WSJ Your Money Briefing - What Changes to Real-Estate Commissions Mean for Buyers and Sellers

Episode Date: August 20, 2024

A settlement reached by the National Association of Realtors over inflated commissions has changed the way real-estate agents collect payments. Wall Street Journal housing reporter Nicole Friedman joins host J.R. Whalen to discuss how the deal gives buyers more negotiating power. Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Benefits vary by card, other conditions apply. Here's your money briefing for Tuesday, August 20th. I'm JR Whalen for The Wall Street Journal. In addition to mortgage rates trending lower, home buyers now have more options as a result of a jury verdict against the National Association of Realtors last year. That impacts how real estate agents are paid. Buyers will have an opportunity to directly discuss with their agents what services the agents will provide and what that will cost and have that negotiation upfront before even touring homes together.

We'll talk to Wall Street Journal housing reporter Nicole Friedman about how it could affect home prices after the break. So what's it like to buy your first cryptocurrency on Kraken? Well, let's say I'm at a food truck I've never tried before. Am I gonna go all in on the loaded taco? No, sir. I'm keeping it simple. Starting small.

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The way real estate agents are paid could mean big changes for home buyers and sellers. Wall Street Journal reporter Nicole Friedman joins me to go through the details. Nicole, what led to the settlement reached earlier this year that resulted in these changes? There was a lawsuit and a jury last fall determined that the system for how real estate agents were paid kept fees for real estate agents artificially high. And the jury found the National Association of Realtors and some real estate brokerages liable for about $1.8 billion in damages. And following that jury verdict, a lot of other similar lawsuits were filed around the

US. And so this was a major threat for the National Association of Realtors and for the real estate industry. And so the National Association of Realtors reached this large national settlement in March to resolve these claims. And part of the settlement was changing some of the rules

for how real estate agents get paid. So how will this change in the rules impact prospective buyers when they look at homes? Buyers may already be finding that when they want to go tour a home before even going on a home tour with a real estate agent, that agent is now asking them to sign an agreement. And the idea here is

that buyers will have an opportunity to directly discuss with their agents what services the agents will provide and what that will cost and have that negotiation upfront before even touring homes together. Does this mean a buyer has to use a real estate agent? No. So buyers have never had to use real estate agents and they still don't. It's possible for buyers to go through this process themselves. They can tour homes and do research and make offers on their own. Some buyers choose to work with an attorney instead of a real estate agent.

But historically most buyers do choose to work with agents and they often want somebody to guide them through the process. So if somebody does hire an agent, how would the agent's commission change? So that's really up to buyers, right? It's now really buyers who are having these conversations directly with their agents. And so it really remains to be seen how those conversations go and what buyers decide is a fair amount to pay an agent whether they want to pay less than agents have historically been paid or whether they want different types of pricing systems the typical way

of paying an agent is as a percent of the sale price but there's some theories that going forward more buyers might want flat rates or hourly rates or other types of pricing models. Under these revised rules, who actually pays the agents? It could come from a couple of different places. And so the buyer is the one who signs this agreement. And that does mean that the buyer could ultimately be on the hook for the money, which is why buyers should really read these agreements carefully

and think through what they think the value is of the agent's services and how much they want to pay for that. But buyers can ask the seller to cover the cost of the agent, or in some cases, sellers might proactively offer to cover that cost. And so it's not expected that buyers will universally pay their agents. There are probably many situations in which sellers will continue to cover that cost, but buyers should think about this when making these negotiations and having these conversations as if they might

ultimately be the ones responsible for that cost. When a seller puts their home on the market, how will the information they provide be affected? When sellers list their homes using real estate agents, the agents put all of the information about the home and the listing price and the description into a multiple listing service, which is a local database for home listings. And historically, multiple listing services included in the listings the amount that was being offered to the buyer's agent. And that is no longer going to be available in the MLS.

And so if a seller wants to cover the cost of the buyer's agent or not, that's still up to them and they can still make that offer, but they can't include that information anymore in the MLS. Whether costs would be covered by the seller might come up in the negotiation between the buyer and the seller? Exactly. So, buyers can always ask for that information, and when a buyer puts in an offer, regardless of whether the seller is making an upfront offer to cover the cost of the buyer's agent, the buyer can always ask for it. It's maybe the same as asking for a new roof or asking for some repairs.

Buyers can always ask for various things as part of their offer. And going forward, it's expected that more buyers will put that in the offer. Say I'll pay this certain amount for your home and I would like you to pay this certain amount to cover the cost of my agent. Could these changes to the way that agents are paid make home prices more affordable? So this is the huge question that nobody really knows the answer to yet. A big question is whether the changes in this system for how agents get paid actually lowers commissions, whether buyers and sellers negotiate more aggressively with their agents now,

or whether they seek out new business models that have flat fees or fee for service or different types of paying agents that might help lower the cost. And then if real estate commissions come down, that is typically, historically something that's baked into the price of the home. So a lower commission could lead to a slightly lower home price.

And lowering the cost of transacting, just the cost of buying and selling, maybe could make sellers slightly more willing to sell. Maybe it could increase the amount of inventory on the market if it's a little bit lower cost to sell a home and buy a new one. But whether the inventory goes up and that leads to higher or lower prices, again, is something that economists are continuing to debate. What if somebody just wants to tour a home or go to an open house without going through an agent?

Can they still do that? Yeah. So open houses are hosted by the listing agent in their capacity working for the seller. So anyone can go to an open house without an agent and doesn't need to sign any sort of agreement. And buyers also, if they don't want to work with their own agent yet, if they don't want to sign anything with their agent yet, they can just call a listing agent and ask for a tour. And it's up to the listing agent whether they want to do that. But remember, as a tour, and it's up to the listing agent whether they want to do that.

But remember, as a buyer, you are not represented by the listing agent. They're not working for you. They're working for the seller. Is there anything retroactive about this settlement? Would anybody who sold a home in the past couple of years be entitled to compensation? Yes. For sellers who sold their homes sometime in the last decade, they might be entitled to a? Yes, for sellers who sold their homes sometime in the last decade,

they might be entitled to a small payout. There is a website that you can go to to learn more about whether you're eligible for a small piece of this settlement. The website is realestatecommissionlitigation.com. That's WSJ reporter Nicole Friedman, and that's it for your money briefing. We'll be back tomorrow morning with WSJ's Sanvi Bangalore to discuss how some universities

are letting students alternate between classes and full-time paid work to help them land a job after graduation. This episode was produced by Zoe Kolkin with supervising producer Melanie Roy. I'm JR Whalen for The Wall Street Journal. Thanks for listening.