BLYTHEWOOD – A set of class-action lawsuits about how real estate commissions are paid has led to a lot of speculation in growing towns like Blythewood. But local realtors say they think it will have little impact on home buyers in the Blythewood area.
“I think [real estate agents’ commissions] will stay about the same. I don’t see it going up or going down; the cost of doing business is not changing,” says Rhonda Walsh, a managing broker for Home Advantage Realty at the company’s Blythewood and Irmo offices.
“I really think it’s [the case] been blown out of proportion, and it’ll settle down, and we’ll all come to a resolution really of simply how we do the paperwork.”
But a story in the New York Times says Americans have long paid unusually high commissions to real estate agents.
“The typical commission in the U.S. has been almost 6 percent, compared with 4.5 percent in Germany, 2.5 percent in Australia and 1.3 percent in Britain,” the Times story says. As a recent headline in The Wall Street Journal put it, “Almost no one pays a 6 percent real-estate commission — except Americans.”
A real estate agent’s commission – the money they receive for their work related to the buying or selling of a home – is typically calculated based on a percentage of the property’s sale price.
Traditionally it’s 6 percent, split evenly between the listing agent and the buyer’s agent, though current and retired realtors interviewed for this story made a point to say that, technically, commissions are negotiable.
The class-action lawsuits, filed by a group of home sellers in Missouri against the National Association of Realtors and several major real estate brokerages, claimed that the system used for real estate listings artificially inflates commissions, costing them money.
Under the association’s current rules, the buyer’s agent sets a commission for the seller’s agent through the electronic Multiple Listing Service (MLS), a searchable database where real estate agents post properties for sale.
After a federal jury found NAR and the brokerages guilty of price-fixing practices, a $418 million settlement agreement was announced that is generally expected to be approved by the court and go into effect in July.
In addition to paying the money to home buyers harmed by the system, under the settlement agreement, NAR will no longer be allowed to list buyer’s agent commissions in its databases. Also, real estate agents working with home buyers will be required to enter into written agreements so it’s clear to the buyers what they will be charged.
Walsh says lack of transparency has not been so much of an issue in South Carolina, where written agreements between buyers and buyers’ agents are already used.
Doug Bridges, a past president of the local board of realtors who worked as a realtor in the Blythewood area for 50 years before his recent retirement, says home transactions here always involved a lot of teamwork among the different professionals involved.
Both buyers’ and sellers’ agents are important to the process, he says – as are lawyers, home inspectors, and others.
A real estate transaction can be complex, he says – and that’s even without taking into account the important element of human emotion. Buying a house, he says, is not like buying a motor scooter – and that matters.
“When people buy a house that becomes a home, it’s a really big deal,” Bridges says. “I know how stressful it is, and this lawsuit (in how it’s been argued), it’s taken all of that away (disregarding its importance).”
One impact of the settlement’s rule changes is that, by removing the MLS-based communication about commission between the seller’s agent and buyer’s agent, it leaves conversations about commission to be discussed between the buyer and buyer’s agent directly.
Among concerns that have been raised is that this could harm home buyers who don’t have cash on hand to pay for an agent – and some loan types don’t allow it to be included in the mortgage directly.
“In higher price ranges, cash isn’t a problem. But when you’re in a lower income bracket – and especially those that have to go FHA [Federal Housing Administration] or VA [Veterans’ Administration], they barely have their down payment,” says Walsh.
“It takes them out of the market if they have to pay the real estate commission; they just wouldn’t be able to afford representation, so that would be terrible.”
But Walsh says realtors won’t allow this barrier to materialize for buyers.
“While details of the paperwork may be handled differently in the future, home buyers will still have affordable access to proper representation,” Walsh says.
“It will always be in the seller’s best interest to pay the buyer’s agent commission,” she says, “simply because that brings them the largest number of buyers and it keeps those buyers from having to come up with additional cash to pay an agent separately.”
Bridges says conversations are already taking place among lenders about how to do a little differently what they’ve always done: include buyers’ agent fees in mortgage loans.
“Over time, there will be a meeting of the minds, and it will evolve into something that’s workable and fair for everybody,” he says. “Fairness is the key word.”
