Real Estate Agents Face a Reckoning

The sweeping changes brought forward this summer by the National Association of Realtors' (NAR) settlement to end an antitrust lawsuit against the group are likely to catch real estate agents by surprise, according to a recent analysis by investment banking firm Keefe, Bruyette & Woods (KBW).

NAR agreed in March to pay $418 million to settle the cases brought against it over commissions that claimants said overburdened sellers with unnecessary costs—accusations that the group has denied. While the settlement has yet to receive final approval, NAR has promised a series of changes to its processes, which will be implemented as of mid-July, including eliminating rules on commissions.

Some of these changes could upend the housing market, reforming the manner agents charge for home sale transactions and demanding transparency from them about fees throughout the housing sale process. More than anything, they would change the way real estate agents operate in the country—and according to KBW, most of them aren't ready for it.

A series of sweeping changes to the way they work might find U.S. real estate agents unprepared, according to experts. Getty Images

"No more than a year ago, the majority of real estate agents were not even aware of the legal challenges being posed to their industry," Ryan Tomasello, managing director at KBW, told Newsweek.

"Even as the industry became more aware of these challenges through the fall and winter, the majority still believed that any changes would be immaterial, and also take years to be implemented," he added. "With that in mind, we think the materiality of the changes and the rapidity of their implementation have caught most of the industry flat-footed."

Tomasello said his company believes that the most significant change to hit real estate agents is the requirement for buyer agents to enter written agreements with home shoppers at the beginning of the home search process.

"Most importantly, these agreements must stipulate precise compensation terms. We believe this will introduce a level of transparency for home shoppers that has not existed previously," he said.

"This, in turn, should incentivize more comparison shopping and negotiation on the part of home shoppers in their agent selection process."

Because of this change, Tomasello and his colleagues believe that buyer agents will face more competition on both the quality and cost of their services.

"Inexperienced agents, or those agents that are not good at pitching their value proposition, may face a difficult reality under this new way of doing business," Tomasello said.

The real estate agent profession is experiencing a downturn, with the number of real estate brokers and sales agents dropping in 2023 compared to pre-pandemic times. According to the Federal Reserve Economic Data, there were 440,000 people working as real estate agents in the U.S. in 2023, down from 549,000 in 2019.

The U.S. housing market will take time to "digest" the changes brought forward by the NAR settlement and the promises made by the group.

"With this disruption will come opportunity, which we think will materialize in the form of industry consolidation, more innovation, and a bifurcation of winners and losers among brokerages and agents," Tomasello said.

Homebuyers, on the other hand, might "be caught in a bumpy learning curve early on," he explained, but with time, they will learn to capitalize on the changes to their advantage.

"Ultimately, we think these benefits for homebuyers will include greater transparency, more alternatives, and higher quality services when it comes to commissions and agent representation," Tomasello said.

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