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Big changes could come to home buying this weekend. They stem from a lawsuit that accused real estate agents of price fixing to keep their commissions high. The National Association of Realtors settled that lawsuit, and NPR's Scott Horsley reports on what's changing.
SCOTT HORSLEY, BYLINE: For decades, most people selling a house in the U.S. paid a commission of between 5 and 6% of the sales price. On a $400,000 home, that's 20 to $24,000. Steve Brobeck, who's a senior fellow at the Consumer Federation of America, says that's far more than real estate agents in other countries typically make.
STEVE BROBECK: We have every hope that in the next year, rates will start to come down, and the marketplace will become generally more competitive.
HORSLEY: Historically, home buyers haven't paid any sales commission out of pocket. Buyer's agents are typically paid by the seller, collecting half of that 5 or 6%. Critics say one factor keeping those commissions high is that terms are advertised on the multiple listing service, a computerized catalog of homes for sale. Any seller who tries to offer less than the going rate might find no takers at their open house. Starting this weekend, though, that's changing as a result of the legal settlement. Columbus, Ohio, realtor Buffie Patterson says as of August 17, commission offers will no longer appear on any multiple listing service.
BUFFIE PATTERSON: So that number or that percentage or that flat fee or whatever the number is, if it was there on the 16, it will not be there on the 17.
HORSLEY: From now on, any shared commission will have to be negotiated house by house. And some sellers may ask, why should I be paying the buyer's agent at all?
JACK GAUGHAN: I've had sellers say that to me my entire career, and I've been doing this for over 10 years.
HORSLEY: Nashville realtor Jack Gaughan argues often it will still be in the home seller's interest to pay the buyer's agent to bring more home shoppers through the door. But if sellers decide not to pay, buyers may have to pay their own agents. Realtor Buffie Patterson says that could be daunting for first-time buyers who are already stretched coming up with a down payment.
PATTERSON: Change is never easy at first, but often it ends up being beneficial. I think it's just going to bring more clarity and transparency, and ultimately we're going to be better as a result.
HORSLEY: Depending on the sales price, some buyers may be able to fold their agent's commission into their mortgage. Steve Brobeck, the consumer advocate, says both buyers and sellers should try to negotiate lower commissions, preferably expressed in dollar terms, not the percentage of the sales price. Also starting this weekend, buyers will have to sign an agreement with their agent before touring any home. Brobeck says it's important to read that agreement, and if you're not sure what it means, don't sign it.
BROBECK: The easiest option is to reject it, say, I'm not going to sign this. And if the agent won't accommodate you, you should find another agent.
HORSLEY: The U.S. already has far more real estate agents than most other countries. If competition results in lower commissions, some may decide to get out of the business. Others may experiment by offering new a la carte pricing, like discount airlines with a cut rate base commission but extra charges for additional services. Someone who tours a lot of houses might have to pay more than a buyer who visits only a few. Realtor Jack Gaughan says not everyone will welcome these changes, but in the end, people should have more options.
GAUGHAN: Just like any other services, services have a cost. And then each agent is able to set their cost for that buyer. And if the buyer agrees to it, they'll sign onto the buyer representation agreement. If they don't feel like the value is there, they're not required to do so.
HORSLEY: Over time, home buyers and sellers are expected to save tens of billions of dollars a year in lower commissions. It's likely to take a while, though, to get used to this newly competitive neighborhood.
Scott Horsley, NPR News, Washington.
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