May 8, 2024 - News

How the NAR settlement impacts Detroit 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 — and who foots the bill.

Between the lines: The proposed settlement could shake up the traditional 6% commission structure, which is usually split 50-50 between buyer and seller agents, Crain's reports.

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 last week, is causing major confusion.

How it works: Currently, sellers and their broker negotiate a fee for representation, and that broker decides how much profit they want to share with the buyers' agent for helping close the deal.

  • 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 the MLS. Buyers and their broker will negotiate how much the broker should earn — and how they'll get paid, antitrust lawyer Brian Schneider says.

  • Increased transparency around agent profits could lead to more competition as buyers become more savvy about negotiating brokers' fees.

What they're saying: Agents who can't communicate their value won't prosper.

  • Detroit realtor Matt O'Laughlin tells Axios that brokers who mostly represent buyers will have to work harder to convince potential clients that their services are worth paying for.
  • "I think you'll see a lot of the buyer brokers go away, is my assumption," he says.

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 executive 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 vice president with NAR, tells Axios.

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.
 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 Michigan real estate sales agents was $55,940 in 2023.

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