San Diego County homeowners could see a drop in the cost to sell properties after a historic settlement involving a national real estate agent group.
The National Association of Realtors has agreed to pay $418 million to settle a series of lawsuits that alleged the organization conspired to keep agent commissions high. As part of the deal, the association will do away with rules that led to set commissions, which typically are around 5 percent to 6 percent.
The association acknowledged the pending settlement in a statement March 15 and denied any wrongdoing.
Industry professionals say the settlement could mean a drop in commissions, which often are baked into the overall selling price of a home, and potentially lower housing costs across the nation. It’s expected to make a big difference in costly markets like San Diego.
Norm Miller, a real estate professor at the University of San Diego, said a drop in commissions to 3 percent to 4 percent would mean more money in the pockets of buyers and sellers. Though the median home price might not come down, or at least not soon, it is possible that reduced fees will motivate more sellers to put homes on the market, increasing inventory and reducing competition.
The median home price in San Diego County in January was $802,500. Assuming a seller paid 6 percent in real estate commissions, that’s about $48,000. If the commissions were 4 percent, that would be about $32,000.
Miller said there are real estate agents who are worth the fees but that a lot of them might not be.
“There are some really good agents out there that keep you out of trouble,” he said. “For some buyers and sellers, it is worth the fee because the risk is so high. The problem is, we have all these part-time, mediocre-type agents out there that don’t know what they are doing.”
A possible change in commissions comes during a tough time for those in the business of selling houses. There were roughly 23,000 real estate agents in San Diego County in January, according to the state Employment Development Department. Only 1,678 homes sold that month, a tie for the lowest sales month in county history, according to CoreLogic.
Agent Raylene Brundage, a director at the California Association of Realtors, said the change will be good for the industry by making the process more professional. As a 20-year real estate veteran, she said she’s seen part-time agents or discount brokerages make mistakes that lead to lawsuits and bad deals for clients.
“I’m a seasoned agent that is a very good negotiator,” she said. “My value is not the same as an agent that does one or two deals a year. I protect my clients.”
Consumers must pay a brokerage fee for listing their property on a multiple listing service, or MLS — 5 percent to 6 percent depending on where they live. After selling, half the fee goes to the agent representing the seller, and the buyer’s agent gets the other half.
Without a set commission, agents may lower rates to compete for business. Critics often argued that buyers’ agents were more likely to steer clients to higher-priced homes as a way to get a bigger commission. The settlement requires that any fields on online databases displaying broker compensation be removed.
It will take time for San Diego County buyers and sellers to see any difference. For starters, the National Association of Realtors needs to get the deal approved in federal court. If and when it is approved, it could be awhile before its effects on fees and the industry as a whole are known.
Miller and others have suggested the change might create a new type of business model for buying and selling homes.
Also, there is speculation that a large number of real estate agents may walk away from the profession if there’s a smaller chance of a set commission, adding to difficulties with low sales figures. Investment banking firm Keefe, Bruyette & Woods said 1 million agents could leave the industry after commissions change. ◆
