A national settlement will change how you buy and sell homes. What Wisconsin buyers, sellers need to know
New nationwide changes in how real estate agents are paid commissions are coming, but agents and industry experts say it's unclear how it will affect home buyers and sellers.
Key questions: Will customers save money and send a smaller piece of their transaction to brokers? And will real estate professionals make less money and find the industry less lucrative?
The new rules stem from the settlement of a class-action lawsuit against the National Association of Realtors. The group offered to institute new rules regarding commissions.
"It was kind of dumped on our lap," said Mike Ruzicka, president of the Greater Milwaukee Association of Realtors, adding, “Initially, everyone was running around going: ‘what does this mean?’”
Real estate agents weren't the only ones trying to answer that question. Academics, analysts, and advocates for low-income homebuyers and mortgage bankers found themselves with questions and thoughts of unintended consequences to their corner of the real estate industry. And yet for all the potential impacts, the industry's core mission remains to help people buy and sell their homes, said AmyJo Fullterton, a Green Bay area Realtor who for several years has solely worked with buyers.
“The process may change, but good agents are always adapting, as are buyers and sellers,” Fullerton said. “The good thing about all of this is the goal is good: More transparency, more understanding. But the unintended consequences could be interesting.”
Here's what to know about the new rules:
Commission changes come at a difficult time for residential real estate
Buyers have faced ever-changing market conditions for several years now. There aren't enough homes for sale in affordable prices ranges — less than $300,000.
Buyers also are facing mortgage interest rates in the 7% range — the highest in many years — and no indication they will decline any time soon.
Home builders are finding it difficult to build new, affordable homes due to material, labor and land costs.
Home prices have spiked. It's especially complicated in markets like metro Milwaukee where there is a wide range of prices.
What was the class action lawsuit about?
The National Association of Realtors is a powerful force in the housing industry that controls $1 billion in assets and more than 800 local multiple listing services, or MLS. That organization lets Realtors share homes they're trying to sell and offers of compensation for finding a buyer with other Realtors. The public cannot access MLS data.
Critics and plaintiffs claim the national group and its regional associations keep fees high and aren't transparent with their clients, to whom they have a fiduciary responsibility. They say, for example, a Realtor could steer a client toward homes where they know they will receive a higher commission.
NAR has faced legal challenges, including from the U.S. Department of Justice, in the last 20 years, but the Missouri case put the organization "on the back foot for the first time ever," said Max Bresbis, an assistant sociology professor at UW-Madison and author of the 2020 book "Upsold: Real Estate Agents, Prices, and Neighborhood Inequality."
"They're an extremely powerful lobbying group, an extremely powerful professional organization. They’re the biggest player in shaping housing policy in the United States," Bresbis said. "To see them take a loss like this is a big deal. To see them further investigated by the DOJ is very big deal."
How will the case affect real estate transactions in Wisconsin?
Missouri home sellers in 2019 filed a class-action lawsuit, alleging that NAR set anti-competitive rules that require them to pay the buyer's real estate agent fee as a condition of listing a home on the local multiple listing service. A jury on Oct. 31 found NAR and the firms liable for anticompetitive practices and awarded the plaintiffs $1.8 billion in damages.
NAR vowed to appeal, but on March 14 announced a settlement in the case which Judge Stephen R. Bough must still approve before it is implemented. NAR would pay $418 million over four years into a settlement pool for affected class members. And beginning in July, would make two changes to its rules to address the complaints:
Offers of broker compensation will not be published in the MLS listing.
A Realtor helping a buyer will have to reach a written agreement with their client, called a buyer's agency agreement. The document lays out what the agent will do for their client and what their fee will be.
The plaintiffs and judge still have to sign off on the settlement terms, but Larson said expectations are the changes will go into effect in July. Each MLS will have to decide whether to adopt and abide by the settlement terms. Listing services that do not join the settlement would still face legal liability from similar claims.
So what's the big deal for buyers?
The most common home sale commission most people think of is 6% of the purchase price split between the agents with a portion going to the brokerage firm. Instead of standard, everything will be up to sellers and buyers to negotiate.
Right now, a new buyer could search Zillow, Realtor or Redfin, find homes they like, and call each listing agent to schedule showings. They might pick one agent to help direct their search and sign a buyer’s agreement with them without much thought.
The settlement would institute a more formal relationship between buyers and agents.
Buyers will likely be asked to sign a representation agreement much sooner in the process, possibly before the first agent agrees to show them any home. They’ll also need to research individual agents, negotiate the terms of the commission and decide who will do the best job for them before they sign.
“Now, when you start looking at houses, you’re going to have to put some forethought into it, interview X people, select your buyer’s agent, reach an agreement and then proceed,” Sandra Ranck, a Green Bay based Realtor with Keller Williams, said.
How will the case affect transactions in Wisconsin?
Local association leaders are reassuring their members their work won't change. They still will help people research, find and buy or sell homes. The process will involve a new step or two that makes the process more transparent for buyers and sellers.
In Wisconsin, that's already standard practice.
WRA and state regulators more than 15 years ago collaborated to draft a standard buyer agency agreement form that Wisconsin Realtors have clients sign it as soon as the buyer picks them. Larson said the document lays out key details clearly.
"Our state-approved forms are designed to balance the interests of buyers and sellers," Larson said. "Not every state has these forms produced and approved by a state agency."
And many of the "new" options being discussed such as flat fees have long been available to Wisconsin sellers and buyers.
Will the settlement make it less expensive to buy a home?
Don't hold your breath.
Wisconsin's median home sales price has nearly doubled in the last decade, from $139,000 in 2013 to $270,000 in 2023, according to WRA data. Prices have increased sharply largely a consequence of supply and demand. Real estate experts say there also are simply too few homes on the market, in part because many homeowners locked into mortgages when rates were very low during the pandemic and are not interested or can't affort to make a move.
"Nothing in this settlement agreement added more housing inventory," Larson said. "Nothing says the seller will sell their property for less. They won't."
Many people don't know they can negotiate the agent's commission
Realtors have noted their fees have always been negotiable, that buyers and sellers who ask can be successful in negotiating fees, and that how agents are paid is clearly laid out in the buyer’s agency agreement.
And yet a January 2024 LendingTree survey found more buyers and sellers unaware they could negotiate fees than buyers and sellers who attempted to negotiate a fee. The survey also found almost half of buyers and sellers, 48%, did not know what percentage commission their agent received in their last transaction.
Among the survey’s findings:
36% of parties didn’t now they could negotiate their agent’s fee
31% of parties attempted to negotiate their agent’s fee
33% of parties felt the agent’s fee was fair
64% of those who attempted to negotiate got their fees reduced
11% of respondents said the buyer should pay the entire commission
20% of respondents said the seller should pay the entire commission
5.37% is the average total commission on the sales price
Besbris said the changes can “peel back the veneer” on how agents are paid and the power consumers have when it's time to buy or sell a home.
“Nothing has actually changed legally or regulatorily, but my hope is that this alerts consumers, both sellers and buyers, to the flexibility of payment structures that exist,” he said.
Will buyers be able to roll their share of commissions into mortgages?
The new rules could mean more buyers end up paying their agent’s fees at the time of the sale. That creates a problem because mortgage underwriters do not allow banks or buyers to roll agent compensation into a mortgage.
Buyers already struggling with high home prices would have to find thousands more dollars to pay their agent or limit their search to homes where sellers offer to pay buyer’s agent, called an “interested party contribution” in mortgage terms. .
Tom Zellner, senior vice president and retail sales manager for Nicolet National Bank, said mortgage bankers across the United States want to see if mortgage underwriters Fannie Mae and Freddie Mac adjust their lending rules to allow buyers to include agent fees in their mortgage. Zellner said it could ease some of the financial pressure on buyers.
Agencies like the Veterans Administration and Federal Housing Authority that also back mortgages to veterans or families with lower incomes would have to change their rules, too.
“I think Fannie and Freddie are working on this. We cannot lose sight of the fact our buyers need to be in a strong position in order to buy a home,” Zellner said.
What questions remain?
We know the rule changes proposed, but the federal judge could have other ideas. The U.S. Department of Justice could request NAR and Realtors make further changes to the system. Market forces will come into play. Unintended consequences will need to be addressed.
Here's some of what to watch:
Will sellers be able to indicate they're willing to pay a buyer's agent fee on non-MLS listings? The changes bar offers of compensation on MLS, but it's not clear how that will affect a listing on a Realtor's website, an open house promotion or Zillow. A seller might want to entice buyers to their property by saying they'll pay a buyer's agent fee. A buyer could also tell their agent they only want to see properties where the seller covers the buyer's costs.
Will Realtors and real estate agents leave the business? There is some speculation agents will leave the industry because of the settlement. Larson expects the changes will call more attention to the services and work Realtors put into helping their clients buy or sell a home. Others expect Realtors will become more specialized on the buyer or seller side.
Will fees and commissions rise or fall? Larson expects commissions could increase as buyers and sellers learn more about the time spent and myriad roles their agent fills. Agents could offer various packages of services at different rates. Buyers and sellers could play hardball with agents and push commissions/fees down.
Contact Jeff Bollier at (920) 431-8387 or jbollier@gannett.com. Follow him on Twitter at @JeffBollier.
This article originally appeared on Green Bay Press-Gazette: Home buyers and sellers likely to see changes - but not lower prices
