A proposed settlement ending a lawsuit against the National Association of Realtors would mean the standard 6 percent commission that agents get would go away.
The lawsuit claimed that the association’s policies that ultimately helped set agent commissions forced people to pay artificially inflated costs to sell their homes. While the settlement still has to be approved by a court before it goes into effect, the group agreed to end those policies Friday and pay $418 million to help compensate sellers across the U.S.
Maine agents differ on whether this is a good thing. The agreement could slightly lower home sale prices for the seller, but that should be negligible as the state’s low housing inventory and sky-high demand continue to push up prices. Buyers might suffer by fronting the costs for their representation, but that could also bring more transparency and choice.
Most agents agree that the biggest change will probably be to the industry, not the consumer. The agreement could lead lower-performing agents to drop the profession altogether.
Here’s what the settlement could mean for those three sides of the market.
What this means for homebuyers
Many Maine real estate agents predict that the proposed settlement will be bad for homebuyers. Putting pressure on the buyer to pay for their own representation could cause many low- to middle-income people to refuse representation instead of fronting costs that are now typically paid on the back end of a home sale.
“It’s a challenge for most buyers to even come up with a 20 percent down payment, let alone all these other fees that are related to closing costs,” Erica Brooks, a Bar Harbor-based agent with Swan Agency Real Estate, said. “It adds one more barrier to entry to the process, which frankly they don’t need right now in this market.”
Real estate agents have a personal stake in advocating for representation, but it’s true that this change could leave vulnerable buyers without an advocate in the biggest purchase of their lives.
“Somebody’s got to pay for that buyer’s representative or they’re not going to have it, and the only people that are going to have it are the people that can afford it,” Cathy Manchester, one of the owners of Keller Williams Greater Portland, said. “That’s not how we want housing to go.”
Farmingdale-based Harrison Wolfington of Laflin and Wolfington Realty has a different perspective. Wolfington’s agency has already been decoupling fees for years, he said.
Wolfington predicts that if the settlement is approved, lenders will open up additional avenues to help homebuyers. Manchester said that since nothing about the settlement prevents sellers from compensating the buyer’s agents, that’s the most likely workaround for this issue.
“Our office works with buyers at every price point. We’ve been setting our fee and collecting our fee and coming up with creative ways to collect our fee,” Wolfington said. “We’re either working it into the deal, or collecting it directly from the buyer for years. It hasn’t slowed us down at all.”
What this means for sellers
The biggest change for sellers will be the consideration of the question: Am I willing to pay for a buyer agent to represent a buyer or not? It’s likely that many sellers will offer to do so, Paul McKee, the president of the Maine Association of Realtors, said.
“It’s always in the best interest of the seller to attract the most people to their house, to get the most amount of offers possible,” McKee said.
There is an upshot from the rule change for sellers, McKee said. They won’t spend as much in compensation for representation, which would bring down the cost of selling their home. It will be a question of whether a seller thinks that price is better than agreeing to front the buyer’s agent fee, McKee said.
It’s also worth noting that the high home prices in Maine right now are driven by an overall lack of inventory, not by agents’ commissions.
“Home prices are not going to dramatically change because of this,” Brooks said.
What this means for the industry
Real estate agents agree that the biggest changes stemming from this settlement will be to the real estate industry. Buyer’s agents are now going to have to justify their fees, discuss them upfront and clearly communicate them, Wolfington said.
“I think it increases transparency,” Wolfington said. “If you don’t have a strong value proposition, you’re going to be out of the industry. People that do have a strong value proposition, they’re going to do a lot of business.”
Low inventory in Maine already means that lower-performing agents are leaving real estate, Manchester said. If the settlement is approved, her agency will train agents on how to articulate why buyers should be represented in a transaction.
It is too soon for McKee to say whether agents will see less business because of the settlement, he said, as it’s not yet gone to court. But he “wouldn’t be surprised” if the Maine association had a decrease in agents because of this.
“We’re resilient, we adjust to changes all the time,” McKee said. “People still need to have a home, and I would like to believe that most people would like to have representation.”