May 28, 2024 - News

How a major real estate settlement could affect Ohio homebuying

Illustration of a set of keys with a percent sign keychain

Illustration: Sarah Grillo/Axios

The National Association of Realtors recently agreed to settle a big lawsuit that questioned how real estate agents are paid — and who foots the bill.

The big picture: If approved, come summer, agents won't be able to make offers of compensation in the Multiple Listing Service, the database where real estate agents post homes for sale.

Why it matters: The seemingly small change is causing major confusion.

How it works (currently): Sellers and their broker negotiate a fee, and that broker decides how much profit they want to share with the buyers' agent.

  • That number is advertised in the MLS listing, and the seller pays both agents from the home sale earnings.
  • Many are concerned this causes buyers' agents to steer clients toward homes offering higher commissions.

Buyer agreement forms are already required in 20 states and Ohio lawmakers are currently pursuing legislation that would codify the practice here.

  • Generally, these forms help buyers better understand what services their agent will provide and how much they'll cost.

If the settlement is approved, compensation offers will not be listed in MLS. Antitrust lawyer Brian Schneider says buyers and their brokers will negotiate how much the broker should earn and how they'll get paid.

  • Increased transparency around agent profits could lead to more competition, he says.

What they're saying: The Ohio Realtors Association, representing more than 30,000 agents in the state, agrees buyers will benefit from more detailed discussions about what services their agents will provide and for what fee.

  • However, the organization largely brushed aside predictions of massive, industry-wide disruption.
  • "Honestly, the consumers may not notice too many changes," Ali Whitley, the association's president, told Axios.

The fine print: Whitley argued buyers' agents already have long had the flexibility to negotiate alternative compensation structures like flat-fee representation, models that haven't exactly caught on.

  • She also noted that the settlement won't forbid agents from listing commissions outside the MLS, such as on brokerage websites.

Between the lines: Many cash-strapped first-time buyers aren't able to pay their agent out of pocket, which could make homes that include compensation for their agent more appealing.

  • For that reason, sellers aren't entirely off the hook.
  • Faron King, a VP with NAR, told Axios that sellers will likely offer concessions to cover buyer agent costs.

What's next: Itzhak Ben-David, the academic director of OSU's Center for Real Estate, expects brokerage earnings to decline as commissions eventually become more closely linked to an agent's effort.

  • "The commissions are going to be closer to the time it actually takes to sell the houses," he told Axios.
 Chart showing the median annual real estate agent wage by state as of May 2023. Data is unavailable for Colorado, Oklahoma, Tennessee, D.C.  and Massachusetts. Annual wages have been calculated by multiplying the corresponding hourly wage by 2,080 hours. The salaries range from  $36.6k in Kentucky to $104k in New York.
Data: BLS; Note: Annual wages have been calculated by multiplying the corresponding hourly wage by 2,080 hours; Chart: Tory Lysik/Axios Visuals

The median wage for Ohio real estate sales agents was $40,000 in 2023.

The big picture: Most observers believe commissions will fall, possibly to 1%-1.5% per agent on each side, Axios' Emily Peck reports.

Reality check: Real estate agent pay is already pretty low in Ohio, at least compared to other states.

  • Kentucky, Arkansas, Idaho, Louisiana, and Nebraska are the only five states with lower median wages than Ohio agents.
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