CINCINNATI — The National Association of Realtors' $418 million settlement could drive down house prices if it gets approved by a judge.
Part of the settlement includes eliminating rules on commission which typically comes out to 6%.
“I would anticipate now, is, you’re not going to have to pay for 3% of the whole bundle anymore if you’re the seller or the buyer,” said Gary Painter, a professor of Real Estate at the University of Cincinnati.
The BEARE (Board of Executive Advisors in Real Estate) Chair in Real Estate said the buyers and sellers each get 3%. He said that commission structure has started to chip away in California, Washington D.C. and parts of New York City because the value of 6% has gotten so high in those markets.
“That 6%, you know, when a house was $20,000, $40,000, $80,000, you know, was representing a set of services that was probably worth that value,” he said. “Now, we’re looking at a situation where house prices have gone up. It might be more difficult to justify that full value of that bundle of services.”
Painter said it’s hard to predict what will happen, but it’s possible the price to buy a house won’t be as expensive.
“I think initially we would expect to see a small reduction in home prices because the seller is not going to be required in some sense to pay a total of 6% commission for the house that they’re selling with the real estate agent, but in the long term it’s hard to predict,” he said.
Painter said he thinks we will start to see more full-service agents and professionalized agents who have expertise in a particular set of services, as well as fewer part-time agents because the commission they earn on the side won’t be as high.
“I think you’ll start to see the industry diversity in ways we haven’t even imaged yet,” he said.
However, not everyone thinks we’ll see a change in our region. Coldwell Banker Darrick Dansby doesn’t believe this settlement will have a big impact on the market.
“I personally don’t see any changes in how the commission agreements are working here locally in the City of Cincinnati and in the state, to be honest with you,” Dansby said.
Dansby said that’s because sellers will want to maximize their profit.
“I quite honestly don’t see anything changing where the seller is not going to be willing to pay commissions because the seller wants to sell their house for the maximum price they can sell it for. The least amount of financial impact you have on the buyer the more you’re going to be able to get for your house long term,” he said.
He said the changes will require a little more paperwork and communication on the realtors' side.
“From the buyer’s perspective, they’ll never see any difference,” he said. “They still get the same quality customer service and attention to detail that all realtors provide.”
Dansby said there is one change prospective homebuyers will start to see.
“The biggest thing you’re going to have to do is enter into some sort of a buyer’s representation agreement with the realtor you’re working with directly,” he said.
Dansby said those agreements are currently optional, but they likely won’t be by mid-July.
He said things can change though because this settlement is new. He said it’s best to talk with your realtor to get the most up-to-date information.
Painter said even though it will take a little bit for the settlement to get approved, he thinks we’ll start to see changes.
“I think what people are hoping that happens is that they won’t have to pay as high a price because the agent’s share is going to go down; therefore, the seller if they’re not having to pay as a large of a commission are willing to sell their house at a lower price,” he said.
Painter said he expects to see a big difference for people who have a house already and are looking to move.
“They have some experience in the housing market and they probably feel like it’s not really worth it to kind of get someone who has all this knowledge when they don’t need all that knowledge and expertise,” Painter said.
Painter said he doesn’t believe the changes will have a huge impact on full-time realtors who stay in the industry long-term based on the studies he has read.
