CNN
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Real estate agents across the United States are preparing for a major shift in the way they do business. Starting August 17, new rules will take effect that aim to overhaul the way real estate agents get paid to help people buy and sell homes.
The changes, which are part of a $418 million settlement announced by the powerful trade group in March, The National Association of Realtors has eliminated informal rules that supported the industry’s traditional payment structure, in which home sellers were typically responsible for paying a 5% or 6% commission, usually split between their agent and the agent representing their home seller.
In the months since the settlement was announced, real estate agents across the country have been preparing for the change, attending trainings and studying the details of the new contracts they will have to sign with potential home buyers. Some agents expect the rules to pave the way for new business models and could push many full-service agents out of the industry, while others are more optimistic about the impending changes.
“It’s a great social experiment in a large industry,” said Leo Barriga, CEO of eXp Realty, one of the largest real estate brokerages in the United States. “I’m preparing my clients for what I call the ‘messy middle.’ I fully expect a lot of confusion.”
In a statement, National Association of Realtors President Kevin Sears said he was confident that members would adapt to the changes, which industry analysts have called the biggest shake-up in the U.S. real estate market in a century.
“These changes help give consumers more clarity and choice when buying and selling a home,” Sears said. “As August 17 approaches, I am confident that our members will be able to prepare for and embrace this evolution in our industry and help guide consumers through the new landscape.”
In the past, seller’s agents charged home sellers a fee, often 5% or 6% of the home’s purchase price, that was supposed to be split with the buyer’s agent. That meant home sellers could be on the hook for a lot of money: A seller of a $1 million home might pay $60,000 in commissions. Some experts say the money was included in the listing price of homes, inflating the prices of homes for sale.
A series of lawsuits have alleged that this standard practice violates antitrust laws, although the National Association of Realtors has long argued that commissions have always been negotiable.
In addition to cash payments, the National Association of Realtors has agreed to two major rule changes as part of a settlement agreement to settle the lawsuits. Both changes go into effect Aug. 17 and are designed, in theory, to eliminate the standard method of paying commissions.
A judge granted preliminary approval to the settlement reached by the National Association of Realtors in April, but a final approval hearing is scheduled for Nov. 26.
The first change prohibits listing agent compensation on multiple listing services, which are central databases that real estate agents use to share details about homes for sale. However, compensation details can still be advertised elsewhere or communicated in person or by phone.
The second change requires buyers’ agents to discuss their compensation up front. As of August 17, agents working with a potential homebuyer must now enter into a written buyer’s agreement before touring a property together. This agreement is designed to inform buyers that they are responsible for paying their own real estate agents’ fees if the seller chooses not to cover the cost.
However, before the changes, real estate agents in 18 states were already required to sign buyer agency agreements. Mary Shuman, a real estate agent in Minnesota, said the changes made by the National Association of Realtors seem manageable to her.
“I always tend to wait and see how things play out before I panic,” Schumann said. “We’ve already had purchase agreements in place here, and it doesn’t look much different now.”
By some estimates, real estate commissions could fall by 25% to 50%, according to an analysis by TD Cowen Insights in March. That could pave the way for real estate companies that embrace alternative business models, such as fixed-agent and discount brokerages, to thrive.
Shelley Coveney, chief strategy officer at Reedy, said she believes the NAR settlement will benefit her firm. Reedy, which operates nationwide, is a marketplace that allows real estate agents to bid on home listings, meaning agents can pay home sellers for the opportunity to represent them, reducing their own commissions.
“This is part of the concept of always changing the way real estate is managed,” Coveney said. “Because agents control the proposal process, they decide what cash incentive they want to offer and they decide what commission structure they want to offer.”
Companies are looking to capitalize on the impending changes in other ways, too. Flyhomes operates like a traditional real estate brokerage, but earlier this summer, the company launched an AI-powered chatbot designed to answer questions homebuyers might traditionally ask their real estate agent.
“Consumers don’t realize this is coming,” said Adam Hobson, chief strategy officer at Fly Homes, of the changes to the National Association of Realtors. “When they decide to buy a home and they have to sign a contract, they might say, ‘Oh, what is this?’ We think that will drive them to look for information from other sources. We will be one of those sources.”
Under the old standard, buyers often got free representation, because their agents’ commissions came out of the home seller’s pocket.
Several real estate agents who spoke to CNN said they believe the new set of rules will reward more experienced agents and exclude younger ones, as homebuyers may be wary of signing a legally binding agreement that ties them to a less experienced real estate agent.
Madison Mathias, a real estate agent in Chapin, South Carolina, said she had to work overtime to dispel preconceived notions about her age among potential clients, often rereading contracts at night to make sure they were Details reserved.
Mathias said she believes some real estate agents will leave the industry, but she doesn’t think age will be a factor.
“I think more agents will back off because some people don’t like change,” she said. “As a new agent, some people have questioned me, but I’ve never had someone who didn’t want to work with me because of my time in the business. It’s all about confidence and educating yourself.”
“I’m not too worried about it,” she added.