The way Coloradans buy and sell homes is about to get a major overhaul that will shave thousands of dollars off the cost of putting a house on the market.
The National Association of Realtors reached a $418 million settlement in an antitrust lawsuit that will effectively eliminate the standard six percent commission paid to real estate agents when selling a home.
The nationwide settlement follows a $1.8 billion verdict in Kansas City, Mo., that found the industry’s rules were keeping commission rates artificially high. The organization was facing multiple similar lawsuits.
The realtor’s fee, split two ways between the agents representing the buyer and the seller in a real estate transaction, is paid by the seller. The association has agreed to eliminate the rule that requires the seller to offer to pay for both agents. That means brokers will now have to compete on the rates they charge buyers. It will also make it easier for homebuyers to forgo using an agent at all.
The change represents a seismic shift in the way the real estate market has operated across the U.S. for decades, including in Colorado. Experts anticipate the number of real estate agents will shrink dramatically as billions of dollars in fees evaporate.
Homebuyers are going to become much more discerning when it comes to hiring a real estate agent, according to Bret Weinstein, CEO of Guide Real Estate, a Denver-based brokerage.
Weinstein thinks the shakeout will be a healthy reset for the real estate industry.
“At this point, it really does become inherently the responsibility of the buyer's agent or the listing agent to actually explain their value, because there's no free rides,” Weinstein said. “There's no more guarantees. There's no hidden fees. You have to show it. You have to prove it. You have to be able to do it. Otherwise, you're going to be out of this industry.”
Theoretically, the change could eventually trickle down to the cost of a home once lower fees are baked into the sales process.
The change wouldn’t likely be dramatic, according to Weinstein. That’s because people tend to look at what similar homes are selling for when it comes to determining how much a house is worth, he said.
“The market value doesn’t magically go down because you’re not paying a commission,” Weinstein said.
Still, the dollars saved will be substantial. For example, the median cost of a home in Denver is about $576,000, according to the Denver Metro Association of Realtors. Under the current model, that equals $34,560 in fees for the realtors that come out of the seller’s pocket.
The settlement still has to be approved by a federal court. The change will go into effect in mid-July.
The realtor association continues to deny wrongdoing. It maintains that its system was put in place to ensure buyers have adequate representation in the sales process.
Once the new rules take effect, buyers could be on the hook for paying a broker if they want advice. As part of the settlement, brokers will have to enter into written agreements with the buyers they are representing.
“This settlement underscores the importance of preserving consumer choice in real estate transactions,” the Denver Metro Association of Realtors said in a statement. “Compensation for brokers has always been and will continue to be negotiable. While the compensation would no longer be listed publicly … the Denver Metro Association of Realtors believes that it should always be negotiated between agents and the consumers they serve.”
