After lawsuit, changes coming to real estate. But how big will they be?
Who pays the commission for a real estate agent?
That's the question behind a $400 million class action settlement that some say could upend the real estate market. Traditionally, the home seller has paid both their listing agent and the buyer's agent out of the proceeds of the sale, but the National Association of Realtors agreed to settle a lawsuit that had argued that practice is unfair.
Since news of the settlement broke, numerous home sellers have been wondering exactly how it will change the commission process.
Right now, when a house goes on the market, agents post details of the commission being offered with the house listing in the Multiple Listing Service. That way a buyer's agent knows upfront about how much money they'll make. Due to this settlement, that practice will end this August.
Technically, that's the only change to the commission process as a result of the lawsuit and settlement.
In reality, however, there are likely to be a few more changes buyers and sellers experience moving forward.
For starters, more buyers will likely be asked to sign a contract with their agents, spelling out how much the agents get paid in the event a seller doesn't offer them a commission. Right now, commission for a buyer's agent is almost always baked into the price of a house, but it's possible that could shift.
Anthony Lamacchia, owner of Massachusetts-based Lamacchia Realty, has spoken extensively on the topic of the settlement and says while some buyer agents already use contracts, he believes they'll become a necessity for those agents moving forward to protect the value of their time and effort.
"Over the years, there haven't been as many buyer agency contracts used or buyer contracts used. Now it's going to be mandatory," Lamacchia said. "Buyer agents will have to tell the buyer what they want to charge, what they want to get paid, and then depending upon what's offered, if anything, they'll have to sort that out at the time of negotiation."
That leads to another big question facing the industry: do home sellers have to pay commission to a buyer's agent? No – but that's always been the case. Commissions are negotiable, including who they are offered to, and always have been. In Greater Boston, they usually run about five percent of the home price, split between agents on both sides of the deal.
In light of the publicity surrounding this settlement, Lamacchia says only a handful of home sellers have asked his agents about removing commission for the buyer's agent.
"We can count on one hand how many [have asked to do it], and we have 600 realtors," he said.
Making that move comes with a warning from many real estate brokers: it could be a turn-off to buyers and result in a lower overall selling price. After all, home prices are at record levels and mortgage rates are already through the roof making it hard enough to buy a home without having to pay an agent out of a buyer's pocket.
"Buyers almost always take the path of least financial resistance, particularly first-time buyers," Lamacchia said. "When they're looking at homes, they're not going to go running to the home where they have to come out of pocket and pay their realtor, in most cases."
It also seems unlikely that this settlement will lower the region's stratospheric housing prices. Some have speculated that prices will come down if commissions are cut, but that discounts the fact that pricing is overwhelmingly a function of supply and demand. There just isn't enough housing supply in Greater Boston – especially as homeowners cling to incredibly low mortgage rates obtained during the pandemic – which means more competition for the few houses out there.