The National Association of Realtors (NAR) recently reached a settlement in a lawsuit that could lead to significant changes in how real estate agents are compensated. Historically, the seller of a property would pay the commission for both the seller’s and buyer’s agents, typically totaling between 5-6%. However, this longstanding practice might soon shift, potentially reducing commission rates and impacting the real estate market in Florida, which has the highest number of agents in the U.S.
Shift in Commission Rates
Stephen Brobeck from the Consumer Federation of America explained that the settlement could lower commission rates over the next few years. “I’m predicting that the 5 to 6% rates, which are fairly uniform, are going to evolve to an average of 3 to 4% rates, but there’s going to be much more variation,” Brobeck said. This reduction in commission rates could affect the income of real estate agents and, subsequently, the way they operate.
A federal court still needs to approve the settlement, with implementation expected by July. If approved, the impact could be seen first in major cities like Miami, where research indicates that current commission rates hover around 6%. Brobeck suggests these rates could drop to around 4%, providing potential savings for homebuyers and sellers.
Potential Impact on the Industry
The reduction in commission rates could lead to a shake-up in the real estate industry. With rates expected to drop by 20-50% over the next few years, agents who rely heavily on commissions could face significant income reductions. Brobeck noted that this might lead some agents to leave the industry, especially those who find it challenging to negotiate contracts with buyers.
One aspect of the new settlement is the requirement for a signed contract between buyers and their agents. “Today, if there is a contract, and often there isn’t, the buyers don’t pay much attention to it because they know that the seller will pay the buyer agent’s commission,” Brobeck explained. However, with this new requirement, buyers will need to discuss and negotiate the buyer agent’s commission, which could be a challenge for less experienced agents.
The Role of Transaction Brokers
Another topic of discussion is Florida’s use of transaction brokers, who do not represent buyers or sellers in a fiduciary capacity. By default, unless an agent establishes a single agent or no brokerage relationship in writing, they are considered transaction brokers. Brobeck criticized this system, calling it “outrageous.”
“Transaction brokers and facilitators should not both be involved in a single sale. If you’re a fiduciary agent, you have to disclose that, but if you’re a transactional broker, you don’t have to,” Brobeck noted. This lack of disclosure can create confusion for consumers, leading to potential misinterpretations of the agent’s role and responsibilities.
Future Directions
Brobeck advocates for a more transparent system, suggesting that transaction brokers clearly disclose their role as non-fiduciaries. Additionally, he proposes allowing consumers the choice to work with fiduciary agents, who have a higher level of responsibility and liability, to ensure a fairer real estate market.
Overall, the NAR settlement has the potential to alter the real estate landscape in Florida, impacting commission rates, agent practices, and the roles of brokers. The changes could lead to greater variation in commission rates, improved transparency, and possibly a shift in the structure of the industry. However, the effects may take time to materialize, with Brobeck suggesting it could be three to four years before consumers see a significant difference