The way home buyers and sellers pay real estate agents in the U.S. could change as a result of a ruling last month against the National Association of Realtors, but many industry insiders expect a far less dramatic effect on the luxury segment of the housing market.
Rumors are flying about real estate agent commissions dropping overnight, home prices declining and a new world order for the industry after a $418 million legal settlement—along with policy changes—by the NAR in response to a massive lawsuit. Whatever the ultimate changes, they’ll likely have a lesser effect on the higher end by virtue of sellers and buyers having more means and, in many cases, experience at the negotiating table.
“Everyone is speculating right now, but my best guess is that this will be far less impactful than people think,” said Brian Boero, co-founder of 1000watt, a real estate branding and strategy firm based in Oakland, California. “I think it’s preposterous and irresponsible for people to say, ‘homes will go on sale’ and that commissions will drop precipitously overnight.”
MORE: Rocker John Fogerty Selling L.A. Estate He Bought From Sylvester Stallone Last Year
Multiple lawsuits were filed in 2023 against NAR and numerous real estate brokerages on behalf of sellers, who claimed the practice of “cooperative compensation” between listing agents and buyers’ agents kept commissions artificially high. NAR offered to pay $418 million in damages, which must be approved by the court sometime in July, and plans to change policies to ban listing agents and sellers from advertising compensation in the Multiple Listing Service (MLS) and require buyers who hire agents to sign a written buyer representation agreement.
If NAR implements changes by mid-July as it intends, no offer of compensation to agents can be listed on the MLS. However, sellers can still choose to offer commissions to both their agent and the buyer’s agent. The information just cannot be advertised on the MLS.
In addition, buyers will be expected to sign a buyer’s agent agreement that explains how much the agent will be paid for their services. However, Victor Lund, managing partner with WAV Group, a real estate consulting firm based in Laguna Beach, California, points out, many companies and 18 states already require a written buyer’s agent agreement.
MORE: How U.S. Homeowners Can Cash in on the Domestic Travel Boom
Currently, buyers’ agents typically receive a portion of the total commission sellers pay to their listing agent at the closing from the proceeds of the sale. Under the new policy, buyers may need to pay their agent directly if the seller doesn’t offer to split the commission. This could mean that more buyers’ agents will charge fees for their services rather than a commission based on a percentage of the purchase price.
Buyers are likely to see the biggest impact in real estate transactions as the NAR settlement stands now, but since the settlement has yet to be legally approved, changes can still be made, Lund said.
Why the Luxury Market Is Different
Though consumers sometimes assume that “standard” commissions are set at 6% split evenly between the buyer’s agent and the listing agent, commissions have always been negotiable, Lund said.
“In the luxury market, buyers and sellers have been more likely to negotiate commissions because the stakes are higher at that level,” Lund said. “The properties themselves have a higher value and the transactions are typically more complicated, so you need experienced support.”
MORE: Century-Old Home in Boston’s Beacon Hill Boasts a Mansard Roof Architecture Lovers Adore
Commission negotiations can often become part of a high-stakes deal in the luxury market, said Olga Neulist, an associate broker with Sotheby’s International Realty in New York City.
“Commissions aren’t just negotiated when the listing agreement is signed,” Neulist said. “Sometimes brokers lower their commissions in difficult situations to get a transaction completed.”
Typical transaction practices aren’t likely to change much in the luxury market, said Samantha DeBianchi LaViola, founder and broker of DeBianchi Real Estate in Fort Lauderdale, Florida.
“People buying at the luxury level want representation, they want to hire an expert and they don’t want to DIY their real estate transaction,” LaViola said. “If a seller doesn’t offer to pay the buyer’s agent, the buyer can always make their offer contingent on paying their agent or they can pay their own agent directly.”
Mansion Global Boutique: Entertaining Essentials for a Wine and Cocktail Enthusiast
Overall, LaViola anticipates that sellers in the luxury market are likely to offer to pay a commission that can be split between the listing agent and the buyer’s agent because they recognize the value of each side having their own representation. In fact, commissions may go higher in the luxury market in some circumstances.
“I have a $3.25 million waterfront listing in Fort Lauderdale and the seller was offering a 5% commission split between the agents,” LaViola said. “Now we’re paying a buyer’s agent 4% and I’ll get 2.5% because of shifting market conditions.”
If sellers are unwilling to pay a buyer’s agent under the new market dynamics, it’s up to the listing agent to explain the value of buyers’ agents, said Marzena Wawrzaszek, a real estate agent with Serhant real estate brokerage in New York City.
“Our job as a listing agent is to get the property in front of as many potential buyers as possible, so it doesn’t make sense to avoid paying agents who will bring buyers,” Wawrzaszek said. “In the luxury market, the higher the price, the more buyers want representation, especially agents who know the buildings in New York.”
Luxury buyers and sellers are particularly dependent on agents for a comparative market analysis that will often be based on global property values, especially in the ultra-luxury market, Lund said.
MORE: Inside Miami Beach’s Only in-the-Sand Waterfront Home
“In the luxury market, the process of both real estate agents’ commissions coming out of the sellers’ side of the closing is likely to stay the same,” Lund said. “Sellers make concessions all the time and under the settlement agreement they can still offer to pay the buyer’s agent fee. No broker or agent is likely to encourage their sellers to decline to offer compensation to a buyer’s agent.”
Luxury buyers can also easily afford to pay for their own agents, if necessary, Lund added.
Will Real Estate Agents Matter in the Future?
Given the backlash against real estate agents unleashed by the commission lawsuits, many agents anticipate needing to explain their value to customers.
“When people go to court, they don’t ask the lawyer for the prosecution to defend them—they hire their own attorney,” Neulist said. “Both sellers and buyers benefit when they have someone to represent them, to explain market conditions and property values, and to negotiate.”
Vickey Barron, a broker with Compass real estate in New York City, expects that brokerages, individual agents, buyers, sellers, the National Association of Realtors and local associations will need to adapt to new dynamics this summer and beyond.
MORE: Manhattan Home of Literary Hitmaker Behind ‘Da Vinci Code’ and ‘Devil Wears Prada’ Selling for $3.5 Million
“We just need to be patient until the puzzle is solved about how the industry will change,” Barron said. “Personally, I don’t believe this will drive home prices down because they’re escalating in the same way that travel and food are escalating.”
Some people believe there will be fewer buyers’ agents as a result of the new NAR policies if neither sellers nor buyers want to pay their commission. Barron compares the potential elimination of buyers’ agents to the loss of travel agents.
“Now, instead of calling on an expert, we go to platforms on our own and we don’t always find the best hotel or the best prices,” Barron said. “It’s not saving money, either, since travel is more expensive today, not less.”
The value of real estate agents isn’t in finding properties for sale, Barron said, it’s about negotiating and advising clients on the pros and cons of various options.
There’s a disconnect between the way consumers view real estate agents generally and personally, Boero said.
MORE: London Mansion Carved From Former British Army Barracks Lists for £42 Million
“When we survey consumers, the majority say they will pay for a real estate agent’s service even if they have to pay out of pocket,” he said. “And while people put down real estate agents generally, 85% to 90% say they want to work with a real estate agent, and they are satisfied with the services of their own agent.”
While there may be more real estate brokerages in the future that charge an hourly rate, by the service or at a discounted percentage of the purchase price, those models already exist but have not been embraced by many consumers, Lund said.
“Discount brokers including Redfin, which charges a 1% commission, have been around for decades, but even in Seattle where Redfin started, their market share is in the single digits compared to traditional real estate brokerages,” Lund said.
What Are Potential Outcomes of the Settlement?
While it remains to be seen how the commission impacts various real estate markets, generally industry insiders anticipate more transparency for buyers and sellers along with a variety of transaction models.
Mansion Global Boutique: Designer Isabel Ladd Can Help Elevate Your Space to a Curated Maximalist Vibe
“Some buyers will skip hiring a buyer’s agent,” Boero said. “Some agents will offer a menu of services at different price points. We’re also likely to see the expansion of dual agency.”
Dual agency refers to an arrangement when the real estate agent represents both the buyer and the seller in a transaction. Eight states ban dual agency, including Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont and Wyoming.
And one thing the lawsuits have clearly affected is consumer perceptions of real estate agents. A common expectation is that there will be fewer real estate agents in the future. Boero thinks there may be as many as 500,000 agents who won’t be able to articulate their value and will move on to other professions. NAR has 1.5 million members, but some licensed real estate agents are not NAR members.
“We can’t underestimate the effect of the unbelievably uniform trash talking about real estate agents in the news and on social media as the commission lawsuits have played out,” Boero said. “Consumer sentiment and choices are the ‘X factor’ that people aren’t thinking about in this.”