A massive legal settlement could upend the Seattle-area real estate industry and fundamentally shift the way homebuyers pay their agents.
Or not.
The National Association of Realtors announced Friday it has reached a $418-million settlement agreement stemming from a federal lawsuit accusing the trade group of inflating real estate agent commissions. The 1.5-million-member organization agreed to make key changes to its commission practices. The news set off a flurry of speculation about just how much upheaval could be coming to the industry many Americans navigate to make the most expensive purchase of their lives.
In Western Washington, the future is even murkier because of key differences in the way homes are bought and sold in the region.
“There’s a lot of uncertainty,” Seattle Windermere agent Sol Villarreal said. “We don’t have the information we need yet to know how that’s going to play out.”
Changes to how agents are paid
Ongoing lawsuits against NAR hinge on how real estate agents are paid.
Home sellers typically pay a commission to their agent, who then splits that with the agent representing the buyer. Homebuyers don’t usually pay any direct commission to their agent.
Critics say this arrangement discourages competition and keeps commissions fixed to their 5%-6% norm. Although sellers’ agents arguably could, in theory, offer lower payment to buyers’ agents, critics warn that buyers’ agents might steer their clients away from homes with low or no commissions.
Consumer advocates and home sellers have taken aim at those practices in recent years. Friday’s settlement stems from a 2019 lawsuit filed in Illinois. NAR lost a similar case in Missouri in the fall.
The settlement agreement, which still requires court approval, spells out NAR’s plan to change the way commissions are advertised. The agreement would prohibit sellers’ agents from displaying the commissions they offer to buyers’ agents when they list homes on multiple listing services, starting in July. NAR will also require agents to enter into written agreements with homebuyers stating the cost of the agent’s services. The agreement covers the many listing services NAR owns across the country.
In Western Washington, though, there’s a wrinkle: The Northwest Multiple Listing Service, or NWMLS, which covers 26 of Washington’s 39 counties, is independent from NAR, meaning it will not be automatically covered by the settlement.
The settlement offers a path for that type of listing service: They can accept the same terms, prohibit information about buyers’ agent pay in listings, and pay toward a settlement fund. In return, the agreement would release them from “liability for the types of claims brought in these cases on behalf of home sellers related to broker commissions,” according to an NAR summary of the terms.
NWMLS leaders have not yet said whether they plan to follow that path. The organization did not directly respond to the question Monday.
Unlike many other markets, NWMLS has proactively changed some policies, including allowing sellers to offer no commission to buyers’ agents. Washington also has already begun requiring real estate agents to enter written agreements with buyers and sellers that include their terms of payment.
The NWMLS said in a statement Monday that it has already “made changes to its rules, forms, and processes that address the issues raised by the national litigation and outlined in the proposed settlement agreement.”
Those changes “enhanced transparency, consumer choice, and negotiation opportunities related to broker compensation,” the statement said.
Even so, the changes do not appear to have resulted in much of a drop in commissions here. A 2022 review of nearly 500 Seattle home listings found that the vast majority offered roughly the same commissions.
Given that, the local listing service is “at risk of being sued,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America who has pushed for changes to real estate commissions. “My guess is they will accept the terms of the agreement and evolve their practices.”
Washington Realtors CEO Nathan Gorton cautioned that it’s too early to predict how the changes could play out locally.
“I’m not sure this is going to change transactions in Washington state very much if at all,” Gorton said.
But consumer advocates say the settlement takes the industry one step closer to “decoupling” the commissions paid to buyers’ and sellers’ agents, even in Washington.
Attorneys representing the home sellers in the Illinois case said in a statement the settlement means “brokers will now compete in a free market, where they are compensated based on the value of the work they perform, not based on the threat that sellers will be unable to sell their homes unless buyer brokers are compensated at an inflated rate.”
Buyers’ agents worry the shift could lead sellers to stop offering commissions to buyer’s agents, leaving buyers to pay their agents upfront as they try to juggle closing costs and down payments — or to navigate the process alone.
“I would be disappointed if the MLS chose to go down that path … and I think there’s a lot of people out there who agree with me,” said Kim Colaprete, an agent with Coldwell Banker Bain’s Team Diva office in Seattle. “That really does add a lot of stress onto the system for buyers.”
About 80% of Villareal’s business comes from homebuyers, he said. The push to fully separate buyers’ and sellers’ commissions is “a scary position for Realtors,” he said.
“Imagine being a buyer in nine of the last 10 years in the Seattle real estate market [without an agent],” Villareal said. “Being a buyer with no representation would just be a terrible thing for consumers.”
Redfin CEO Glenn Kelman, whose firm offers discounted listing services and employs agents, argued for moving to a system where buyers pay their agent directly.
“If you believe in the value of a buyer’s agent, let the buyer pay them,” he said in an interview.
Under the current system, longtime agents who’ve “stuck by their customers for six or 12 months” and others who “just end up writing an offer for somebody they met four hours ago” could earn the same commission, Kelman said.
“The idea that both of those people should earn the same amount and it should be set in advance regardless of the service level, regardless of the relationship with the customer, regardless of the agent’s experience — that’s where we take exception to it,” he said.
Savings for consumers?
Consumer advocates who’ve criticized the current commission structure say the shift will translate into savings for homebuyers and, eventually, sellers.
Consumers could save 20% to 30% on real estate commissions, Brobeck said.
But changes will not be immediate.
Under the agreement, sellers’ agents can still offer commissions to buyers’ agents, but cannot list those offers in the listing services where agents trade information about homes.
Instead, buyers’ agents could call sellers’ agents to ask about commissions or sellers could offer buyers a credit of some other kind, like help with their closing costs, to offset the cost the buyer would now be paying to their agent.
The current structure of commissions is “the glue that makes the real estate industry work right now,” said Villarreal, the Windermere agent who also sits on policy committees of local Realtor associations. “So, the question is when you unwind that, does it still keep working the way it has anyway, or does something else take its place?”
Some real estate agents are skeptical that a shift in commissions could really save buyers money, when inventory, interest rates and other factors are the primary drivers of home prices.
“I don’t necessarily believe that if the seller is paying less money to the buyer that they’re automatically going to price their property lower than the market value,” Colaprete said.
Brobeck predicts change will be gradual. Buyers will become more aware of real estate commissions, some will try to negotiate, and discount brokerages will continue to pop up, he predicted. Eventually, “that will put downward pressure on [commission] rates,” he said. Sellers could eventually try to negotiate with their agents, too.
In the meantime, though, “the transition will be messy,” he said.
