NAR settlement is 'an earthquake' for real estate industry

In the wake of the National Association of Realtors' (NAR) settlement agreement, paying $418 million over realtor commission practices, ResiClub Co-Founder and CEO Lance Lambert joins Yahoo Finance Live to discuss the implications this will have for the real estate industry.

Lambert describes the settlement as "an earthquake" for the sector, explaining that in the traditional homebuying process, the seller paid a 6% commission which was then distributed to the agents involved. However, as a result of this lawsuit, Lambert believes the primary beneficiaries "might be sellers" who could potentially no longer have to cover agents' commission rates.

Additionally, Lambert points out that this settlement exposes the "deterioration" of housing affordability, which has reached its worst level in the last four decades, forcing individuals into stressful situations. He argues that this stress is creating "public pushback" and highlighting the need for change within the industry.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

JULIE HYMAN: Run the ripple effects from this real estate commission settlement and bring in ResiClub Co-Founder and CEO Lance Lambert Lance, I think we're all trying to wrap our heads around what this is going to mean here. Can you sort of lay out here, in your view, what big changes this settlement is going to make to the home buying process?

LANCE LAMBERT: Yeah. So this is a bit of an earthquake for the industry. You know, historically speaking, how it's worked in the US for a long time is that the total commission has been around 6%, a lot of markets, where 3% goes to the buyer's agent, 3% may be the seller's. And it varies by market. But usually the seller was paying that. And it was taken as kind of granted that that's just how the process worked. Now heading forward with it no longer being in the MLS and it's going to be negotiated more, I think there's a potential here that, you know, the total commission pie could be decreased. And I think the winner might be sellers who might get out of paying for the buyer's agent and picking up that piece of it.

JULIE HYMAN: Lance, can I-- can I ask you a quick--

LANCE LAMBERT: [INAUDIBLE]

- Can I ask you a quick follow on this?

LANCE LAMBERT: [INAUDIBLE] might be in there. Yeah.

JULIE HYMAN: Yeah. Why would-- Why was it ever structured that the sellers paid the whole fee?

LANCE LAMBERT: Well, that-- the thinking being that anyone who's selling has also been on the other side of it, buying. Right? And so if you're on the selling side of it and you pay both, yeah, maybe that sucks. But when you got into the market, you didn't pay for it, right.? So that was kind of how the process worked.

And it's one of those things where, once it became part of the system, it just kind of stuck. And now we're going to see, you know, how sticky it really is. And we'll probably see the total pie for commissions go down. That's why I think a lot of these stocks, like Zillow is down, Compass is down today. The market kind of pricing that in. But it's going to take a while to play out, and there's probably going to be more lawsuits.

But the big backdrop here is that housing affordability has deteriorated to levels not seen in about four decades. This is the worst housing affordability since the early 80s when mortgage rates were 18%. And, yeah, 7% mortgage rates might not sound that bad. But when you take into how much-- take into account how much prices have risen and then incomes haven't kept pace, this mortgage rate shock going from 3 to 7 has really strained it. And so the trickle of the impact of that with affordability being so strained is that people are stressed.

And that stress on affordability is creating things like this, where there's more pressure on to get commissions down. There's more local push against Airbnbs. There's more-- You know, it's-- it's going to trickle into the political system as well. And you're already seeing a lot of talk against like institutional homebuyers and different parts of housing just because affordability has become so strained that the-- It's natural that there's going to be a public pushback. And, you know, I think some of the industry is just kind of getting to get pinched by that.