Sales commissions to shrink after NAR ruling, agency heads say

As the repercussions of NAR‘s lawsuit and brokerage settlements reverberate through the market, California agency heads say now is the time to refocus attention on the value their agents provide to buyers, while acknowledging that the ongoing trend of lower commissions in expensive markets like the Bay Area and Los Angeles is likely to continue. 

After a Kansas City jury found the National Association of Realtors liability for $1.8 billion for monopolistic practices. The home broker organization later settled for $418 million. As a condition of the settlement, listing brokers cannot offer to compensate buyers’ agents on MLS. Commission negotiations can still happen offline.

Corcoran Icon President Steve Belluomini said his phone was “blowing up” with frantic calls from agents who “went off the deep end” in the days after the settlement. But after hosting weekly classes breaking down the agreement — essentially that buyer broker fees cannot appear on MLS and that sellers are no longer required to pay buyers agents — the agents now have a much better sense of how they will be impacted and can pass that information along to their clients, he said. 

Corcoran parent company Anywhere settled its cases in two landmark antitrust lawsuits months before NAR, which gave agencies under its umbrella a little more time to wrap their minds around the changes, according to Belluomini. 

The Northern California brokerage is partnering with a third-party coaching company to help its agents go after listings because there’s more of a guaranteed pay out there compared to representing buyers, he said. Also, the firm has worked with its marketing and tech departments to come up with a new buyer’s presentation that mirrors its seller’s presentations so that agents will be ready well ahead of the summer settlement deadline, he said.

“I think that agents who are not able to explain their value are really going to struggle,” he said. 

Like Corcoran Icon, Michael Nourmand of Nourmand & Associates in Los Angeles said his agency has focused on explaining the value of its buyers’ agents, with a buyer presentation that goes through all the agent’s services and fees, ending with a request for a signed buyer-broker agreement. Nourmand called the spelling out of services with a formalized agreement a win-win for agents and consumers. 

“[Buyers] know how the commission works, assuming that they were unaware of how it works, and I think it’s also good for the agents because it formalizes an agreement,” he said. 

Commission compression 

Nourmand said that in a “sophisticated market” like Los Angeles, sellers have been negotiating fees since he started listing homes two decades ago, with 5 percent being the norm, and he expects that trend to continue.  

“This idea that negotiating fees is a novel concept has not been the case here,” he said.

Belloumi said 5 percent is also the average in Northern California and that a 6 percent commission hasn’t been the norm for years, although the figure commonly cited as the national standard is 6 percent. Further discounts are especially common in the highest price ranges because the pay out can be so great, Belloumi said. 

He expects there will be additional competition from discount agents offering flat fees for their services as buyers try to keep their costs down. He wants his agents to be “realistic” but avoid going so low that it impacts their reputation.

“Is discounting what I want to be known for?” he asked. “If I do it for this person, they’re going to tell the next person and the next thing you know the fees are going to keep going down.”  

In a December 2023 survey commissioned by Redfin of 500 non-Redfin agents, 51 percent said making buyers responsible for paying their own commissions would lead to modestly or significantly lower fees paid to buyers’ agents, with about one-third anticipating an average buyers’ agent commission of 1.5 percent. In addition, 71 percent said fewer buyers would hire their own agents at all. 

That’s good news for Redfin, which was already charging a 1 percent commission in most cases, according to its CEO Glenn Kelman in a blog post just after the settlement. The company also began offering up to 0.5 percent of the purchase price back at closing with a signed buyer agreement in September of last year. 

“Settlement or no, other brokers are just beginning to compete on a front where Redfin has spent its whole life fighting,” he said. “The most efficient competitor always wants a price war.”

Whether there will be regional differences that particularly impact California markets remains an open question, according to a Redfin rep. But in the Bay Area, “low inventory, high mortgage rates and sluggish sales” had already led to commission compression and that is likely to continue, the person said. 

Who pays?

Exactly who will end up paying buyers’ agent fees is a subject of debate and may vary on a case-by-case basis, the agency heads said. But given California’s high prices, it seems unlikely that buyers, especially first-time buyers, will be able to pay all their own broker fees, even if they drop. 

In L.A. for example, where many homes are in the $3 million to $4 million range, a buyer would have to come up with a million-dollar down payment and then add another $100,000 for the agent fees, Nourmand said. This may lead sellers to continue to pay the fees so that cost-conscious buyers don’t bypass their listings. 

“I could see a world where there are buyers that say, ‘I don’t want my agent to show me things that I have to write a check for,’” he said, adding that, in general, “the simpler you keep a deal, the more likely it is to close.”

Belloumini said that in Northern California, where the average price point is about $1.5 million, it is difficult to ask buyers to come up with another $50,000 on top of their large down payments.

“If you have a lot of buyers who say, ‘No, I can’t do it’, what happens?” he asked. 

Belloumini is very interested to see how the settlements play out in the competitive spring market, adding that volume is up about 15 percent from last year. No matter what, he wants his agents focused on sales, not settlements.

“There’s going to be definite adjustments, no doubt about it, and there’s probably going to be a little bit of an impact on the bottom line and we have to figure out how to make that up,” he said. “But I just want to move forward.”