You have probably heard all sorts of things in the news regarding the recently proposed settlement that the National Association of Realtors announced regarding a court case over how real estate commissions are paid.
Unfortunately, many of the things you have heard probably aren't completely or remotely true, because they are coming from people outside the industry who don't truly understand it themselves. Here is a breakdown of 9 misconceptions about the real estate settlement to help you separate fact from fiction:
1. MYTH
The settlement broke up a "cartel" intent on inflating commissions.
FACT
Real estate agents operate independently, competing for business within our local markets. We make our own decisions on how much we charge, what services we will provide and how we conduct our business. There is no unified effort to inflate commissions, and most agents refuse to even discuss our commission rates with other agents.
2. MYTH
6% was the standard commission
FACT
In real estate, there is no standard commission. Commissions can range from a low flat fee of a few hundred dollars, to above 6%. In fact the average commission has been below 6% since 1992! It is a misconception fueled by misinformation.
3. MYTH
This is the first time in history that commissions have been negotiable.
FACT
Commissions have always been negotiable, and the rates vary from one area to another. With that said, an agent also has the right to be firm about the commission rate we feel we deserve, and a prospective client can choose to either work with us or find another agent who's willing to work for a lower fee.
4. MYTH
Sellers have never had a say in how much buyers agents were offered until now.
FACT
Sellers have not only had the right to negotiate the commission they will pay their listing agent in total, but they have also had a say in how much of the commission will be offered to a buyers agent.
5. MYTH
Sellers will no longer be able to offer a buyers agent a commission.
FACT
While the settlement proposes any offer of buyer agent compensation won't be allowed to be displayed on the listing the the multiple listing service (MLS), sellers are certainly allowed to offer buyers agents a commission, and have their agent make it known through other platforms and marketing materials.
6. MYTH
Anyone who has listed and sold a home with an agent in the past is entitled to compensation.
FACT
Only sellers who were part of the class action, and who listed with certain real estate companies, are eligible for compensation. Payouts are likely going to be modest for eligible sellers, with legal fees taking a substantial portion of the settlement amount.
7. MYTH
Real estate agents will be required to charge less moving forward.
FACT
Nothing in the settlement states an agent has to charge less for their services. Agents have the right to charge as much, or as little as they want for their services.
8. MYTH
Home prices will lower substantially and become more affordable due to the settlement.
FACT
While it's yet to be determined if commission rates will reduce due to the settlement at all, it's market conditions and the economy that dictate home prices, not agents fees. While commissions are often an expense within the sales price of a home, they do not impact how much buyers are willing to pay for a home, which is impacted by supply and demand and ultimately determines sales prices. This is one to watch though moving forward. If buyers have to start paying their buyers agents themselves it could affect their affordability and what they are willing to offer. Stay tuned to the final settlement for more on this...
9. MYTH
The settlement is good news for buyers, because they can avoid working with an agent and save money. This obviously ties into #8 above.
FACT
While some buyers might be hopeful that they will be able to buy a house for less money by eliminating the cost of a buyers agent, navigating real estate transactions without an agent can be challenging. Sellers may not adjust prices because the buyer does not have an agent, and will most likely want to retain any potential savings for themselves.
Stay tuned for more updates on the final settlement as we move toward July. If you ever have any questions about this or the market overall feel free to reach out to us.