How will major change to home-sale commissions affect SLO County’s housing prices?

A recent settlement by the National Association of Realtors will dramatically change how commissions are set and could make it easier to sell your home — but San Luis Obispo County buyers shouldn’t expect much in the way of price relief.

The $418 million settlement won by a group of homeowners against the 1.5 million-member trade association has been touted by media in recent weeks as a form of getting home prices under control, but local experts warned that buyers shouldn’t expect the market to get much easier anytime soon.

As part of the settlement, the NAR agreed to put new rules in place that prohibit commissions from being advertised on multiple listing services and require more transparency between agent and buyer during the purchase process.

Currently, agents for buyers and sellers split what is typically a 5-6% commission that comes out of the proceeds of the sale. The higher the sale price, the higher the commission, which cuts into sellers’ net proceeds.

The settlement will upend that decades-old model, no longer requiring the seller to foot the full commission costs.

Haven Properties owner Gavin Payne said while this is a “great” change to make for sellers and their agents, buyers and their agents likely won’t see the same benefits.

“I’ve been saying that at some point during my real estate career, there would be a massive shift in the way that real estate professionals get paid, and we’re here,” Payne said.

Commission changes to help sellers

Typically, when a home is sold, the seller and their agent will agree to a commission rate that the seller agent then splits in half with the buyer’s agent, Payne said.

With the NAR settlement, sellers will no longer be in charge of paying this commission for both agents, as buyers will now have to pay their agent separately, Payne said.

The settlement will end the idea that real estate are always fixed at 6%.

Payne said that misconception has become widespread due to bad messaging by the NAR.

In California, Payne said, fixing commission prices or conspiring to artificially inflate commissions has never been legal.

He said though commissions associated with the sale of a home for the buyer and seller’s representation often fall between 5% and 6%, that’s not evidence of agents setting a fixed rate.

“The reality is, commissions have always been negotiable,” Payne said. “The difficulty is, that has not been well presented by Realtors or by the National Association of Realtors to the general public.”

Buyers now on the hook for commissions

With the change, buyers and their brokers now must agree to a buyer’s agreement prior to seeing the home — a new practice in California, Payne said.

That agreement will spell out for buyers what responsibilities they and their broker have in the purchase process and what they’ll pay the broker when the deal’s done.

Some buyers may be suffer sticker shock when they sit down to sign their buyer’s agreements, he said.

Though sellers now won’t have to spend as much selling their homes, Payne said he doubts that will make much of an impact on home prices in San Luis Obispo County.

“One of the (lawsuit’s) claims is that asking the seller to pay for the commission for both representatives — the listing agent and the buyer’s agent — out of the proceeds of the sale artificially increases the value of real estate, which is complete hogwash,” Payne said. “Listing agents and sellers do not determine what property sells for. It’s determined by market.”

Simply put, there’s no incentive to lower a home price that buyers will overpay for anyway, Payne said.

Payne said that while some buyers will be able to afford the new commission, others who can barely scrape together enough money for a 10% down payment will be on the hook to pay more than they expected.

Scott Haigwood, a senior sales partner and broker with Keller WIlliams Realty Central Coast, similarly said he didn’t expect home prices to soften in San Luis Obispo County as a result of the settlement.

While the previous way Realtors collected commissions had plenty of flaws that needed fixing, the fact that buyers didn’t have to worry about commission fees made it easier to save up for a home, Haigwood said.

The people who will be affected most by the change are first-time homebuyers and people using homebuying loans from the Federal Housing Authority or U.S. Department of Veterans Affairs, Haigwood said.

“There will be a shuffling of cards, so to speak, on the fees and the closing costs between the buyer and the seller, but that’s not going to have an overall impact on the home prices as a whole,” Haigwood said.