Just a few weeks into the aftermath of the class-action settlement that rocked the real estate world, sales commissions have shrunk. That’s the major finding of a recent survey of some 1,300 agents and brokers.
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Earlier this year, a settlement was reached between the National Association of Realtors and disgruntled homebuyers in Illinois (and later Missouri) who believed they were forced to pay their agents too much. NAR is the politically powerful trade association for real estate agents and brokers.
The agreement prohibits listing agents from posting the buy-side agent’s share of the sales commission on local multiple listing services. One of the biggest fears among agents was that sales fees would drop significantly as a result.
“That worry may have been merited,” reads a report by real estate publishing company RISMedia, which conducted the survey. The company found that commissions have fallen by 68 basis points, or 0.68%. (The poll’s results are available only to RISMedia subscribers.)
Even though the settlement just took effect on Aug. 17, RISMedia calls the decline “very significant.” Indeed, in terms of dollars, 0.68% translates into a loss of $2,870 on a 6% commission on a median-priced house.
That’s $2,870 back into the pockets of the buyer or the seller -- or both.
Moving forward, it appears likely that commissions are poised to drop even further. Asked about their expectations, a slim 51% majority of respondents anticipated no change. But 37% anticipate further cuts, some of them “significant.” The remaining 12% think their fees will go back up.
The early decline appears to hit buy-side agents particularly hard, the survey found. These are the agents who bring buyers to the property -- and eventually, the closing table. On the buy-side, the decline was 0.37%, or $1,561 out of the agents’ pocket per transaction. Sellers’ agents took the remaining 0.31% hit.
That the decrease would come largely from the buy-side is pretty much what the pundits expected. Prior to the settlement, listing agents could advertise on the MLS what share of their fees they would be willing to pay to buy-side agents. But the plaintiffs argued that since the listing agent set the buy-side agent’s fee, they were effectively barred from negotiating a lower share.
Now, listing agents can still post commission splits on their own websites or those of their companies. But not on the MLS, which is where most people -- including agents themselves -- search for houses for sale.
Less experienced agents have been hit hard as well, according to the survey.
Prior to Aug. 17, buy-side agents with less than three years on the job were paid 2.58% of the sales price on average as their share of the commission. Post-Aug. 17, their share has dipped to 1.82%, which translates to a pay cut of $3,027 per median-priced transaction. Meanwhile, veteran buy-side agents saw only a 0.1% drop, from 2.68% to 2.58% -- losing only $422 per deal on average.
While many factors are at play for the downward shift, the survey says, “it is reasonable to assume that (buyers) are negotiating real estate fees downward when the money is coming directly out of their pockets.”
On the seller’s side of the equation, the average listing commission of an inexperienced agent fell from 2.98% to 2.41% -- more than half a point. Agents with 10 or more years' experience selling houses took a larger pay cut than buy-side agents with the same tenure, with their fees falling from 3% to 2.74%.
The report called it “extremely telling” that an agent's experience level appears to be the single most important factor in whether a deal includes cooperative compensation.
RISMedia also asked agents and brokers about a policy NAR still clings to, which allows listing agents to offer part of their compensation to the buy-side agent. Many in the industry argue that sellers have a strong motivation to pay the agents who bring buyers to the table, either directly or through their agents.
After all, as the survey points out, “attracting qualified buyers is the best way to get a good sales price and push through a complex, fraught sale process.”
But with compensation removed from the MLS, and consumers increasingly aware they don’t have to pay the other side’s agent, the data shows that cooperative compensation is on the wane.
Before the settlement, 91% of all transactions involved listing agents who paid the buy-side agents. After the settlement, only 77% did the same. While the business is still going through a period of adjustment, that 14-point drop is still “concerning,” the survey says.
Another change resulting from the legal settlement was that agents are now required to sign contracts with buyers before taking them to view any houses for sale. But the survey found that only 57% of the agents had complied so far.
It could be that many of those polled were not NAR members, and therefore not bound by the new rule. But it is safe to say a significant number are ignoring it.
As the report states, “enforcing the buyer agreement requirement is likely going to be a challenge going forward.”