Local real estate agents, experts weigh potential effects of NAR settlement

Mar. 19—Far fewer real estate agents. Hard-fought competition to draw buyers and sellers, with lower payouts. More homes on the market and lower home sales prices.

Those are some of the potential changes that could be on the horizon in New Mexico as the state's real estate industry navigates the effects of a $418 million settlement brought about by a series of lawsuits against the National Association of Realtors and others.

"This is a bigger [change] for sure," said Beth Caldarello, a local real estate agent with Coldwell Banker. "But what are you gonna do? You like doing what you're doing? You're gonna figure out a way to do it and do it well."

The settlement last week by the National Association of Realtors, which represents more than 1 million agents across the country, marks a turning point in the real estate industry — bringing updates in pay structures for agents and installing buyer-broker agreements.

The changes, scheduled to go into effect in July, ultimately strip language spelling out broker compensation on multiple listing services, known as MLS, and likely will lower the typical property sales commission rate of between 5% to 6%, which has been a standard practice in the industry for decades.

The practice meant a buyer agent would take a slice of the seller agent's commission when a home was sold, splitting the commission at about 3% each.

Seller agents are likely to see their clients push for lower commissions, a move that can pit agent against agent in offering the lowest price. Buyer agents will now need to create agreements with their clients spelling out how they will receive payment — either through a fixed fee or by negotiating a commission based on service offerings in the homebuying process.

Jerome Leyba, a real estate agent in Santa Fe, said he doesn't typically use buyer-broker agreements. But, he said, representation will become even more "value-based" than it is now because agents will need to show why they are worth the money they are asking for.

In his case, he plans to continue trying to negotiate with seller agents on a fee before looking at other options.

"We would probably just try and arrange a flat 3% [fee] that we would request from the selling agent," he said. "But in the case that the selling agent does not provide that, then we would request it from our buyer at that point."

Seller agents also face challenges in lowering commissions, said Reilly White, an economist and associate professor of finance at the University of New Mexico's Anderson School of Management.

The Realtors association has argued the commission has always been negotiable, White said. But he added sellers typically weren't privy to knowing their rights, as they will be now.

Either way, the stiffer competition will mean controlling listings as an agent will be "extremely valuable," Leyba said.

"If you control the listing, then you can control your payment a little bit more," he said. "When you are not a [seller's] agent, then you [need] to have a value proposition as the buyer's agent to show you ... deserve the commission."

Santa Fe Association of Realtors President Joshua Maes noted the changes come as rising interest rates are pushing buyers away from the market.

This likely will lead to fewer agents, Maes said.

According to data from the National Association of Realtors, there were more than 7,000 agents in New Mexico last month.

"You're gonna see a lot of agents who probably drop out of this market," White said, comparing the possible decrease in agents to a similar reduction in travel agents as online travel sites such as Kayak and Expedia emerged.

"Maybe up to half of the Realtors who are currently working in the industry might find it very difficult to do so in the next five years," he said.

In brokers' favor, White said, is the fact that New Mexico is one of only a handful of states that doesn't make real estate sales prices available to the public, meaning buyers and sellers still rely on industry professionals for market analysis.

Citing predictions from some national economists, he said commissions for agents could drop between 25% and 30% with the changes — particularly sellers no longer having to pay buyer agents and paying their agents a smaller commission.

Lower commission rates could lead to more availability of homes on the market and cheaper home prices.

"I think it is likely we'll see an increase in homes available for sale," White said. ... This may help relieve some of the upward price pressure that we've seen on the real estate market."

Others in the industry, like Caldarello, aren't so sure.

"I don't know [if] that's going to be true," she said. "But I'll tell you that in places like Santa Fe or like New York or like California — not that I'm comparing these different places — people that move here are highly motivated to do so. People who live here and want to change homes are highly motivated to do so because that's what they want to do. ... Whether or not the price of a house is going to drop is still to be seen."