They go something like this…

“The 6% commission is gone” – CNN

“How NAR settlement could lower home prices” – Fox News

…and my favorite, “Real estate agents are going extinct” – Fortune

At the heart of the kerfuffle is compensation.  I would argue that the Realtor compensation model is superior to others in similar industries.  The fee is disclosed up front and is easy to calculate.  You pay nothing until the transaction closes.  The Realtor does the work, offers expertise and guidance, incurs marketing costs, and receives compensation only upon a successful closing.  How does that compare to similar professions?  Do you actually know the cost of your medical procedure?  Will you know in advance the final cost of your legal fees?  I have enormous respect for those professionals and the good work they do.  My point is that the real estate profession works hard to be clear and transparent in the work we do.  You know what you’re getting and what it costs.

Back to the National Association of Realtors (NAR) settlement.  Both Sellers and Buyers are affected.

Impact to Sellers

Historically, when paying the agreed upon fee to your Realtor, they would share a portion of the fee to Buyer’s agents as an incentive to show your home.  The compensation incentive to the Buyer’s agent was published in the Multiple Listing Service (MLS) – the database of available homes for sale used by Realtors.  This practice will no longer be allowed as of mid-July.

The advantage is that Sellers now get to choose whether to offer the incentive to Buyer’s agents. You might think that choosing to not pay the buyer agent fee will save you money.  However, imagine a scenario where two desirable homes are on the market.  One seller offers the incentive while the other doesn’t.  Which do you think is more likely to not be shown by Realtors?  Or, what if a Buyer who isn’t working with a Realtor wants to buy the house?  Wouldn’t savvy Buyers seek out those homes knowing they could negotiate a lower price since there is no buyer side fee?

The Impact to Buyers

While the focus has been on Seller fees, it’s actually Buyers who are most impacted because there is no longer a guarantee that the cost of their Realtor representation will be covered.  Therefore, they’re left with a difficult choice to either go it alone or pay out of pocket for representation.  Imagine a Buyer left on their own to navigate finding a good home, completing many pages of unfamiliar offer contracts, negotiations in a volatile market, the home inspection process, ensuring clear title, securing the appropriate financing, and much more.  The alternative is to pay many thousands of dollars for those Realtor services on top of the cash needed for the down payment, lender fees, and moving costs.  Layer on high interest rates and you can see how it puts Buyers in a very difficult position.  There’s no question that it will impact the marketability of homes. 

Perhaps more affluent Buyers can handle it.  But what about first time and lower income Buyers?  It’s fair to say there’s a significant social impact conversation to be had here.

The second important effect to Buyers is that a Buyer Representation agreement is required before Realtors can show a home.  Want to just quickly pop in to see a home?  A representation agreement must be first be signed that details what services are provided and the associated fees.

What Hasn’t Changed

The core mission of professional Realtors to help our buyers and sellers make good real estate decisions hasn’t changed. The State of Wisconsin has a long-standing reputation of protecting the interests of Buyers and Sellers and is a model across the country for sound and ethical real estate practice and that will continue to be the case.

By: Essam Elsafy Published in Whitefish Bay Living May 2024 Issue