It’s been two months since the National Association of Realtors reached a settlement that some predict will upend the way homes have been bought and sold for decades across the U.S. It’s having ripple effects in Colorado as the housing market heads into the busiest time of year.
The details aren’t finalized yet, but Colorado real estate agents are already noticing a change in how they are getting paid. It seems that deciding how much to pay the agent will soon be one more thing to think about in a challenging housing market.
“We've definitely seen a bit of a shift where people are asking, ‘Should I actually pay the buyer's agent?’” said Bret Weinstein, a Denver real estate agent.
The settlement is in response to an antitrust lawsuit that charged the realtor association with keeping broker commissions artificially high. For decades, sellers have paid the agents’ fees for both themselves and the buyers. The rate being offered to the buyer’s agent is posted with the listing. That effectively sets the default commission at 5 to 6 percent.
Realtors are quick to point out that the fees have always been negotiable. That is technically true, but making them public means it’s difficult to negotiate a lower fee. After all, if a seller advertises they are paying the buyer’s agent less than the house one block over, a broker may be less likely to bring a client to tour their home.
The settlement, slated to take effect in July, prohibits including the fee for the buyer’s agent on the listing. In theory, that will bring fees down by making it easier for a seller to pay a lower one, or not to pay a fee at all to the buyer’s agent.
Testing the market
Sellers in Colorado are testing the market to see what happens if they lower the fee, according to Weinstein. Buyers’ agents in and around Denver have typically collected 2.8 percent for years. In recent months, more people are putting homes on the market with a 2.5 percent fee, Weinstein said.
So what does that translate into in cash for a real estate deal in Colorado? In Denver, the state’s largest property market, the median home value currently stands at $602,550, according to the Denver Metro Association of Realtors. Using that data point as a benchmark, the lower fee shaves about $1,800 off the typical real estate transaction.
“I wouldn't say that it's so large scale that the entire industry has been shook by this,” Weinstein said. “We've always known that those commissions were negotiable, but there's been a bit of more [lower] commissions that are being offered by either the seller or the listing brokerage.”
There’s been a lot of speculation about how the settlement will ultimately play out. Many homeowners are confused about what it means for them, said Shanna Schmidt, a real estate agent with Madison & Co. Properties in Denver.
“We proactively talk to every single buyer and seller, either in a listing appointment or a buyer consultation … about the settlement and what's going on, and educate them on all of the truths and all of the mistruths of what people are hearing,” Schmidt said. “What we found is … a lot of people have heard things. Very few of them have big concerns, but those who do have pretty strong opinions about what they believe to be true.”
One possible scenario is that buyers will be on the hook to pay for their own representation if sellers no longer feel compelled to do it. On its face, that sounds like a good deal for people who are comfortable sifting through online listings and negotiating on their own behalf.
Could challenge first-time buyers
Still, buying a home is often the largest purchase a person will make throughout the course of their life. It’s not a process everybody will feel comfortable navigating alone. Realtors maintain that if the burden of paying for representation falls on buyers, it will hurt those who can’t afford to pay that expense out of their own pockets.
That will make it even more challenging for first-time buyers who are already struggling to gain a toehold, Schmidt said.
“High-end buyers can [afford it], but do we want to eliminate first-time and second-time homebuyers who just maybe don't have the funds?” Schmidt said.
Some buyers will be tempted to forgo representation or cut corners, which might not be in their best interest, said Matt Mecalf with Mile High Home Pro.
“They either skip having somebody represent them and guide them or are very hesitant to ever talk to them because they are trying to pay the cheapest available,” Metcalf said.
Straightforward calculation
Realtors’ fees are somewhat obscured by the current system. Buyers don’t have to think about how their agents are getting paid. For sellers, it’s baked into the price.
“It's because you're not writing a check,” Metcalf said. “If you go to your attorney, you're writing a check. You see, here's the bill, here's how much you owe.”
That might be about to change. But, according to Metcalf, the calculation should be straightforward.
“In the end, all it really comes down to is – ‘Does the buyer or seller want assistance?’” Metcalf said. “If they don't, then they shouldn't pay anybody at all. Or they should find somebody they think is getting paid what they deserve.”
