Realtors Reckon With a Seismic Shift to How They Get Paid

More than a million people who broker home buying and selling in America are re-examining their careers.

Last week, the National Association of Realtors settled legal claims that the real-estate industry conspired to keep commissions artificially high. The settlement will likely change how much of a home sale’s price will find its way into an agent’s hands.

Realtors from the suburbs of Maryland to Minneapolis expressed shock that the model for buying and selling homes for the past three decades was upended. They said they are now trying to gauge just how disruptive to their livelihoods the ruling will be.

Most fell into one of three camps: Deny the business will change much, embrace new payment models in the hopes of staying profitable, or find an entirely new line of work.

Franklyn Salas, a part-time real-estate agent in Washington, D.C., earned $50,000 in real-estate commissions last year, mostly from buyers. Many weeks he puts in at least 40 hours, on top of his full-time job at a title company.

Now, Salas is weighing alternative side gigs.

“I might just lean into doing renovations, development and flipping houses,” he said, “rather than running around like a chicken with my head cut off looking for a place for a buyer and getting pushback for wanting to get paid for it.”

The NAR deal, which goes into effect this summer, could hit agents who represent home buyers particularly hard because it could reduce their commissions and dent demand for buyers’ agents altogether, said Stephen Brobeck, senior fellow at the Consumer Federation of America. It could spawn new payment models, such as flat-fee structures where buyers’ agents charge by the hour or for a specific menu of services.

Anthony Lamacchia oversees more than 500 real-estate agents in the northeast and south Florida. He said he spoke with agents during a 6:30 a.m. call on Saturday to walk them through the changes, including the need to negotiate commission splits between the listing agent and the buyer’s agent.

“They were definitely spooked from all of this,” he said.

Finding workarounds

There are nearly 1.5 million members of the National of Realtors, up from fewer than one million in 2012 in the aftermath of the financial crisis. Many of these agents piled into the market during the pandemic as home sales heated up while other industries shed workers.

Most found the market to be tough, with more Realtors than homes for sale in the U.S. by early 2021. Then interest rates started to rise and put a chill on home sales, which made earning a living even harder.

Broker Gigi Luu is currently writing a memo to her 21 agents who work in Virginia, Maryland, and Washington, D.C.: “When clients ask you about the changes let them know there are lots of unknowns,” the draft memo reads. “Only agents that can show their true value will prevail in our industry.”

For decades, buyers didn’t typically pay agents out of their own pockets. The buyer’s agent commission has been paid by the seller and is baked into the house price.

Going forward, buyers might have to foot the bill up front if they want an agent to represent them.

Dan Metcalf, an associate broker in Takoma Park, Md., said some sellers’ agents might find workarounds to continue to pay buyers’ agents as they did before. For instance, the commission splits could be advertised on an agency’s own website or Facebook page instead of the multiple listing service, a database used by Realtors, which is prohibited by the settlement.

Another potential outcome, he said, is that buyers’ agents might provide a fee-for-service model: “It costs this much to write an offer, this much for a home inspection.”

Pressure on home sellers

Despite the potential fallout, some Realtors don’t expect all that much to change.

Pauline Donnelly, owner of real-estate firm Donnelly + Co. in Boston and Martha’s Vineyard, said she thinks most sellers will opt to continue paying the commission for the buyer’s agent. That’s because sellers recognize that agents for buyers can help with their home sale, and dealing with buyers that aren’t represented can be difficult when they aren’t experienced in real-estate transactions, she added.

“It’s unlikely that we are going to go to our buyers and ask them to pay our fees,” said Donnelly, who manages 35 agents in Boston and Martha’s Vineyard. “Many of them won’t be able to afford to.”

In a competitive sale, some buyers might opt to cover their agent’s commission to get ahead of other prospective buyers, Donnelly said, adding, “It’s going to be a rare buyer that does that.”

David Schlichter, who leads a team of four agents in Denver for real-estate firm Compass, expects sellers to keep paying the commission for buyers agents, at least short term. That’s because home sellers realize that working with buyers agents will increase the pool of potential buyers and offers.

“Not offering the commission can actually work against them,” Schlichter said.

Courtney James, the owner of Urban Durham Realty in North Carolina with 27 agents, said she is still trying to figure out what the settlement will mean for her firm.

It is unclear if sales prices for homes will decrease if sellers refuse to pay the commission for buyers agents, she said. And if buyers have to pay a commission for their agents, they might need to pay cash, boxing a lot of people out of the market, she added.

“Agents can’t work for free,” she said.

Write to Anne Marie Chaker at [email protected] and Joseph De Avila at [email protected]