KIRO 7 Now
On Friday, the National Association of REALTORS® $418 million settlement sent waves of shock and uncertainty across the real estate industry.
Impacts surrounding the settlement vary from state to state. But diving deeper into its impacts on our region, we’ve learned that some changes are not as extreme as some headlines.
If the Federal Court approves Friday’s settlement, the average 5% to 6% commission split between buyer and seller brokerages is open for negotiation, and sellers are not required to pay a prospective buyer’s agent fees. Another rule to be implemented nationwide is requiring all buyers or sellers to sign a formal agency agreement.
While some of that sounds daunting or unsettling, the state of Washington has initiated some of the changes mentioned in the settlement on January 1, 2024.
Jantzee Ellis, a realtor with eXp Realty based in Thurston County, told KIRO 7 that this new agency law resulted in “all new forms, all new agreements, but the biggest change was that we are no longer to provide any brokerage services to a buyer unless we’re in a formal agency agreement.”
By entering into these formal agency agreements, buyers or sellers know up front before officially committing to any business partnerships with an agent. They are given their agent’s terms of payment upfront and a list of those responsible for paying the respective agent.
While sellers may not be obligated to pay a prospective buyer’s agent fees, some prospective buyers may find the new financial liability overwhelming, especially after purchasing a home.
Ellis explains that no matter who is responsible for paying one of both fees, the money still comes from the “same pot.”
Ellis said, “Without the buyer loan, without their down payment, without their funds, there is no sale, so there is no profit for the seller. There is no listing commission. There is no buyer agent commission.”
This arrangement starts raising red flags when factoring in a buyer using a VA Home Loan.
“…VA homebuyers are people who cannot pay their own agent if it comes down to it,” said Ellis, a military spouse who also works with VA buyers.
She added, “It is VA regulation that VA borrowers cannot pay agent commissions.”
According to Ellis, “If we get into scenarios where multiple offers are happening and some buyers are offering that the seller doesn’t need to pay their agent’s commission, they will pay it—that handicaps the VA buyers because they are not allowed to do that.”
When asked what Ellis thinks about this recent settlement, she told KIRO that, in short, in the end, it could be a good thing. She believes it will weed out the “hobbyists” or people looking to sell a home once or twice a year. She also said, “It’s really important to clarify that we don’t know everything yet. This is fresh. This just happened 72 hours ago, and everybody is still trying to figure out how this will look in practice in real life and what the implications will be.”
We contacted the University of Washington’s Center for Real Estate Research. The center’s associate director, Mason Virant, summarized some general changes that may affect the real estate market nationwide.
Virant shared with KIRO 7 the following:
1 – Reduced commissions for real estate agents: The ruling on the “anti-competitive” nature of requiring agents to impose a 6% commission on home sales (3% to sellers’ agent & 3% to buyers’ agent) will undoubtedly shake up negotiations between sellers and their real estate agents on the commission front.
2 – Increased competition amongst agents: Another “domino effect” of the ruling will be increased competition amongst realtors (and at a lower % commission than 6%). If the standard/“mandatory” commission % is no longer set at 6%, sellers looking for representation will see agents lowering their commission % to win listing agreements or even introduce new approaches to how agents are paid.
3 – Decreased home prices: Many consumers attempt to recapture some of the costs associated with agents’ commissions by adding some (or all) of those fees into the list price of their homes. A home that should be valued at $500,000 may be put on the market at $525,000 or $530,000 to offset the $30,000 the seller would have to pay in commissions. This outcome may not be immediate, but as the costs associated with selling a home are decreased, home prices should reflect that change eventually.
4 – Fewer real estate agents: Finally, there will undoubtedly be a bit of an exodus for many (especially younger, less established) real estate agents. If the standard commission structure is decreased drastically (let’s say to 1%), the opportunity and volume required to make a full-time income as a real estate agent will increase dramatically.
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