BELLINGHAM — Earlier this month, the National Association of Realtors agreed to settle a class-action lawsuit that had ramifications for the real estate market across the country.
The organization, which represents over 1 million real estate agents nationwide, said it would no longer require sellers to list commission for buyers’ brokers, effectively doing away with the 6 percent commission standard.
Since sellers had to list the commission they would pay the buyer’s agent, they were effectively forced to keep it around the standard of 3 percent, so buyers’ agents couldn’t steer their clients away. When added to a 3 percent commission for the seller’s broker, that tacked on roughly 6 percent to the price of a home. These commissions had to be paid by sellers but were typically worked into the total price, passing them on to the buyer.
For a house sold at the median price in Washington, that would mean roughly $39,000 in commission.
Now, assuming the settlement is adopted by the court, buyers will be able to negotiate with their brokers much more easily.
“In the past, the way the brokers’ fees worked is they were built into the fee charged by the seller’s broker to the seller of a house. The standard fees were 3 percent from the seller’s broker and 3 percent from the buyer’s broker,” Stephen Bourassa, the chair of the University of Washington’s real estate department, said in a phone interview. “Now, they’ve disconnected those two.”
Commission rates will likely fall as a result. In the U.K., Netherlands, Singapore, Sweden and Norway, rates are typically below 2 percent, according to a 2019 Brookings study. The Richmond Federal Reserve estimates that switching away from the commission model for buyer’s brokers would save U.S. homebuyers $30 billion a year.
Washington policies
According to Paul Balzotti, a Realtor who owns Bellingham’s branch of John L. Scott Real Estate, the settlement won’t have as much of an effect on Washington.
“Two of the three major elements of the settlement are already in place in Washington — decoupling listing and buyer broker fees on listing agreements and requiring buyer agency agreements,” Balzotti said in an email. “I don’t think this as big of news for our market that has already been adapting.”
The issue of Realtor commission had already been addressed in Washington. Starting this year, Washington implemented a law requiring a separate contract between buyers and their brokers. This allowed buyers to negotiate a broker fee, instead of having the fee set by the seller.
“It pretty much anticipated what was coming,” Steven Bender, a professor and associate dean at the Seattle University School of Law who studies real estate law, said.
In addition to the agency law, the Northwest Multiple Listing Site, the region’s primary property listing database, did away with the requirement to list the buyer broker commission in 2019.
“Beginning in 2019, and continuing in 2022, NWMLS made changes to its rules, forms, and processes that address the issues raised by the national litigation and outlined in the proposed settlement agreement,” NWMLS CEO Justin Haag said in a statement emailed to the Bellingham Herald.
Balzotti said NWMLS’s changes mean the settlement will have less of an effect on Washington.
“The Northwest MLS was one of the few in the country to already have this practice in place that you could have as low as a zero percent commission to buyers’ brokers and list on the MLS,” Balzotti said.
Balzotti said the only major change from the settlement not already addressed in Washington is how commissions will be published.
Impact on house prices
Even though the settlement technically changes very little in Washington, it will still likely have some impact on prices. While buyers’ broker fees are already negotiable in Washington, Bender said they often default to the customary rate. The settlement will affect Washington prices just by changing the national custom.
“The fact that it can already be listed in compliance with the settlement doesn’t mean that that’s the custom — that listings are customarily listed with something less than 3 percent or with no commission specified at all,” Bender said. “The custom is what the custom is, and that’s going to change.”
Bender said prices could also fall because the settlement is forcing conversations on how much value brokers provide to their clients.
“What could bring down prices is just all of the newfound emphasis on broker commission — what brokers are actually doing and for whom, and what value they’re providing and what is a fair compensation for that,” Bender said.
Balzotti said he expects the national conversation, driven by the press attention the settlement has received, will cause less experienced or skilled Realtors to lower commission rates or even leave the field.
“No doubt, more transparency is good,” Balzotti said “And frankly, brokers who are not comfortable in this new environment can and will leave the profession. And that will make for a better industry for both the true professionals and the consumer in the long run.”
