Will the Realtor commission settlement make it harder for veterans to buy homes?
The National Association of Realtors (NAR) recently reached a landmark $418 million settlement that experts say could rattle the real estate industry for the better — but some vulnerable segments of the population could be left worse off.
Notably, it remains to be seen how the proposed changes could impact veterans who are prohibited from paying fees or commissions charged by a real estate agent under VA loan rules.
Jason Sharon, a US Navy veteran and owner of Home Loans Inc., said his gut reaction was: “It is going to abandon veterans.”
Under the settlement, the nation’s largest real estate trade group will no longer require home sellers to promote upfront offers of broker compensation on their property database, known as the Multiple Listing Service, or MLS. Meaning that both sellers and buyers can negotiate the terms of commissions. The deal is still subject to court approval.
At a minimum, the measure could lead to greater transparency, room for negotiation, and competition in the marketplace, experts said.
On the flip side, the proposed changes to the payment structure could spark a pivotal change in how Americans are able to access the homebuying process.
According to Sharon, who specializes in VA loans in South Carolina, while the coming change to MLShas its merits, it could cause some real estate professionals to opt out of representing low-income individuals or veterans in search of more lucrative deals.
“Vets will be buying homes unrepresented,” he said.
His concerns were echoed by other industry experts.
“It could hurt the industry,” said Jason Anderson, founder of VeteranPCS, a service that connects fellow veterans with VA loan experts and agents across the country. “If those commissions start trending downward, it really pushes (agents catering to VA clients) out of the real estate industry, especially if they’re getting priced out by any other agent that just sees a dollar sign.”
Read more: How to qualify for a VA loan
‘It could reshape the housing market’
The days of 6% commissions are likely behind us.
Typically, home seller commissions have averaged 6%, with about 3% going toward the buyer’s agent. To use NAR’s home listing database, sellers were required to share a predetermined commission amount to be able to list their property on the MLS. The NAR recently stated that it has never set or required 6% commissions on its MLS, though that became the industry standard with little practical room to negotiate.
The settlement would do away with this rule, “unbundling” commissions and allowing homebuyers the option to pay their agents directly, according to Ryan Tomasello, an analyst for investment banking firm Keefe, Bruyette & Woods.
The measure is expected to usher in greater consumer transparency, which could have a far-reaching ripple effect: drive a reduction in rates, diminish the use of buyer agents, cause agent attrition, and result in a weaker NAR and MLS system, KBW analysts found.
The NAR currently represents about 1.6 million Realtors, with 90% of agents cashing in an average commission of 5% to 6% — equal to $100 billion in annual commissions. Under NAR’s new deal, annual commissions could fall more than 30%, KBW predicted, and rates for commissions could decline by 2 percentage points.
“If it goes through, this settlement is going to stand to reshape the housing market in the greatest fashion we've seen in over 50 years,” Tomasello told Yahoo Finance Live (video above). “Historically, consumers have lacked a lot of transparency around the process of how commissions are set and paid, particularly home-buyers.”
He added: “We think that these changes ultimately bring a lot more knowledge to homebuyers in their ability to negotiate and sign off on those commissions.”
Read more: How to buy a house
Veterans react: ‘A race to the bottom as business gets tighter’
Veteran advocates and experts are worried about the implications of NAR’s deal in the near future.
According to KBW’s analysis, one trend that could likely come out of this is that sellers would rarely pay buyers’ agent commissions, leaving that responsibility to homebuyers.
“Many buyers would forgo using a buyer’s agent entirely,” KBW researchers wrote.
With less business to go around, buyer's agents will have to compete for buyers by lowering commissions, essentially eliminating the incentive to steer buyers away from a home if it wasn’t a right fit.
“It encourages military homebuyers to either not have representation or find the cheapest salesman on the lot, that’s probably thinking how they can get them into a home fast,” said Anderson, who is also a US Army veteran pilot. “If somebody doesn’t care about that military loan buyer, they just want to get a handful of commissions per month, we could run into issues down the road.”
Added Sharon: “It's just a matter of whether there's gonna be a race to the bottom as business gets tighter.”
Some businesses could even rethink their sales strategy, inadvertently leaving out veterans.
“A lot of corporations could say ‘we’ll buy your home and pay no broker’s agent commission,’ and that’s going to be the new sales pitch,” Anderson noted said “It’ll make it harder and harder for really any government purchaser that is struggling to get into homeownership for the first time.”
Vishal Garg, CEO of digital mortgage lender Better.com, said he expects that under the proposed regulations sellers will simply absorb commission fees veterans cannot pay.
“An alternative compensation model may emerge,” Vishal told Yahoo Finance, such as brokers charging sellers for individual services like home tours and offer letters. “But it remains to be seen at this time.”
The settlement is still pending a court decision. Should it go through, the changes will be effective by mid-July.
Gabriella Cruz-Martinez is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
