New real estate rules could reshape the homebuying process

ADRIAN MA, HOST:

A major change to the way people buy and sell homes begins today. It's one of the biggest shake-ups to hit real estate in decades, and the vibrations are being felt across the industry. It all stems from a class-action lawsuit brought last year against the National Association of Realtors. The suit alleged that the association helped artificially inflate home prices by effectively requiring agents on both sides of a home sale to share commissions with each other. Now, that case was settled, and that practice is over with.

And to help us sort out what all of this means for both buyers and sellers, we're joined by Holden Lewis. He writes about home buying for the personal finance advice website NerdWallet. Holden, thanks for speaking with ALL THINGS CONSIDERED.

HOLDEN LEWIS: My pleasure.

MA: So could you just start off by explaining, like, what are the major changes for realtors that go into effect today?

LEWIS: OK. Let's look back at how things were done before today. What would happen is I'm selling a house, and I hire a real estate agent to help me sell that house. That's called the listing agent. So the listing agent and I will decide how much to pay both the listing agent and the buyer's agent. So in other words, I am setting the commission for the agent on the other side of the table. That is changing, and the reason for that is we had that antitrust lawsuit. And the plaintiffs argued that they felt pressured to inflate the commission for the buyer's agent because that's how to get the buyer's agent's attention.

MA: Yeah, it's sort of dangling a little carrot.

LEWIS: That's exactly right. Well, the jury agreed that that was an antitrust violation, that it was inflating commissions. So the NAR settled and they said, OK, we will split the commissions. Now the seller will decide how much to pay their agent, and the buyer will decide to how much to pay their agent.

MA: And I imagine you've been talking with some realtors. How are they feeling about this change?

LEWIS: Realtors have not been happy about this, and I think it's mostly because they feel like this is something that was imposed on them. You know, I mean, there's kind of a feeling that the National Association of Realtors kind of didn't protect them as much as they wanted to. I think that one of the main developments we're going to see is that buyers and agents are just going to have to act more like selling agents. And what I mean by that is they're going to actually have to meet with potential clients and have presentations, probably with slideshows on their laptops, just as listing agents always have done, to explain the services that they provide to buyers. So I mean, it's a really big change, and I think that we all resist change.

MA: And yeah, and like, most buyers used to, when they talk to the agents that would represent them, and they'd talk about, well, how are you going to get paid? The agent would just say, like, well, I'm going to take my cut from the commission on the home sale. And that's - you know, buyers were used to them essentially getting an agent for quote-unquote "free." But that's not necessarily going to be the case anymore.

LEWIS: That's exactly right. I mean, the old way of doing it was the seller paid their agent, the listing agent, and then the listing agent would split that commission with the buyer's agent. Now that is severed.

MA: I mean, this makes me wonder, like, buying a home is already, as many people who've been through it would know, a very complicated, stressful process. But I imagine it would be especially so for first-time home buyers, who are just trying to scrape together the cash for, like, a down payment. And now one of the things that's happening is they may have to pay more cash to pay their own agent. Like, do you think this is what we're likely to see?

LEWIS: I think we will see this a concern among first-time homebuyers and anyone who's, you know, short of cash, how they're going to swing this. And, you know, really, what it's going to mean for buyers is there are two more opportunities, I guess you could say, for them to have to negotiate. First, they're going to have to negotiate with their agent how much their agent is going to be paid. And then most buyers, especially first-timers, they're going to ask the home seller to pay their agent. They're going to ask the home seller to pay the buyer's agent.

I mean, like, let's say you're buying a house for $400,000, and you've promised to pay your agent 2.5%. That's $10,000. So you might say, I'm offering $400,000, and I want you to pay my agent. The seller might come back and say, well, if you want me to pay your agent, you need to increase your offer by $10,000. Or the seller could just say, oh, yeah, yeah, you know, I was counting on you making that request. I'll pay it.

MA: Yeah.

LEWIS: Or, you know, they might have to go back-and-forth and split that cost. But, you know, ultimately, what it means is that is just one more thing to negotiate about.

MA: You know, so this change is still fresh. Do you have a sense of how, like, a year from now, things are going to shake out? Are, for instance, home sellers likely to see a reduction in the fees they pay?

LEWIS: Ultimately, I think, eventually, this increased competition will probably result in lower commissions. And the big winners on that are going to be the home sellers, and here's why. Home prices are not going to go down just because real estate commissions go down. You know, a $400,000 house is worth $400,000, whether the commission is 6% or 4%, and it's the sellers who are going to benefit from that. They're the ones who are going to basically collect that money. They're going to be still charging the same price for the house, but they just get to keep more of it because they're paying less in commission.

MA: Well, thank you for that consumer advice. Holden Lewis is with the personal finance advice website NerdWallet. Holden, thanks again for joining us.

LEWIS: Hey, thank you. Transcript provided by NPR, Copyright NPR.

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