The semi-annual “Realtors Legislative Meeting” of the powerful National Association of Realtors wrapped up earlier this month with the election of new leadership, and the NAR telling regional Multiple Listings Services what to do on listing addresses (post them all!). But the session did not reach a looming inflection point for real estate agents: Whether they must tell homebuyers what commission percentage they stand to make.
The NAR says that the matter is now in the Justice Department’s hands.
“NAR is currently waiting for feedback from the DOJ on these proposed rules,” said a spokesperson for the trade group.
A Justice Department spokesperson declined to comment.
At issue is unprecedented transparency required out of real estate agents.
“When it hits, it will be a change, and it will affect how a lot of agents do business,” said Lisa Dunn, at Laurel Real Estate Resources in Rancho Santa Margarita, California.
That impact, hope advocates of alternative business models, like Luke Babich, chief operating office of discount brokerage Clever, is “Downward pressure on real estate commissions.”
Another result? Zillow would change what consumers see.
Transparency today (or tomorrow)
Under NAR guidance, a listing agent in the U.S. sets a commission – according to RealTrends, the average commission is presently 5% per home sale – and then splits it evenly with a buyer’s agent.
According to a Justice Department lawsuit filed in November, the NAR can discourage Multiple Listings Services from publicizing these commission rates, which would, in turn, make them unavailable to consumer-facing websites that rely on MLS information.
The lack of consumer knowledge about agent rates, the DOJ asserted, has led to agent’s steering consumers to homes with higher commissions.
It also produces instances where the buyer’s agent conceals from their client that they are paid at all, according to research by Max Besbris, a professor at the University of Wisconsin-Madison.
A Justice Department settlement with the NAR, announced simultaneous to the lawsuit, sought to put an end to what the DOJ termed “commission concealment” by requiring agents tell clients they, in fact, get paid.
Also, the settlement prohibited the NAR from instructing MLS’s to not disclose buyer’s agent commissions, allowing the possibility of popular consumer-facing websites taking that information and posting it.
Fast forward to today and just one such website, Redfin, is posting an agent’s commission.
Zillow, which claimed 9 billion website visits in 2020 and is the unquestioned king of the home listings jungle, has not started posting commissions on listings. Nor does the NAR-owned Realtor.com.
For example, a home for sale on Effie Street in Los Angeles posted on Redfin notes that buyer’s agents are due to receive a 2.5 percent commission. The same posting on Zillow and Realtor.com does not mention a buyer’s commission.
Sources close to the NAR say that the trade group and DOJ have exchanged communiques in the past few weeks regarding why no websites besides Redfin, which itself is a discount brokerage, are disclosing this information. The Joe Biden administration, these sources say, may soon require commission disclosure.
Asked if it had any sense why most websites are not posting commissions, an NAR spokesperson responded, “No.”
A Zillow spokesperson said that the company intends to eventually post agent’s commissions.
“We believe that transparency, innovation, and consumer choice are positive, not only for home buyers, and sellers, but for the real estate industry overall,” the spokesperson said. “We intend to display this information as it becomes available for public display in each of the MLS’s we work with in the coming months.”
What difference does it make?
Zillow’s move toward publicizing commissions could impact the most profitable arm of its business, the Premier Agent program, where agents pay Zillow a monthly fee for leads.
“I don’t want the public to know how much money I make,” said one California agent, who requested anonymity to speak candidly.
But the agent said that he would continue to pay $6,000 a month use Premier Agent, “As long as Zillow is still dominant.”
Zillow aside, does disclosing commissions pressure agents to reduce them?
Perhaps not, said Steve Murray, president of RealTrends. Murray cited, “The large MLS covering Seattle and Tacoma” that disclose buy side commissions and where, “Not one key metric has changed.”
Babich, of Clever, a St. Louis-based brokerage that negotiates commissions on behalf of consumers, acknowledges, “It won’t cause a seismic shift overnight” in commissions.
“Consumers are often totally confused by what they see on a listings portal, but they are resourceful,” Babich said. He gave an example of homebuyers posting questions to Clever’s websites about what “pending” and “contingent” mean in the context of a home sale.”
“The more transparency means consumers asking the right questions,” Babich said, and that eventually leads to “nuanced conversations” about an agent’s proper compensation.
Dunn, of Real Estate Resources, said that a requirement that agents post their commission might eventually be best for her profession, to combat allegations of steering. Said Dunn, “Agent’s biggest problem is perception.”
