May is Commission and Compensation Month here at Inman. We’ll sort through the noise and misinformation and provide you with the most up-to-date facts and strategies about how to prosper in the wake of the commission settlements. And look for straight-to-your inbox updates with Inman’s new weekly digest, Commission Chronicles.
“The 6% commission[…] is no more.”
“Powerful Realtor group agrees to slash commissions…”
“Realtors’ settlement could dramatically change cost of housing sales.”
The headlines came fast and furious last month after the National Association of Realtors agreed to a sweeping settlement of multiple commission lawsuits. The New York Times, CNN, and other outlets big and small all weighed in.
The only problem?
Try as they might, many mainstream news outlets botched their stories. In the end, their virtual pages were filled with errors and half-truths — all of which risked sowing confusion for agents and the clients they work with.
In the aftermath, NAR is embarking on a project to have Realtors spread their message to media outlets big and small. Much of the effort, NAR leaders say, is to combat misinformation in the media.
But Inman, which has covered this story for years now, also decided to dive into the biggest headlines to find out who got it right and who got it wrong — and to set the record straight. This story is the result of those efforts, and is now serving as the inaugural piece of our new newsletter, Commission Chronicles.
The newsletter will leverage Inman’s deep knowledge of the legal landscape surrounding commissions, as well as how the myriad ongoing lawsuits intersect with an array of other issues in the housing business.
For now, though, what we found is that misinformation regarding agent pay is indeed widespread.
NYT: NAR ‘agrees to slash commissions to settle lawsuits’
Fact-finder: Not true.
The New York Times was the first to report on NAR’s proposed agreement with plaintiffs in numerous lawsuits that alleged the trade group was at the center of a conspiracy to keep commissions high.
But there was a glaring problem with the headline: NAR doesn’t set commissions and therefore can’t and didn’t agree to lower them. That didn’t stop other news outlets from repeating the claim.
That hasn’t always been the case. A 1983 study by the Federal Trade Commission found that, before 1950, it was against NAR’s code of ethics to charge less than a standard commission rate. That’s no longer the case.
Experts expect downward pressure on agent commissions now that buyers and sellers will have more transparency into the cost of commissions. NAR agreed to change its rules, and offers of compensation will no longer appear within the multiple listing services.
But NAR has no authority to cut commissions.
CNN: ‘The 6% commission…is gone’
Fact-finder: Not true.
CNN made a bold proclamation in its own headline: “The 6% commission, a standard in home purchase transactions, is no more.”
KTTV in Los Angeles reported that the 6 percent commission had been “eliminated” by the settlement.
Numerous stories repeated this same claim, and many reported that there was a “standard” commission rate in the U.S. housing market.
Here’s the thing: While research has found that commissions are often uniform, there isn’t a “standard” commission. In fact, the total commission sellers have paid is often less than 6 percent.
Research shows there is no standard commission structure, even though it does frequently fall between 5-6 percent nationwide. Sometimes it’s higher, sometimes it’s lower.
In California, Massachusetts and New Hampshire, the total commission has been found to be less than 5 percent. In other states, the total commission is higher than 6 percent.
Realtor.com CEO Damien Eales has also said that commissions currently average 5.3 percent nationwide.
Far from standard, and often not 6 percent.
WaPo: ‘Realtors’ settlement could dramatically change cost of housing sales’
Fact-finder: Likely not true
One of the most closely watched elements of the post-settlement landscape is what impact, if any, it will have on home prices.
The answer has split researchers who don’t agree on whether high commissions lead to high home prices.
Researchers with Bright MLS, the second-largest MLS in the country, analyzed a million transactions. They refuted the claim that home prices would fall if commissions were lower.
“It is too soon to understand how the proposed settlement may change how buyer and seller agents will get paid, and how much,” the researchers said. “However, it is clear from recent transactions data that there is no relationship between the offer of compensation to the buyer’s agent and home prices.”
Bright MLS said that its analysis found that higher offers of buyer agent compensation were correlated with lower home prices between 2019 and 2023.
Others believe that it’s possible the transparency and downward pressure on commissions could bring transaction costs down.
That being said, we rated this claim “likely not true,” because of the use of the subjective word “dramatically.” If a buyer worked directly with a listing agent, a seller might be compelled to drop the sales price by an equal amount. Whether that’s a “dramatic” decline is out for debate.
“They’re not going to come down dramatically. That’s wrong,” said Stephen Brobeck, senior fellow with the Consumer Federation of America. “In fact it might not come down at all.”
WSJ: ‘…legal agreement could drive down commission rates and shrink the number of real-estate agents’
Fact-finder: Maybe
While the settlement isn’t the end of any sort of “standard” commission, multiple researchers said they believe the scenario that will be in place later this year will place downward pressure on commissions and therefore the total number of agents.
The financial analyst firm Keefe Bruyette & Woods said it expects agent count to decline by as much as 80 percent over time, with members of the National Association of Realtors falling from about 1.6 million just before the Sitzer trial to between 300,000 to 600,000.
The estimate is based on comparisons between the number of homes typically sold in the U.S. — about 5 million annually — and the number of agents competing for a piece of the pie, as well as looking at real estate markets overseas.
A reduction in the number of agents wouldn’t necessarily be doom and gloom for all, namely the high producers who are in a position to pick up even more market share, researchers said.
KBW reached that assumption based on possible commissions of around 2 percent to 4 percent per transaction if listing agent commissions are completely separated, or unbundled, from buyer agent compensation.
TD Cowen analysts believe commissions could fall between 25 percent and 50 percent. On the other hand, earlier this month University of Southern California law professor Jordan Barry expressed skepticism that the settlement will have a significant impact on commissions.
It’s hard to say what will happen and when. But it is fair to expect more buyers will work directly with listing agents and the increased pressure of working in the new environment could drive more agents to hang up their hats.
NBC: ‘… buyers could face more confusion’
Fact-finder: True
In its story about the settlement, NBC News repeated the claim that there was a “standard 6% commission,” that would go away if the settlement was approved. It then added that buyers were likely to face confusion. That’s true.
Given the mixed messages created by widespread mainstream coverage of the settlement, buyers are likely to face more confusion, especially in the short-term.
NAR has a plan for it.
The group is recruiting hundreds of what it calls “surrogates” to talk with their local news outlets to spread what they view is the value of working with Realtors, NAR President Kevin Sears said on a recent podcast.
That arsenal of surrogates will “help spread the truth about what is going on” in part because “the national media, it’s been a pain in our rear,” Sears said.
Stay tuned
As we have throughout the litigation and trial, Inman will be providing the most in-depth coverage of the changes facing the real estate industry.
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