The groundbreaking National Association of Realtors’ $418 million settlement might not be so life-changing, if you take Ken Johnson’s word for it. The former broker and current dean in the Florida Atlantic University’s finance department, whose research focuses on real estate economics, told Fortune that not much is going to change.
Last week, the National Association of Realtors, the country’s largest trade association representing 1.5 million members, reached a settlement over an alleged conspiracy to inflate commissions. It agreed to pay $418 million in damages across multiple antitrust lawsuits, including one that recently resulted in a $1.8 billion verdict, finding the National Association of Realtors (among other brokerages) conspired to inflate commissions. “I find it a major stretch to see how this was some sort of collusive behavior,” Johnson said. As a broker for more than a decade, he and other brokers couldn’t even agree on where to go to lunch, he said. Still, this is where we are, and as part of its settlement, NAR said it would prohibit offers of broker compensation on the Multiple Listing Service (MLS), and require MLS users to enter into written contacts with buyers. It’s subject to court approval and wouldn’t take effect until this summer, in mid-July. NAR still denies any wrongdoing.
Essentially, the industry-standard of a 5% to 6% commission was baked into a sellers’ MLS listing, and the seller’s agent and buyer’s agent would split it. The settlement means those commissions can no longer get mixed into the listing. Some analysts suggest the roughly $100 billion Americans pay in real estate commissions every year could lessen, and real estate agents’ commissions could eventually drop about 30%. With lower commissions, which some real estate agents’ livelihoods depend on, there’s been some speculation that this could be the death knell for real estate agents. Johnson doesn’t see that happening, “not at all,” he said when asked by Fortune. “I don’t think it’s a shakeout.”
Selling your home is expensive, Johnson said, and sometimes you have to go through three or four buyers, if not more, to close a deal. The successful agent gets the payout, and that’s not something he sees changing with this settlement. “Because that underlying cost structure does not change, you’re not going to see the commission on the buy-side change that much,” he explained.
“There’ll be workarounds,” he continued, “And in a few years, we’ll be talking about how this really didn’t change.”
That doesn’t mean there won’t be a period of change, or some shifts. Once everything goes into effect, for the next few months, Johnson suspects some buyers will choose to go through their home-buying process unrepresented. They could have done that before, too, he said. Still, he doesn’t think they’ll necessarily be paying more or less, but they might not have the pricing information that they need to make a sound decision. So maybe for the next few months, people will try to do it all on their own, but they’ll realize that having an agent helps a lot, Johnson said. Brokers and agents might try different things too, potentially offering discounted services, which they have done before. “These things have all been tried dozens of times in the past and there’s nothing to change that now; they’ll go try it again,” he said.
There could be fewer real estate agents, Johnson said, and that’s fair to suggest, but this isn’t the end for all real estate agents. There were more than 1.5 million real estate agents and brokers, and as of last year, only 4.09 million existing homes sold. That and a much more difficult market than that of the pandemic’s could have an impact.
Buyers will always have questions; they’ll want to know if they’re paying too much, if it’s a good deal, if they’ll be able to resell it one day. Successful agents will have the answers, Johnson said.
“I do think we’re in for a little shake up, but in the end, we’ll find a workaround all the way back around to where we’re doing business very similar as we are today, until that underlying cost structure is changed,” Johnson said.
Johnson called Fortune from his hotel room, where he was staying for an annual meeting of the American Real Estate Society; his housing buddies seem to share a consensus that not much will change following the NAR settlement, he said. For the most part, he still expects sellers’ agents and buyers’ agents to split the commission, or share it—if anything, it’ll all be more upfront, which it should have been from the get go.
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