'This Is a Sea Change': Bay Area Realtors React as NAR Settlement Goes Into Effect

Homebuyers and sellers are about to experience a seismic change in how they work with realtors. A settlement agreement in a major class-action lawsuit against the National Association of Realtors goes into effect on Saturday— and it’s already impacting realtors across the Bay Area.

“This is a sea change for both the consumer and for real estate professionals,” Tricia Thomas, CEO of Bay East Association of Realtors, said. “Everyone is entering into waters that they are not familiar with.”

The lawsuit accused the trade association of artificially inflating the commissions agents can make in home sales, made possible by a lack of transparency in how a home sale’s commission is split between buying and selling agents.

Now, a home buyer and home seller will have to separately negotiate commission rates with their respective agents. Due to the $418 million settlement, agents can no longer list their commission rate on multiple real estate listing service websites like Zillow or Redfin.

Thomas said realtors will also have to be more transparent in the kinds of services they will provide clients and will have to justify their commission rates accordingly.

“You may have two houses that look the same on the outside, but on the inside, one seller improved it radically and the other didn’t,” she said. “That’s going to impact how long the house sits on the market, what kinds of services that realtor is going to provide — it may mean more marketing, different kinds of marketing.”

Previously, if you were selling a home on Zillow, Redfin or another multiple-listing service website, you might have seen an agent’s commission fee listed. While there wasn’t a rule specifying the commission rate, the industry practice was to set it at around 5-6% of the home’s sale price.

Then, the seller’s agent and buyer’s agent would negotiate with each other to determine how that commission would be split amongst them. While realtors have long argued that the commission rate is negotiable, many home buyers and sellers would proceed with a home sale based on the rate listed on the listing website.

This practice led to buying agents steering their clients towards homes with higher commission rates. Research has shown this system inhibited competition in some sales and even caused some home sellers to provide a higher commission, regardless of the work the realtor might have done to sell the home.

Steven Huang, president of the San Francisco Association of Realtors, said these new rules will also force realtors to educate their clients about the complicated home selling and buying process.

“A lot of times, consumers are not educated from A to Z up front,” he said. “We as real estate agents need to just thoroughly educate the consumer and let them know what our value is and then let the consumer decide what is a fair payment for that service.”

The lawsuit is just one harbinger of change for the real estate industry. A proposed state bill currently making its way through the Senate titled “Buyer-Broker Representation Agreements” would, if passed, require a buyer’s agent to enter into a contract detailing compensation rates and services the agent would provide before the agent starts touring homes with their client.

“This contract will actually have you sit down and go over why you’re being compensated, how you plan to be compensated and what kind of value you are bringing to the table for your client,” Michelle Perry, president of the Santa Clara County Association of Realtors, said. “Now we’re going to show our value even more.”

As the Federal Reserve is expected to lower interest rates next month and realtors are seeing a rise in homes being actively listed in the Bay Area, agents are preparing to see how these new rules play out.

“This is happening as the market is moving along and we’re anticipating a pretty busy fall,” said David Stark, a spokesperson for Bay East Realtors Association. “Call us in three months and then six months to see how it’s working out.”