Will home prices fall in Oklahoma after national Realtors' commission lawsuit settlement?
Homebuyers, prepare to bargain with your Realtor, not just the seller of the house you want, and get ready to negotiate an agreement before you're even shown a house. Starting in July, if a court approves, that will determine what a buyer's Realtor makes on commission.
Commissions are expected to be less than the usual 5% to 6%, split between the sides in a transaction. It could take a little pressure off rising home prices, although demand drives that, especially with a persistently low supply of homes for sale.
That's because in a recent settlement of federal lawsuits over commissions, the National Association of Realtors has agreed to end its policy requiring that sellers pay buyers' agents through an "offer of compensation" for buyers' Realtors spelled out on their listings.
Buyers' agents no longer automatically get paid by seller’s agents, and must now get the buyer to sign a “Buyers Representation Agreement.” No more automatic compensation sharing between the sides in a transaction.
Real estate agents are licensed by states. The settlement involves only agents who also are members of the Realtors' national, state and local trade groups, as most residential agents are.
If home prices drop, it won't be for long, Oklahoma Realtors say
Will the agreement cause home prices to drop? Maybe, but if so, not for long, said Bryan Hutchinson, CEO of the Oklahoma Association of Realtors.
“Home prices are fluid, just like any commodity. If this settlement has any impact on the price of homes, it will only be momentary as the free market organically corrects itself," he said. "Inventory remains the No. 1problem we face here in Oklahoma. Inflation is No. 2. The two combined create the affordability issues we see. I suspect those will still be the issues that drive sales prices even in the face of this settlement as we understand it.”
The agreement will disrupt the residential real estate business, said Renee Hoover-Payton, president of the Oklahoma association and and owner of Rush Springs Real Estate LLC.
Realtor settlement puts homebuyers, sellers, and Realtors on a different playing field, Oklahoma Realtors say
Consumers and Realtors will have to work together in different ways, Hoover-Payton said.
“In general, there is so much that is not yet known about this proposed settlement agreement. On the surface, it seems that the consumer will be the one most impacted, especially veterans and first-time home buyers," she said. "What we do know right now is that Oklahoma Realtors will work to find ways to ensure those who wish to buy or lease a home will have a pathway.”
Adapting to the changes will be more difficult for some real estate firms than others, Hutchinson said.
“Nearly every broker who manages a company knows that cooperation is good for the seller. It introduces properties to exponentially more consumers and buyers," he said. "Likewise, a buyer having someone on their side in a transaction is a good thing for the buyer and for the business.
"The system that has been in place for over a century has proven that. When the details are flushed out and come down, solid business practitioners will find an efficient and effective way to cooperate. That may look different than today but will nonetheless be how companies survive and thrive.”
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Changes in homebuying and selling will be confusing to everyone at first, Oklahoma real estate expert says
The changes will confuse both buyers and sellers, at least at first, said David Chapman, a real estate agent, professor of real estate at the University of Central Oklahoma, and a member of the Oklahoma Real Estate Commission, a state agency.
"Things will be more complicated because there is likely change coming. Change causes confusion. There are still many details to be outlined," he said.
Chapman said Realtors working for buyers are "going to hate this" and could find it hard to negotiate what they consider a fair commission.
"Representing sellers has always been a great opportunity because while it is hard work showing a lot of property to get one successfully under contract, you know you are going to get paid what is listed on the contract or in the MLS at closing," he said. "Now it depends on how well you can negotiate and sell your service to the buyer.
"I would guess some will not be able to get the 3% they are accustomed to receiving and will not make as much money. Some that are able to adequately sell the buyer on their worth will make the same or possibly more."
Chapman said he's watching how brokerages deal with the changes.
"Most brokerages have frowned upon agents discounting services," he said. "They will likely be in the business of training their agents on how to get the most commission from buyer representation, and we may well see more innovation in services provided to ... the buyer to get the most commission. Most of the innovation has been on the listing side. That may change now that commissions will be coming from the buyer, as well."
Realtor settlement means neither 'business is usual' nor 'the sky is falling,' educator says
The settlement has unsettled many Realtors, leaving them between the extremes of "it's business as usual" and "the sky is falling," said Geoffrey Long, a broker, lawyer, real estate educator and owner of R Pro Academy in Oklahoma City.
The agreement, if approved by the court, would resolve claims against the national association, more than a million members, state and local boards of Realtors, and association-owned multiple listing services such as MLSOK Inc. in OKC, which is a wholly owned subsidiary of the Oklahoma City Metro Association of Realtors. The agreement also would settle claims against certain brokerages with a Realtor as principal.
The Realtors denied any wrongdoing in connection with its MLS "cooperative compensation model," which is based on policy the group introduced in the 1990s after consumer protection advocates called for buyer representation.
"Cooperative compensation," where listing Realtors offer commissions to buyers' Realtors, "remains a choice for consumers when buying or selling a home," the Realtors said, through negotiation and consultation with brokers, just not as a matter of course, and not on an MLS.
Long said removing offers of compensation for selling Realtors from the MLS leaves sellers' representatives with three options for getting paid: The usual offer of compensation by listing Realtors, but directly, not on the MLS; purchase contracts written to require part of the purchase price to go to the buyers' Realtor; and a buyer can pay a Realtor directly.
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Realtors' lawsuit settlement leaves veterans out by eliminating shared agent compensation
The settlement could leave veterans out since buyers using home loans backed by the Department of Veterans Affairs are not allowed to pay buyer’s side real estate commissions or fees. A contract would need to spell out that the seller is paying all commissions and fees.
"Not all sellers will negotiate to pay commission fees for buyers who are vets using VA loans," The Mortgage Note, an industry publication, noted. The VA could change its rule if the court approves the settlement.
The Realtors continue to encourage listing brokers to offer to share compensation to selling brokers as a marketing tool.
"Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them," the Realtors said.
RELATED: Rising home prices have Realtors making more commission even with lower commission rates
President Joe Biden misstates terms of settlement, gets it wrong on commissions, Realtors say
Those are the biggest changes for consumers in how homes are bought and sold, and how Realtors representing them are compensated, after the Realtors recently agreed to settle lawsuits brought in Missouri and Illinois by home sellers complaining about broker commissions, claiming price fixing and collusion to inflate Realtors' commissions.
Commissions always have been negotiable, the Realtors said — and reiterated, after President Joe Biden said otherwise at a recent campaign stop in Las Vegas.
While talking about home prices and affordability, Biden said, "Last week the National Association of Realtors agreed for the first time that Americans can negotiate lower commissions when they buy or sell their home."
Kevin Sears, the Realtors' president, corrected him immediately: "The president unfortunately repeated incorrect claims that the recently announced settlement agreement allows Americans to negotiate commissions for the first time. Real estate agent commissions are driven by the market and are not the cause of the affordability crisis."
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Senior Business Writer Richard Mize has covered housing, construction, commercial real estate and related topics for the newspaper and Oklahoman.com since 1999. Contact him at rmize@oklahoman.com. Sign up for his weekly newsletter, Real Estate with Richard Mize. You can support Richard's work, and that of his colleagues, by purchasing a digital subscription to The Oklahoman. Right now, you can get 6 months of subscriber-only access for $1.
This article originally appeared on Oklahoman: Realtors lawsuit settlement on commissions rattles Oklahoma housing
