Real estate industry navigating changes to how agents get paid commission
A change in the way real estate agents get paid commission sparked questions and debates about the process of purchasing a home and who ultimately benefits.
Hari Iyer has been on a journey to buy his first family home, and he has been learning a lot about the process.
"Patience, you know. It's terrifying when you see these home prices, so you really have to be strategic about how you choose things," said Iyer.
The National Association of Realtors recently settled a historic class action lawsuit, prompting significant changes that will impact all home buyers and the industry.
They include requiring a buyer and agent to negotiate and sign a commission rate agreement before the search even begins.
"It just seems like it would put a higher burden of proof on the realtor to show their potential clients that they are really good, before having a chance to walk through a home with them and really show their abilities at the moment," said Iyer.
Iyer, who rents in SF and works in tech, started the journey with his agent, before new rules are slated to go into effect in July.
Michael Annunziata is co-founder of North Point Real Estate and is representing Iyer.
The traditional model has been to include 5-to-6% commission to be split between a seller's agent and buyer's agent, with the seller paying the cost after the deal closes.
"The main challenge I'm seeing will be to communicate the value I provide as a buyer's agent upfront when signing the buyer's broker agreement versus a show me attitude that we had in the past," said Annunziata.
The new model will allow sellers to opt out of paying the commission for the buyer's agent. But that doesn't mean all realtors will do that.
"Having a well-represented buyer in a transaction is often at the seller's advantage to get to the closing table," said Annunziata.
Many, including Annunziata, believe offering to pay the buyer's agent, even after the new rules kick in, could attract more buyers and ultimately help close deals.
Housing analysts are trying to determine whether these shifts will impact the price of homes.
"It's not going to be a huge change to what folks are paying out-of-pocket for a home in the Bay Area," said Mirante.
Louis Mirante is Vice President of Public Policy on Housing, for the nonprofit Bay Area Council, which represents some of the largest employers in the area.
"I think this is going to be ultimately good for innovation. I think it'll be good for competition, and I think it'll be a slight downward pressure on real estate prices but nothing huge," said Mirante.
It's uncertain if future data will paint a clearer picture as housing prices are impacted by numerous factors including shifts in supply and demand.
What is clear for buyers like Hari Iyer, is the need for a proven agent, well before a commission agreement is signed.
"As a buyer, I put way more on referrals and recommendations," said Iyer.
His months-long search in San Francisco could soon be coming to an end.
"I feel like I'm absolutely close. I'm a lot more informed right now about how I'm going through this thing. When the right home comes along, I know I have to be patient here, but Mike is coaching me through this, and at that moment, we can move very quickly," said Iyer.
The new realtor rule changes are opening new doors, in the art of closing a deal.
The National Association of Realtors recently agreed to end landmark antitrust class action lawsuits by paying $418 million in damages and eliminating rules on commissions.
