Above: Dan Teixeira and Julie Jones of the Douglas Elliman firm, in a file photo. at a penthouse apartment at the Four Seasons Hotel and Residences in Fort Lauderdale.
cjuste@miamiherald.com
The supposedly “earthshaking” legal settlement that was supposed to drive down real estate commissions, saving buyers and sellers thousands of dollars in the process, wasn’t so tumultuous after all.
Twelve months after the National Association of Realtors agreed to change the rules on how agents are paid, commission rates are roughly the same as they were prior to the settlement. That’s according to research from RISMedia, a news service for real estate agents and brokers, which polled 623 real estate professionals on the topic.
Immediately after the settlement, rates dropped sharply. But now, based on a full year of data, the company says commissions did “snap back from their initial plunge.” Sales fees are still down a bit, averaging roughly 5.39% on a national basis. But they “remain within a historically normal range of year-to-year fluctuations,” RISMedia found.
Steve Brobeck, senior fellow at the Consumer Policy Center, is among those who thought the NAR deal would bring down real estate fees. While the settlement called for greater buyer and seller negotiation of the buyer’s agent’s share, Brobeck believes some agents have “effectively used ‘work-arounds’ to thwart any negotiation that lowers overall rates.”
“Buyer efforts to negotiate lower rates are typically met with a barrage of arguments that begin with the statement that sellers compensate buyer agents and end with a promise to write a 0% rate into the buyer-agent contract,” he told me.
Brobeck often laments the fact that those who are relatively new to real estate sales are paid the same rates as experienced agents. The RISMedia poll found that that hasn’t changed, either. For agents on both sides of the table, the difference in average commission rates was negligible between those who claimed industry experience of 10 years or more, and those with less than 10 years.
Just after the NAR settlement, RISMedia found, less-experienced buyer’s agents were charging an average of 2.1% of the contract price for their services, while their more experienced counterparts were charging 2.33%. Now, both groups have seen their average commission rates “return to the norm.”
This finding is at odds with what critics thought would happen. The trend is similar for listing agents, although those fees haven’t gone up quite as much as the buyer-side’s.
Percentage changes might not mean a lot to buyers and sellers. But when presented in monetary terms, they are significant. For a newer buyer-side agent, the 0.47% commission rebound represents $1,930 more per transaction on a median-priced house. For a buyer-side agent closing the median number of sales annually, the increase works out to just over $23,000.
Sellers, meanwhile, are paying $1,027 more on average per deal, which works out to an extra $12,324 in the pockets of agents who list and sell the median number of houses per year. Again, that’s money out of sellers’ pockets.
The NAR settlement was thought to be a game-changer in the way agents are paid. But that hasn’t happened, either. Prior to the agreement, the seller generally paid their agent, who split the commission with the buyer’s agent. But the pact cut the two agents loose from one another, giving buyers the opportunity to negotiate their share of the commission with their own agents.
According to RISMedia’s research, in the early weeks of the settlement, 71% of the agents queried said sellers always paid the levy. Now, 78% say that’s the way it works. This is “not quite matching the 86% of agents who saw this cooperative compensation pre-settlement, but … still a notable rebound,” the company says.
More surprising, perhaps, is that just 2% of the sampled agents said the buyer paid their own agent in each of their transactions over the previous 12 months. And 95% said half or more of their deals involved cooperative compensation. If that finding is not in direct violation of the NAR settlement, it is in violation of its spirit.
The report notes that multiple listing services that are not affiliated with NAR still allow listing agents to post what part of their commission they are willing to give the buyer’s agent — a practice the settlement forbids. In addition, some agents are modifying buyer-agent contracts to obtain additional compensation offered by a seller. And some listing agents are keeping excess commissions that are paid to the buyer’s agent.
The latter practice “is perfectly acceptable under the new rules,” the media company says. But it’s also a practice critics see as “evidence of underhanded and anti-consumer behavior.”
The research shows that these practices “are at least somewhat common in the post-settlement world — across brokerage models, regions and demographics.”
On a brighter note, more and more buyers are signing contracts with their agents and detailing, among other things, what they will be paid. That, says the media company, “would appear to affirm both the practical implementation [of the settlement] and NAR’s argument that these agreements are an important and positive development.”
Another shift that some expected to emerge from the settlement was that agents — particularly buyer-side agents — would work for a flat fee or under a fee-for-service platform. But a full year after the settlement, the study found no significant movement on that front.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
