working with clients.
“Instead of paying a fixed percentage of price, do something related to how much you can negotiate the price down relative to listing price,” says Chu, Director of UNC Charlotte’s Childress Klein Center for Real Estate. “Get the incentives more in line so the buyer agent really works for the buyers. That’s the hope I have.”
Fewer real estate agents? Chu and other housing experts say it is possible the number of real estate agents working in the industry could drop as competition separates the more successful agents from the less successful ones. Those who remain in the industry should expect to see fees become more closely aligned to the services provided, something that could help those working with lower-priced homes.
For example, Chu says, the work involved in buying or selling a $100,000 home is often the same, if not more, than the work required to buy or sell a $300,000 property.
“The good agents will make money and remain in the market,” he says.
Miller with Helen Adams Realty said she feels confident her industry will sort through the changes, noting it has weathered challenges in the past, including the pandemic and rising mortgage rates.
“We will move forward on different and strong footing,” she said. “As an industry, we’ve had to pivot a number of times and in a number of ways. We’ll do so again this time. And we’ll do it well.”
Kerry Singe is an award-winning former Charlotte Observer business reporter. In addition to writing for various publications, she helps her clients tell their stories and manage content across multiple media platforms.
Related Ledger article:
“Local real estate agents weigh in on big court case that could lead to overhaul of commissions on home sales” (Nov. 8, 2023)
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‘For sale’ listings of houses boomed in February, data shows
Signs are beginning to emerge that the local housing market is springing back to life.
The number of new listings of homes in Mecklenburg County rose 17% in February, compared with a year earlier — the first double-digit year-over-year increase in listings since April 2021, according to data from the Canopy Realtor Association.
That follows a January in which the number of homes sold in Mecklenburg fell by a mere 6% after 22 straight months of double-digit year-over-year declines. The number of closings in February was down just 3% compared with February 2023.
Local real estate agents have expressed hope that lower mortgage rates will spur more homeowners to sell and alleviate some of the tight supply of houses for sale. —TM
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