How real estate commission changes could make buying and selling a home cheaper

William Brangham:

Buying and selling a home could get quite a bit cheaper. That's because the National Association of Realtors has now agreed to rewrite a number of the rules that regulate America's housing industry.

John Yang unpacks the details.

John Yang:

Typically, a person selling their house pays a commission of 5 or 6 percent of the purchase price to their agent, who then splits it with the buyer's agent.

But if a federal judge approves a proposed settlement, that's all going to change. To resolve a lawsuit brought by some people who had sold their homes, the National Association of Realtors, the industry trade group, has agreed to abandon its rules about how commissions are set, advertised and paid.

Debra Kamin is a New York Times real estate reporter. Her investigation into the realtors group last year led to the resignation of its president.

Debra, let's start with this question of the commissions.

What is the effect — going to be the effect on someone who sells their home and someone who buys a home?

Debra Kamin, The New York Times:

So, we definitely know what the effect is going to be on someone who sells their home. And commissions for them are going to go down.

In the past, when you sold a home, you were responsible for paying commissions to your agent, the seller's agent, and then that agent went ahead and split the commission with the buyer's agent. That number was usually between 5 and 6 percent. And as a result of the settlement, that number is going to go down.

So sellers are going to have more money taking with them from a home sale to go on to buy their next house. For buyers, the onus for paying is probably now going to be on them, and that's where we're expecting this settlement to hurt the most.

John Yang:

Talk about how this lawsuit was brought. Who brought it, and why did they bring it?

Debra Kamin:

The lawsuit was brought by a handful of home sellers in Missouri.

They're really average people. One of them is a former police officer. One of them is a former English teacher. What they had in common is, they all sold a home in the past few years. And when they sold that home, they did not feel that they were told or able to negotiate the commissions they paid to the real estate agents.

And they felt that the rules set by NAR made it so that they were not able to negotiate, and there might be antitrust violations. And they contacted a lawyer, and they brought a class action suit. And to the great surprise of the housing industry, they won, and now NAR has settled.

John Yang:

These homeowners have done some — did something that the Justice Department was trying to do and hasn't been able to do.

Debra Kamin:

That is absolutely right.

These homeowners basically were able to make a change at NAR, when the Justice Department and also many small upstart real estate technology companies were not able to do so. For many years, people have been trying to break this anticompetitive rule that the lawsuits alleged, and they were not able to.

The reason that the home sellers believe that they were successful is because, in a court of law, they were just a bunch of average Americans talking to a jury that was also comprised of average Americans, and, in that way, they had a leg up in these arguments, and they were successful.

John Yang:

I want to go back to you talking about the homebuyers. They were not part of this lawsuit. Is that right?

Debra Kamin:

That is correct. Homebuyers were not part of this lawsuit. It was brought only by home sellers.

John Yang:

I have read some real estate experts saying that there may be unintended consequences for first-time buyers.

Debra Kamin:

You're absolutely right, that, for first-time homebuyers, it is often very difficult to scrape together just the money you need to be able to get that down payment to buy that first home, especially now, when the housing market is so tight and so expensive.

And in the past, one thing that homebuyers did not have to worry about was paying their real estate agents. So, as this settlement has its effects, one of the things we might see is that homebuyers now feel, oh, gosh, I also have to pay my real estate agent on top of everything.

But, most likely, what's also going to happen is we're going to see new models for compensation evolve out of this that didn't exist before, where the way that we pay real estate agents, particularly on the buy side, might be completely different. It could be a flat fee. It could be by the hour. There's all sorts of ways to pay agents that never existed before because there wasn't a competition in the market that allowed those new methods to be introduced.

John Yang:

So this is going to change the way people buy and sell homes.

What about for the industry? This is sort of breaking the trade groups' powers in a way. What's the effect going to be on the industry?

Debra Kamin:

For the National Association of Realtors, they have had extreme power and dominance over the real estate industry for more than 100 years, and pretty much no one has been able to break them.

Now they stand to lose a lot of that power, namely because one of the primary reasons agents felt they had to join the National Association of Realtors was to have access to these things called MLSes. These are multiple listing services where homes are bought and sold, and NAR subgroups control those databases.

One of the changes of the settlement is affecting the rules about listing homes on these databases. So, so many agents are now saying, maybe we won't pay dues to NAR, we won't be members anymore. And they stand to lose something like two-thirds of their members, by some estimates.

John Yang:

And, also, they're going to lose — I mean, the industry as a whole, if the NAR is weakened, it seems to me, would lose a voice in Washington in sort of lobbying.

Debra Kamin:

It will lose a voice in Washington because NAR is also, in addition to being America's largest trade organization, they are America's most dominant political action committee. They give more money to candidates who are pro their initiatives, and they spend more money fighting candidates who are against their initiatives than any other group.

So, yes, they have a hugely dominant arm in Washington. That arm is one of the reasons it took so long for anyone to be successful in challenging them. And if their membership goes down, the pool of people who donate to them is also going to go down.

So, yes, I think it's a very likely scenario that, in the future, their dominance in Washington is going to go down. But it's also going to open the door for other groups to enter and perhaps have dominance in their own way. There's a lot of changes that we cannot foresee yet.

John Yang:

Debra Kamin of The New York Times, thank you very much.