Last week, the National Association of Realtors settled a series of lawsuits brought by home sellers, agreeing to pay $418 million in damages and eliminate its longstanding rules on broker commissions. The deal, which still needs a federal court’s approval, would eliminate the standard 6 percent commission on home sales and pave the way for a system in which sellers no longer pay the entire commission.
Myriad questions remain — not least, how the settlement will impact U.S. home prices, how sales commissions will be determined, and who will pay them.
But in New York City, where the primary real estate trade group is the Real Estate Board of New York (REBNY), most agents aren’t members of N.A.R. and thus aren’t subject to the group’s amended rules.
While the N.A.R. settlement may not directly affect New York City buyers and sellers, its impact is expected to ripple across the nation. Earlier this year, REBNY rolled out new rules on how it will govern agent commissions on home sales. But it’s far from clear — even to REBNY affiliates — how the developments will alter the industry. In an email statement on Monday, REBNY officials told members that the N.A.R. settlement “may impact the New York City market,” and that they would be reviewing the N.A.R. settlement “and will provide an analysis to REBNY members shortly.”
How is REBNY different from N.A.R.?
REBNY was founded in 1986 and seceded from N.A.R. in the 1990s. The organization, which oversees licensing requirements and sets rules and regulations in New York City real estate, represents more than 15,000 local real estate professionals and more than 800 different brokerages. REBNY also operates the Residential Listing Service (RLS), which gives members access to exclusive listings.
But this doesn’t mean REBNY and its members won’t be impacted by the N.A.R. ruling. “Everyone is going to be affected by the ruling because they’re going to be worried about being sued in the same way,” said Sonia Gilbukh, an assistant professor of real estate at CUNY Baruch College, Zicklin School of Business.
REBNY already rolled out changes to commission structure in January.
What are the changes that REBNY has outlined?
In an update to its RLS Universal Co-Brokerage Agreement, REBNY announced that offers of compensation to a buyer’s agent must come directly from the home seller, not from the seller’s agent, even if it’s on the seller’s behalf.
The buyer’s agent can then accept, reject or negotiate that offer. If the seller declines to offer compensation to the buyer’s agent, the buyer’s agent may negotiate compensation directly with the buyer.
Previously, home sellers would typically pay the entire 6 percent commission on a sale, with the seller’s agent and the buyer’s agent splitting it evenly.
How could this affect sellers?
Some experts believe that the New York City market may be spared the sea of changes coming to other areas. Even if the new rules prohibit sellers’ agents from making commission offers to their counterparts, “in practice, the money still comes from the seller,” said Ms. Gilbukh.
Up to now, buyers’ agents earned half of a sales commission — typically 3 percent. “Anything less than that would jeopardize your sale, so most sellers would still offer the standard,” Ms. Gilbukh said. “If you offer a lower commission to the buyer’s side, then you’re going to get a lot fewer people to look at your property, which will jeopardize the price and the time on market.”
How could this affect buyers?
If a seller offers a low rate or no compensation at all to the buyer’s agent, the buyer’s agent may have to negotiate a fee with the buyer. This could mean an added cost burden for buyers.
“What if the seller offers zero for the buyer’s agent, and the buyer wants the apartment? They’ll have to compensate their own agent,” said Jason Haber, a co-founder of the American Real Estate Association and a New York agent with Compass.
That extra cash, on top of the down payment, “is going to be a bridge too far for a lot of folks,” said Mr. Haber. Using an example of a $400,000 apartment with a 20 percent down payment, he explained that a buyer who just put $80,000 down would then need to pay an additional $12,000 to pay their agent at the traditional 3 percent rate.
“My concern is that this disenfranchises buyers, they leave the market, and then the real estate market stagnates,” Mr. Haber said. “If we’re pushing more people to rent — essentially paying someone else’s mortgage — it’s bad for the overall economy because you’re locking out the creation of generational wealth for more people.”
But in situations where buyers are paying their own agents, they might have more leverage to pay below that 3 percent rate. “They’re much more likely to negotiate in a more effective way, and they’ll end up paying less than 3 percent,” said Ms. Gilbukh. “If the buyer pays for their own representation and the seller pays for their own representation, then the negotiating power will be on the client side a lot more than before.”
Could buyers just skip the agent?
Yes. Buyers can search listings online or in person and opt to forgo an agent altogether.
But in a market as complicated and competitive as New York City, this may not be in their best interests. For one, many New York apartments are co-ops, which require extensive applications, financial disclosures and interviews with prospective buyers. The process is lengthy and labyrinthine, and competent agents can be invaluable resources.
“Particularly in a co-op market, you want the best possible agent on the buyer’s side, who can help get the buyer through the board approval process,” Mr. Haber said. Some sellers, looking for a smooth process, may not want to deal with an inexperienced, unrepresented buyer.
“Because people watch a TikTok video or real estate reality show, they think they can handle the transaction on their own,” Mr. Haber continued. “Then they go out there and they end up hurting themselves because they didn’t have a professional adviser helping them.”
How will this change the game for real estate agents?
Some believe that the real estate profession is an oversaturated field, thanks in part to the pandemic — more than 156,000 people became agents in the United States in 2020 and 2021.
Ms. Gilbukh said that the uncertainty around agent compensation could reduce the ranks.
“We have too many people who don’t know what they’re doing in this industry, and still charging the same 6 percent commission,” she said. “So in my view, all of this is very positive — it puts a competitive pressure on commissions.”
The agents who decide to stick around “are going to be more experienced, they’re going to be more helpful for their clients, and they’re going to charge lower fees,” she said.
What does this mean for home prices in New York?
If sales commissions do begin to shrink, it could lead to a drop in listing prices in New York, where the median listing price in February was $825,000, according to Realtor.com.
“If the sellers are now even more aware of their options, and they start offering nothing to the buyer’s side and they don’t see any cost to that, then the transaction costs will decrease, because the overall commission will drop by half,” Ms. Gilbukh said. “And so we’ll probably see the home prices drop as well.”
