What should Seattle-area home buyers expect after the national settlement

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By journalsofus.com


A sweeping legal settlement could upend the Seattle-area real estate industry and fundamentally change the way home buyers pay their agents.

Or not.

The National Association of Realtors announced Friday that it has reached a $418 million settlement stemming from a federal lawsuit that accused the trade group of inflating real estate agent commissions. The 1.5 million-member organization agreed to make significant changes to its commission practices. The news sparked a flurry of speculation about how much turmoil could befall the industry, as many Americans move to make the most expensive purchases of their lives.

In Western Washington, the future is even more unclear due to significant differences in the way homes are bought and sold in the region.

“There is a lot of uncertainty,” said Seattle Windermere agent Sol Villarreal. “We don’t yet have the information we need to know how this is going to happen.”

Changes in the way agents are paid

Ongoing lawsuits against NAR revolve around how real estate agents are paid.

Home sellers typically pay a commission to their agent, who then splits it with the agent representing the buyer. Home buyers generally do not pay any direct commission to their agent.

Critics say this arrangement discourages competition and keeps commissions fixed at their standard 5%–6%. Although sellers’ agents can theoretically offer lower payments to buyers’ agents, critics warn that buyers’ agents may steer their clients away from homes with little or no commission.

Consumer advocates and home sellers have taken aim at those practices in recent years. Friday’s settlement stems from a 2019 lawsuit filed in Illinois. NAR lost a similar case in Missouri in the fall.

The settlement agreement, which still requires court approval, outlines NAR’s plan to change the way the commission advertises. The agreement will prevent sellers’ agents from disclosing the commissions paid to buyers’ agents when listing homes on multiple listing services starting in July. NAR will also require agents to enter into written agreements with home buyers stating the cost of the agent’s services. The agreement covers multiple NAR-owned listing services across the country.

In Western Washington, however, there is a complication: The Northwest Multiple Listing Service (NWMLS), which covers 26 of Washington’s 39 counties, is independent from the NAR, meaning it won’t automatically be covered by the settlement. .

Settlement provides a path for that type of listing service: they can agree to the same terms, restrict information about buyers’ agent payments to the listing, and pay for settlement funds. In return, according to the NAR summary of the terms, the settlement will release them from “liability for the types of claims brought in these cases on behalf of home sellers related to broker commissions.”

NWMLS leaders have not yet said whether they plan to follow that path. The organization did not directly answer this question on Monday.

Unlike many other markets, the NWMLS has actively changed some policies, including allowing sellers to pay no commission to buyers’ agents. Washington has already begun requiring real estate agents to have written agreements with buyers and sellers that include their payment terms.

The NWMLS said in a statement Monday that it has already “made changes to its rules, forms and procedures that address the issues raised by the national litigation and outlined in the proposed settlement agreement.”

Those changes “enhanced opportunities for transparency, consumer choice, and dialogue related to broker compensation,” the statement said.

Still, the changes haven’t resulted in much of a drop in commissions here. A 2022 review of nearly 500 Seattle home listings found that the vast majority offered roughly the same commission.

Given this, the local listings service is “in danger of being sued,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America, which has pushed for changes in the real estate commission. “My guess is that they will accept the terms of the agreement and develop their own practices.”

Nathan Gorton, CEO of Washington Realtors, cautioned that it is too early to predict how the changes might play out locally.

“I’m not sure whether this will make any significant difference to transactions in Washington state,” Gorton said.

But consumer advocates say the agreement moves the industry closer to “delinking” the commissions paid to buyers’ and sellers’ agents, even in Washington.

Lawyers representing home sellers in the Illinois case said in a statement that the settlement means “brokers will now compete in a free market, where they are compensated based on the value of the work they do, not the Based on the threat that sellers will be unable to sell their homes unless buyer brokers are compensated at an increased rate.

Buyers’ agents worry that the change could lead sellers to stop paying commissions to buyer’s agents, forcing buyers to pay their agents upfront as they try to handle closing costs and down payments — or navigate the process alone. to do.

Kim Colaprete, an agent at Coldwell Banker Bain’s Team Diva office in Seattle, said, “I would be disappointed if MLS chose to go that route… and I think there are a lot of people out there who agree with me.” “It really puts a lot of stress on the system for buyers.”

About 80% of Villarreal’s business comes from homebuyers, he said. The pressure to completely separate buyers’ and sellers’ commissions “is a scary situation for Realtors,” he said.

“Imagine being a buyer in the Seattle real estate market nine out of the last 10 years [without an agent], Villarreal said. “It would be a terrible thing for consumers to be buyers without representation.”

Redfin CEO Glenn Kelman, whose company provides discounted listing services and employs agents, argued for moving to a system where buyers pay their agent directly.

“If you believe in the value of a buyer’s agent, let the buyer pay them,” he said in an interview.

Under the current system, Kelman said, longtime agents who “have stuck with their clients for six or 12 months” and others who “just write an offer for someone they met four hours ago” can earn the same commission. .

“The idea that both of those people should earn the same amount and it should be set in advance, regardless of the service level, regardless of the relationship with the customer, regardless of the experience of the agent – ​​that’s where we take exception to it.” Admit,” he said. Said.

Savings for consumers?

Consumer advocates, who have been critical of the current commission structure, say the change will translate into savings for homebuyers and ultimately sellers.

Brobeck said consumers can save 20% to 30% on real estate commissions.

But changes will not happen immediately.

Under the agreement, sellers’ agents can still offer commissions to buyers’ agents, but cannot make those offers in listing services where agents trade information about homes.

Instead, the buyer’s agent may call the seller’s agent to ask about the commission or the seller may offer the buyer some other type of credit, such as assistance with their closing costs, to offset those costs. The buyer will now be paying his agent.

The current structure of commissions “is the glue that makes the real estate industry work right now,” said Villarreal, a Windermere agent who also sits on the policy committees of local Realtor associations. “So, the question is, when you open it up, does it still work the same way, or is it replaced by something else?”

Some real estate agents doubt that the change in commissions can actually save buyers money when inventory, interest rates and other factors are the primary drivers of home prices.

“I don’t necessarily believe that if the seller is offering less money to the buyer that they will automatically price their property below market value,” Colaprete said.

Brobeck anticipates the change will happen gradually. Buyers will become more aware of real estate commissions, try to negotiate something, and discount brokerages will continue to arrive, he predicted. After all, “it will exert downward pressure [commission] Rates,” he said. Sellers may eventually try to negotiate with their agents as well.

However, in the meantime, “the transition will be messy,” he said.

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