May 4, 2024 - Real Estate

How the NAR settlement impacts Denver's real estate

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 questions how real estate agents are paid β€” 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, which a court preliminarily approved in April, is causing major confusion.

How it works (currently): Sellers and their brokers negotiate a fee, and those brokers decide how much profit they want to share with the buyers' agents.

  • 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 that offer them higher commission.

If the settlement is approved, offers of compensation will not be listed in MLS. Buyers and their brokers will negotiate how much brokers should earn β€” and how they'll get paid, antitrust lawyer Brian Schneider tells us.

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

Buyer agreement forms are commonly used in Colorado, which means many Denver agents are used to talking buyers through their fee structure, says Brendan Bailey, CEO of the Denver Metro Association of Realtors (DMAR).

  • Those agents probably won't be as sensitive to changes, but the post-settlement landscape is still uncertain, Bailey notes.
  • Advertising offers of compensation on REcolorado, the largest MLS in the state, has been optional "for some time now," Bailey tells Axios.

Fee transparency and agreement forms are a win for consumers and their agents.

  • It's not uncommon for buyers' agents to show a bunch of homes, only for a buyer to work with someone else, Bailey says.
  • The hope is buyers have a better understanding of what they're paying for, and agreement forms commit buyers and their agents to working together.

Yes, but: Many are worried about cash-strapped first-time buyers. Most can't pay their agent out of pocket, but they'll be "financially slaughtered" without representation, former Zillow exec and Tomo co-founder Greg Schwartz says.

  • For that reason, sellers aren't entirely off the hook.

Buyers' agents aren't going to work for free.

  • Sellers will likely offer concessions to cover buyer agent costs, Faron King, a VP with NAR, tells Axios.

Between the lines: Agents who can't communicate their value won't prosper.

What's next: Real estate is in "the greatest state of disruption I've seen in the last decade-plus," Schwartz says.

  • Schwartz and other observers see opportunities for new business models to emerge, from paying an agent hourly to ChatGPT-like agent bots.
  • He expects minimal innovation short term, but radical change over the next five to seven years.
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